Puerto Rico’s tax laws are attractive to those in the crypto currency market. Here’s what to know about moving your business to Puerto Rico:
Why are crypto companies moving to Puerto Rico?
Two words: tax incentives. In 2019, the Department of Economic Development and Commerce passed the Puerto Rico Incentives Code Act. The new act is particularly friendly to individual investors who are also residents of Puerto Rico, stating that any income derived from individual investors shall be exempt from income taxes (§ 2022.01), also that salaries exceeding $100,000 are exempt from income taxes (§ 2022.03).
Most importantly, Act 60-2019 recognizes the growing crypto market, stating that “any digital assets based on blockchain technology shall be eligible for the incentive applicable to the capital gains of Resident Individual Investors” (p. 14). Thus, many wealthy investors—particularly those investing in crypto currency—are starting businesses and putting down roots in Puerto Rico.
What business entity should I use for my crypto co.?
If you’re looking to protect your personal assets from your business, your best bet is to establish a limited liability company (LLC) or a corporation. There are pluses and minuses to both (which you can read about on Northwest’s LLC vs. Corporation page), but in general the corporate structure is most beneficial for larger companies with significant assets.
How do I create a company in Puerto Rico?
Whether you want to form a Puerto Rico LLC or a Puerto Rico Corporation, you’ll need to file paperwork with the Department of State and pay the associated fee. It costs $250 to file a certificate of formation for an LLC, and $150 to file a certificate of incorporation.
Do I have to be in Puerto Rico to get tax exemptions?
To take advantage of Puerto Rico’s tax incentives as an individual investor, you must qualify as a “permanent bona fide resident” of Puerto Rico. To determine bona fide residency, you’ll have to meet three criteria:
- Presence Test: you must be present for at least 183 days during the taxable year.
- Tax Home Test: you must not have a tax home outside Puerto Rico during any part of the tax year.
- Closer Connection Test: you must not have a closer connection to the United States or a foreign country than to Puerto Rico.
More details on these criteria can be found within the IRS’s Determining Bona Fide Residency Status document. If you’re uncertain whether these tax incentives will apply to you and your business, it’s a good idea to reach out to a business attorney or CPA.