Puerto Rico Bona Fide Residents
United States and Puerto Rico source income
Individuals that are United States citizens or U.S. resident aliens are subject to federal income taxes on their worldwide income. However, by virtue of Section 933 of the US Internal Revenue Code, United States Citizens and U.S. resident aliens that are bona fide residents of Puerto Rico during the entire taxable year are exempt from federal income taxes imposed by the US IRC, only with respect to income derived from sources within Puerto Rico. Therefore, they will be subject to United States federal income taxes in the same manner as other United States citizen or U.S. resident alien individuals on any income from sources outside of Puerto Rico, such as the income derived as a result of their investments in the United States.
Puerto Rico bona fide resident
The Commonwealth of Puerto Rico has its own separate and independent tax system. Although it is modeled after the U.S. system, there are differences in law and tax rates. Generally, you will file returns with both Puerto Rico and the United States; unless you are a Puerto Rico bona fide resident and have only income from Puerto Rico sources. In this case you will file a Puerto Rico tax return only.
The income reported on your tax return(s) depends on your residency status in Puerto Rico. Generally, you are a bona fide resident of Puerto Rico if, during the tax year, you:
- Meet the presence test,
- Do not have a tax home outside of Puerto Rico, and
- Do not have a closer connection to the United States or to a foreign country than to Puerto Rico.
If you are thinking of applying for an Act 22 tax incentive decree and have a question or comment related to the tax compliance under the Puerto Rico Tax Code and the Internal Revenue Code, feel free to send me an email to the contact information below. Maybe I can help.