Puerto Rico’s crypto tax policies have made it a pleasing target for American crypto traders. Notably, the United States is one of the two countries that taxes its citizens globally, alongside Eritrea. Puerto Rico offers an attractive second for American crypto investors looking to minimize their tax burden without rejecting citizenship or relocating to a crypto tax-free country.
Puerto Rico Crypto Tax Benefits
Puerto Rico has become a popular destination for US taxpayers seeking lower taxes. As an unorganized US area, Americans do not need a visa or passport to travel there. Starting residency or moving a corporation to Puerto Rico is dependent on simplicity.
The most significant aspect of Puerto Rico’s tax system is eliminating capital gains taxes for bona fide residents. Act 60, previously known as Act 22, provides tax exemptions for individual resident crypto investors who meet specific criteria. Certain individuals can enjoy a 0% tax rate on capital gains earned from crypto, interest, or dividends.
Adaptation for Bona Fide Residency
To be entitled to as a bona fide citizen of Puerto Rico, one must meet three tests:
present: Spend at least 183 days a year in Puerto Rico, spend fewer than 90 days in the US, or earn less than $3,000 in ratable income in the US.
Tax Home: Your primary workplace or residential address must be in Puerto Rico.
Prove long-term intent to remain in Puerto Rico by purchasing property within two years of acquiring your Act 60 decree, maintaining it as your primary residence, making annual $5,000 donations to select nonprofits in Puerto Rico, and filing an annual report in May.
Crypto Tax Rates in Puerto Rico
For bona fide residents, Puerto Rico offers substantial tax breaks. Individuals pay no capital gains taxes, while corporations benefit from a 4% federal income tax rate, compared to 21% in the continental US. However, all crypto assets must be earned and disposed of in Puerto Rico to avoid capital gains tax. Crypto acquired in the US and sold after moving to Puerto Rico remains subject to US capital gains tax.
Taxation on Crypto Activities
Crypto is not subject to tax for bona fide residents, but Puerto Rico businesses are subject to a 4% federal income tax. This tax reason extends to blockchain activities, including staking and mining, under Puerto Rico’s export service motive. Businesses involved in these activities qualify for the 4% combined tax rate, making Puerto Rico a lovable hub for crypto operations.
Reporting Crypto Taxes in Puerto Rico
US citizens and resident aliens not bona fide residents of Puerto Rico for the entire tax year must report worldwide income on their US tax return. However, a US citizen who changed residence from Puerto Rico and was a bona fide resident for the previous two years can exclude Puerto Rico source income attributable to the part of the year they were a bona fide resident.
Individuals may also need to file a return with the US for self-employment income from a trade or business in Puerto Rico or elsewhere. It is crucial to consult a tax professional for clarity and compliance.
Puerto Rico offers serious advantages to US crypto investors seeking to reduce their tax burden. The island’s approving tax policies are serious. with the ease of starting residency, making it an attractive destination. However, potential residents must meet specific criteria to qualify for tax benefits and should seek professional advice to navigate the complexities of Puerto Rico’s tax system.
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