act to promote the transfer of investors to puerto rico

Act to Promote the Transfer of Investors to Puerto Rico

LAW ACT No. 22 ON JANUARY 17, 2012

To establish the "Act to Promote the Transfer of Investors to Puerto Rico", for the purposes of gran;ng tax exemp;on with respect to investment income earned by individuals who become residents of Puerto Rico no later than the year ending on December 31, 2035.

STATEMENT OF MOTIVES

Since 2006, Puerto Rico has experienced an economic crisis that has severely damaged several sectors of the local economy. This Government has the commitment to promote economic development in the island. To this end, we have developed the Strategic Model for a New Economy (SMNE) and implemented several ini;a;ves aimed at addressing the difficult economic situa;on that Puerto Rico is experiencing. The SMNE recognizes the fundamental role played by the banking and financial sector in the economy and the importance of aSrac;ng foreign capital and genera;ng local capital to strengthen the economy. This statute represents an addi;onal ini;a;ve for the purpose of incen;vizing the aSrac;on of foreign capital, economic growth and the socio-‐economic development of the island.

The purpose of this statute is to promote that individuals who have not been Puerto Rico residents for at least fiUeen years prior to the approval of this Act, and who have investments in or outside the United States, to establish their residence in Puerto Rico. To encourage such individuals to move to Puerto Rico, the Act fully exempts from the payment of taxes in Puerto Rico the passive income earned by these individuals aSributable to their investments. In the case of net long-‐term capital gains, it exempts individuals covered by this legisla;on from paying taxes on gains realized aUer becoming Puerto Rico residents and for the exemp;on period herein granted. As an excep;on, the unrealized capital gains in any security owned by individuals covered by this Act before moving to Puerto Rico will be taxed in Puerto Rico if they are realized, aUer ten years of becoming Puerto Rico residents and before the end of the exemp;on period, at a special rate of 5%. Residents of the Con;nental United States who become residents of Puerto Rico and who had, before moving to Puerto Rico, unrealized capital gains who realize these gains while they are bona fide Puerto Rico residents, and aUer having ten years of residence in Puerto Rico, would not be subject to a federal tax on such gains and would only be subject to the special Puerto Rico taxa;on of 5%. The tax exemp;on herein granted applies when the individual directly invests in bonds, stocks or other investment instruments, as well as when the individual invest through Puerto Rico mutual funds or through a Puerto Rican interna;onal banking en;ty.

Even when the investment income shall be exempt from income tax in Puerto Rico, [the investor’s] presence on the island contributes to our economy as they purchase goods, products, services, housing, among others. Moreover, the income earned by these individuals that is not a product of their investments, such as income from wages or related to the provision of professional services, would be subject to the payment of income taxes in Puerto Rico.

The tax exemp;on granted herein is not for an indefinite period of ;me. This exemp;on ends on December 31, 2035. From January 1, 2036 onwards, these individuals will be subject to the payment of income taxes in Puerto Rico in the same way as any other taxpayer. To be eligible to claim the tax exemp;on granted by this legisla;on, the individual must become a Puerto Rico resident before the expira;on of the benefit conferred by this Act.

The Offshore Advantage in the USA 202.683.7356 www.clearshore.us

© 2013 Clearshore Translated from original at h7p://www.oslpr.org/2009-‐2012/leyes/pdf/ley-‐22-‐17-‐Ene-‐2012.pdf

ENACTED BY THE LEGISLATURE OF PUERTO RICO:

ArHcle 1.-‐ Short Title.-‐

This Act shall be known as "Act to Promote the Transfer of Investors to Puerto Rico".

ArHcle 2.-‐ DefiniHons.-‐

a) "Resident Individual Investor" means a resident individual, as defined in Sec;on 1010.01 (a) (30) of the Code, who has not been a Puerto Rico resident during the last fiUeen (15) years preceding the date of effec;veness of this Act and who becomes a Puerto Rico resident no later than the taxable year ending on December 31, 2035. Under the defini;on of resident individual provided in Sec;on 1010.01 (a) (30) of the Code, students pursuing coursework outside Puerto Rico who resided in Puerto Rico before moving to study, personnel working outside of Puerto Rico on a temporary basis for the Government of Puerto Rico, its agencies and instrumentali;es, and people in situa;ons similar to those described above, will not qualify as Resident Individual Investors as their residence, in these cases, remains in Puerto Rico for the period in which they reside outside our jurisdic;on.

b) "Code" means Law Act 1-‐2011, as amended, known as the "Internal Revenue Code for a New Puerto Rico", or any subsequent law that replaces it.

c) "Banking Center Act" means Law Act No. 52 of August 11, 1989, as amended, known as the "Interna;onal Banking Center Regulatory Act."

