Good Weather, Great Community and the Best Tax Incentives: Why Crypto Traders Are Flooding Into Puerto Rico

Favorable tax incentives, year-round tropical weather and a budding ecosystem of like-minded individuals have driven cryptocurrency (crypto) traders to Puerto Rico. Starting with the creation of Act 22 in 2017, the investor-friendly tax law on the island has led to thousands of individuals moving to Puerto Rico as they look to cut their tax exposure down to almost nothing. The number of U.S. mainlanders applying for tax breaks in Puerto Rico tripled in 2021, following the onset of COVID-19 and the switch to remote work.

Act 22 was brought under Act 60 in July 2019. This tax incentive code represents an opportunity for high-earning investors in the U.S. to save up to 20% in capital gains tax and 37% on short-term gains by living on the island. Companies that are moving their services to the island, or that have moved to the island in the past few years, have the potential to cut their corporate taxes from 21% federally plus state taxes (which vary) to just 4% through Act 60. Formerly U.S.- based businesses that have moved to the island in the past few years also stand to benefit from these incentives.

One group particularly enticed by this opportunity has been crypto traders, who are not only benefitting from the tax incentive code, but are also creating a crypto community on the island reminiscent of Silicon Valley in the 2000s or, more recently, Austin, Texas. Not only are crypto traders on the island surrounded by like-minded people in the same business as themselves, the crypto community is also creating an environment that is at the forefront of the crypto movement. Weekly meet-ups like Crypto Mondays and CryptoCurious provide opportunities for islanders and transplants alike to network and learn more about cryptocurrency and investing. In December, the island also hosted “Blockchain Week” in San Juan, wherein the Puerto Rico House Speaker announced that the legislature would look into using blockchain technology to reduce government red tape. It seems that the island is ultimately aiming to become the blockchain and crypto capital of the United States, if not of the world.

However, the losses in tax revenue that the U.S. government is experiencing as a result of the tax incentive code have not gone unnoticed; recent estimates of the lost tax revenue are in the hundreds of millions. As a result, the IRS recently announced a campaign to audit Act 60 beneficiaries, and there are now 40 IRS agents on the island who are particularly focusing on “day counters” (referring to individuals who are only on the island for the exact number of days required to be considered a “bona fide resident,” which is 183 days) and crypto traders. It’s not a matter of if Act 60 recipients get audited, but when.

Many local advisors are giving advice to tax beneficiary hopefuls that may not be fully vetted, especially advice on U.S.-related tax aspects. It is important that individuals hoping to qualify for the tax breaks associated with the Act keep their documentation clean and ensure that they pass all the tests that are used to determine bona fide residency, not just the day count. If you have any questions about how you could qualify for bona fide Puerto Rico residency and benefit from Act 60, contact Gwayne Lai, Director of Anchin’s International Tax group, or your Anchin Relationship Partner.