How Affiliate Businesses Can Pay Just 4% Tax in Puerto Rico
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This presentation is from Affiliate Summit East 2017 (July 30 - August 1, 2017 in New York). Session description: Learn about Puerto Rico’s Act 20 & 22 tax incentives and the steps involved with moving your affiliate business so that you can enjoy 4% corporate tax and 0% on distributions and capital gains.
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How Affiliate Businesses Can Pay Just 4% Tax in Puerto Rico
- 1. How Affiliate Businesses Can Pay Just 4% TAX in Puerto Rico Presented by Lisa Cogliati
- 2. Willing to Move to Puerto Rico?
- 3. Do You Own Your Business?
- 4. ABOUT PUERTO RICO • Territory not State • Domestic & Foreign • Own Tax Code
- 5. ACT 20 & ACT 22EXPORT SERVICES INDIVIDUAL INVESTORS
- 6. ACT 20 & ACT 22EXPORT SERVICES INDIVIDUAL INVESTORS Puerto Rico Business Link PRBusinessLink.com
- 7. ACT 20 EXPORT SERVICES • 4% Corporate Tax • 0% Tax on Dividend to PR Residents • 60% Exemption on Municipal Taxes • 0% Property Tax for first 5 years (then 90% Exemption)
- 8. ACT 20 EXPORT SERVICES • Operations performed in PR • Open a bank account in PR • Possibly hire local employees
- 9. ACT 22 INDIVIDUAL INVESTORS • 0% Tax on Capital Gains* • 0% Tax on PR-Sourced Interest • 0% Tax on PR-Sourced Dividends
- 10. ACT 22 INDIVIDUAL INVESTORS • Bona Fide Resident • Open a bank account in PR • Buy Property within 2 yrs • Donate $5,000 to charity annually
- 11. EXAMPLE ACT 20 ONLY • Company Net Income: $1,000,000 • $100K Salary • No other income US Federal Taxes: $387,857 Puerto Rico: $57,901
- 12. EXAMPLE ACT 20 & ACT 22 • Company Net Income: $1,000,000 • $100K Salary • $50K Short-Term Capital Gains (stocks) US Federal Taxes: $407,657 Puerto Rico: $57,901
Editor's Notes
- First things first. You must be willing to move to Puerto Rico in order to benefit from this.
- Second, do you own your business? It’s the owners who benefit from these tax incentives, as a regular salaried employee you won’t get the savings. That being said, with recent changes to the law it’s really easy for consultants, writers, and those who work on their own to create a business in Puerto Rico
- Ok, so It has to do with the fact that Puerto Rico is a territory, not a state. While residents are full US citizens they don’t get all the benefits of those living in the states, like voting in federal elections. Although it’s domestic in terms of citizenship, immigration, and legal system, it is considered foreign by the IRS. Enabled by Congress, Puerto Rico has its own tax code and can create tax incentives to help its economy.
- The 2 key tax incentives I’m going to cover are Act 20 and Act 22. They’re often associated but each have their own benefits.
- Before I get into the details of each tax incentive I wanted to give you a bit of background on how I am familiar with these tax incentives. I am not a tax lawyer or CPA, I’m a marketer. Moved to Puerto Rico in July 2015 with my husband, who has an affiliate marketing company Along with a few others who also moved to Puerto Rico in 2015 and noticed the lack of accurate, English resources, we founded Puerto Rico Business Link to help new Act 20 & 22 residents move to the island. We are now a “Qualified Promoter” approved by the government of Puerto Rico to promote these incentives.
- Act 20 is the big one for affiliate marketers This incentive was created to attract companies to the island who will sell their services off the island. An ideal scenario for Affiliate marketers. Once you move your operations to Puerto Rico with Act 20, that income is only subject to 4% corporate income tax. Plus, the dividends from an Act 20 company are tax exempt. So as an owner living in PR, you would pay normal income tax on your personal salary. And the rest of your revenue would be taxed at 4% with no additional tax to you personally. Compare to the top federal tax of 39.6%, and a state tax on top of that, you’ll see significant savings on your income. I’ll show an example at the end so that you can get a better understanding.
- There are some requirements in order to qualify for the 4% tax: Operations must be performed in Puerto Rico. Open a bank account in PR Possibly hire local employees (There was a recent change to the law in which they removed the blanket employee requirement and instead will look at each company individually.)
- Act 22 is meant for Individual Investors. This incentive was created to attract high net worth individuals (and their money) to the island. This includes day traders who earn their income via short term capital gains as well as, larger investor, mutual fund managers, and company owners looking for an exit. However, if you sell a company that your started before moving to Puerto Rico, within 10 years of moving to PR, you will still owe the IRS for a portion of those gains.
- There are requirements for this tax incentive as well: Become a bona fide resident of Puerto Rico – live there for more than 183 a year and not have any closer connections to the States. Open a bank account Buy property on the island within 2 years Donate $5000 annually to a local charity
- Example
- Example
- Tax Calculator See prbusinesslink.com
- Thank you. If you have any questions or want to move your business to Puerto Rico, please contact me.