ArHcle.-‐ 3.-‐Tax ExempHon Applicable to Interest and Dividend Income Earned by a Resident Individual Investor. –

Income from all sources earned by a Resident Individual Investor, aUer becoming Puerto Rico resident but before January 1, 2036, consis;ng of interest and dividends, including, but not limited to, interest and dividends from a registered investment company described in Sec;on 1112.01 of the Code, will be fully exempt from income tax in Puerto Rico, including the alternate minimum tax provided in the Code. In addi;on, the income derived by a Resident Individual Investor aUer becoming a Puerto Rico resident but before January 1, 2036, consis;ng of interest, finance charges, dividends or beneficial par;cipa;on derived from interna;onal banking en;;es duly authorized under the Banking Center Act, will be fully exempt from income tax in Puerto Rico, including the alternate minimum tax provided in the Code.

ArHcle.-‐ 4.-‐ Special Tax on Resident Individual Investor for Net Long Term Capital Gains -‐

a) Capital apprecia;on before becoming a Puerto Rico resident

The en;rety of the net long-‐term capital gains generated by a Resident Individual Investor related to any capital apprecia;on of the securi;es owned by them before becoming a Puerto Rico resident, which is realized aUer ten (10) years of becoming a Puerto Rico resident, and before January 1, 2036, shall be subject to payment of a tax of five (5) percent, in lieu of all other taxes imposed by the Code. If that capital apprecia;on is realized at any other ;me, the net long-‐term capital gains in connec;on with such securi;es shall be subject to the payment of income tax under the tax treatment provided in the Code. The amount of this net long-‐term capital gain will be limited to the por;on of the gain related to the security’s capital apprecia;on while the Individual Resident Investor was living outside Puerto Rico.



b) Capital apprecia;on aUer becoming a Puerto Rico resident

The en;rety of the net long-‐term capital gains generated by a Resident Individual Investor related to any capital apprecia;on that the securi;es had aUer they became a Puerto Rico resident, which is realized before January 1, 2036, will be fully exempt from payment of Puerto Rico income taxes, including the alternate minimum tax provided in the Code. If such capital apprecia;on is realized aUer December 31, 2035, the net long-‐term capital gain in rela;on to those securi;es shall be subject to the payment of income tax under the tax treatment provided in the Code. The amount of the net long-‐term capital gain refers to both to the por;on of the gain rela;ng to the capital apprecia;on of the securi;es the Resident Individual Investor owned at the ;me of becoming a Puerto Rico resident and to those they acquired aUer becoming a resident of Puerto Rico.

SecHon 5.-‐Release of Employment Requirement under the Banking Center Act. –

Regardless of the provisions of the Banking Center Act, in the event that the en;rety of stocks, interests or shares in the capital of an interna;onal banking en;ty established under the Banking Center Act belongs to a Resident Individual Investor (or more than one of such individual), no minimum requisite number of employees shall be imposed.

ArHcle 6. – RegulaHon.-‐

The Secretary of the Treasury shall establish by regula;on, circular leSer or administra;ve determina;on, the necessary guidelines for the interpreta;on and implementa;on of the provisions of this Act. The amended or adopted regula;ons pursuant to this Act shall not be subject to the applicable provisions of the Uniform Administra;ve Procedures Act, as amended.

SecHon 7. – Severability.-‐

If any ar;cle, sec;on, subsec;on, paragraph, subparagraph, clause, phrase or por;on of this Act is declared uncons;tu;onal by a court of competent jurisdic;on, the judgment to that effect shall not affect, impair or invalidate the remainder of this Act, leaving its effects limited to the ar;cle, sec;on, subsec;on, paragraph, subparagraph, clause or phrase or por;on of this Act as may be so declared uncons;tu;onal.

SecHon 8.-‐EffecHveness. –

This Act shall take effect immediately upon its approval.

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PRESIDENT OF THE CHAMBER

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PRESIDENT OF THE SENATE



act to promote the transfer of investors to puerto rico

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