Senate passes extension to Individual Investors Act

By The Star Staff

The island Senate this week approved a bill from the House of Representatives that extends the controversial Individual Investors Act, which was enacted in 2019 as Act 60 of the Puerto Rico Tax Incentive Code, for 20 years, making the act valid until 2055.

House Bill (HB) 505 proposes several amendments to the Puerto Rico Incentives Code, specifically extending the Individual Investors Act. The legislation maintains a fixed tax rate of 4% on net capital gains, interest, and dividends for resident individual investors. Additionally, it introduces a new requirement: individuals must not have been residents of Puerto Rico for at least six years prior to applying for the tax decree.

Currently, the Incentives Code states that the Individual Investor program is set to expire in 2035. The provision has created uncertainty in the investment community and may limit the attractiveness of new capital to the island, proponents of HB 505 contend. To ensure the continuity of the program and maximize the revenue potential of the new tax framework, the law extends the program’s validity to 2055. Holders of existing Individual Resident Investor decrees will also be able to benefit from the new model once their decrees expire in 2035, according to the measure’s explanatory statement.

The Individual Investors Act was initially enacted as Act 22 in 2012 before becoming part of the Puerto Rico Tax Code in 2019. The purpose of the law is to incentivize individuals who have not been residents of Puerto Rico to relocate to the island. To encourage this migration, the act exempts passive income, such as interest, dividends, and capital gains, from Puerto Rico income tax.

The act applies to all individual investors who become “Puerto Rico Residents” on or before Dec. 31, 2035, as long as they were not residents of Puerto Rico at any time during the 10 years preceding the effective date of the law. Both U.S. and non-U.S. citizens may qualify under the act. However, Puerto Rico residents who are temporarily outside of Puerto Rico do not qualify, as they are still considered residents.

To take advantage of the exemptions granted by the act, each so-called Resident Individual Investor must request a tax exemption decree from the secretary of Economic Development and Commerce.