With the IRS intensifying its focus on cryptocurrency tax collection, many are searching for ways to reduce their crypto tax burden. For certain individuals and businesses, Puerto Rico could be the ideal tax-friendly solution.
Puerto Rico’s Act 60 offers particularly attractive tax incentives for crypto investors, potentially saving taxpayers hundreds of thousands—or even more—in federal taxes annually.
In this post, we’ll explore whether Puerto Rico’s crypto tax incentives are a good fit for you and how you can tap into the savings offered by Act 60.
Puerto Rico Capital Gains & Act 60
Puerto Rico’s Act 60 encourages investment on the island by offering significant tax incentives, including a complete exemption from taxes on passive income like capital gains, dividends, and interest.
Key tax benefits under Act 60 include:
- A corporate tax rate of 2-4%
- A personal income tax rate of 4%
- A 75% exemption on state property taxes
- A 50% exemption on municipal taxes
These benefits allow taxpayers to retain U.S. citizenship, unlike other crypto-friendly tax havens like Singapore, Germany, or Malta, which often require renouncing U.S. citizenship.
As a U.S. territory, Puerto Rico operates with a similar level of autonomy as a state but has greater freedom to establish its own tax policies.
Act 60 combines the advantages of two previous laws—Puerto Rico Act 20 (Export Services Act) and Puerto Rico Act 22 (Individual Investors Act), both introduced in 2012—and updates the requirements for qualifying for these tax benefits.
Why Puerto Rico is the Perfect Crypto Tax Haven
Zero Capital Gains Tax
Cryptocurrency is classified as a capital asset, meaning any disposal, including trades between coins, is typically a taxable event. Under Act 60, however, capital gains are entirely tax-exempt. This can lead to substantial savings for active cryptocurrency investors or traders!
For instance, with $100,000 in capital gains from crypto, you would pay $0 in capital gains tax in Puerto Rico, while in the mainland U.S., you’d owe $20,000 in federal capital gains taxes on those profits.
Income Tax
Certain business owners and freelancers (collectively “self-employed workers”) can also benefit from major income tax savings in Puerto Rico with the right structure. By forming a local corporation, dividends can be withdrawn tax-free, as they qualify as passive income, while regular income is taxed at just 4%.
For example, a self-employed worker earning $500,000 could save over $100,000 annually on federal income taxes alone.
With Puerto Rico’s low corporate and income tax rates, along with exemptions on state and local taxes, your potential tax savings can be substantial!
Important Considerations
The tax advantages of Act 60 apply only to income sourced in Puerto Rico, meaning the 0% capital gains tax applies solely to gains earned after moving to Puerto Rico. Capital gains realized before your move remain subject to U.S. tax rules. For this reason, you might consider selling and repurchasing crypto assets after relocating.
Additionally, if you hold off on realizing capital gains until you’ve been a Puerto Rico resident for 10 years, you can qualify for a 5% capital gains tax.
The Act 60 benefits are guaranteed through 2035 under current law.
Be aware that Puerto Rico may impose other taxes, although these are typically offset by the Act 60 tax savings. For example, business owners are subject to a corporate municipal tax of up to 0.5% of gross income, as well as a personal property tax on business assets—typically averaging 10% of the net book value of equipment, furniture, and fixtures, though this rate varies by municipality.
Finally, if the IRS audits your tax filings and finds you ineligible for Puerto Rico’s crypto tax benefits, you could owe back taxes plus daily compounding interest from the original due date. Penalties could reach up to 25% of the amount saved, or more if fraud is involved.
To mitigate these risks, it’s essential to work with an experienced professional to ensure you meet all Act 60 requirements.