The Essential Guide to Crypto Tax in Puerto Rico for 2024

Puerto Rico crypto tax policies are highly favorable to crypto traders, particularly American citizens looking for ways to minimize their crypto taxes. Notably the United States is just one of two countries that taxes its citizens globally (the second is Eritrea). This means that short of renouncing your American citizenship and moving to one of a number of crypto tax free countries or territories, Puerto Rico is a viable alternative for Americans heavily involved in crypto who’d like to reduce their tax bill. 

It is possible to enjoy a Puerto Rico Crypto tax haven, for those willing to go through the process. Puerto Rico has accordingly become a popular destination for US taxpayers seeking lower taxes. Because Puerto Rico is an unincorporated US territory, Americans do not need a visa or passport to travel there and it is comparatively easy to establish residency and/or move a corporation.

The dream of a Puerto Rico crypto tax haven is a reality for many serious crypto investors who will already enjoy a 0% tax rate on crypto. However, whether you pay Puerto Rico crypto tax will depend on your status there. The most noteworthy aspect of the tax system in Puerto Rico is that it eliminates capital gains taxes for bona fide residents. ACT 60, previously known as ACT 22, gives individual resident crypto investors a tax exemption if they meet specific criteria. 

This means certain individuals are subject to a 0% tax rate on capital gains if they can qualify as a bona fide resident. This would mean there is no tax on capital gains earned from crypto, interest, or dividends. There are three tests to qualify as a bona fide resident of Puerto Rico:

Presence
You must spend at least 183 days a year in Puerto Rico, spend fewer than 90 days in the US, or earn less than $3,000 taxable income in the United States.

Tax Home
Your tax home is your primary workplace or residential address if there is no workplace. In short, you must primarily work or reside in Puerto Rico.

Closer Connection
To pass this test, you must prove you intend to remain in Puerto Rico for the long term. To satisfy this test, you must purchase property within two years of acquiring your Act 60 decree, and the property must be maintained as your primary residence. Further, you must make two $5,000 donations to a select nonprofits in Puerto Rico each year and file an annual report in May.

If someone becomes a bona fide Puerto Rico resident, they can receive considerable tax breaks: individuals pay no capital gains taxes and corporations receive just a 4% federal income tax (compared to 21% in the states), among other incentives.

Note that all crypto assets must be earned and disposed of in Puerto Rico in order to avoid capital gains. If you acquired your crypto while residing in the continental United States, then later move to Puerto Rico and sell, you’ll have to pay US capital gains tax regardless.

For bona fide residents of Puerto Rico, crypto is not subject to tax, and Puerto Rico corporations are subject to just a 4% federal income tax. If you plan to remain in crypto long-term and anticipate substantial income from crypto, Puerto Rico can be a favorable territory in terms of your annual tax bill, particularly for Americans who are not inclined to renounce citizenship.

As noted, if you have substantial crypto holdings now, disposing of them after you become a bona fide resident in Puerto Rico does not exempt you from the usual tax implications with the IRS.

Short- and long-term crypto trades

A move to Puerto Rico is a serious undertaking, so anyone considering this should know they intend to remain in crypto for the long-term. That noted, once you’ve successfully relocated, the benefits for those actively in crypto are enormous, especially for those who actively trade and would otherwise be subjected to short-term capital gains.

Bitcoin mining

Puerto Rico recently extended the 4% tax incentive to crypto assets and blockchain activities, including staking and mining. This means blockchain technology, including assets based on blockchain tech and validation, fall under the crypto taxes Puerto Rico incentive code. Certain businesses that provide digital assets and blockchain activities will qualify for the “export service incentive” and a 4% corporate tax rate.

Crypto staking and lending

As with Bitcoin mining, businesses in Puerto Rico can qualify for a 4% corporate tax rate on crypto staking and lending activities, making Puerto Rico a desirable location and hub for crypto activity for the foreseeable future. Individuals involved in crypto staking and lending who are bona fide residents should anticipate a 0% tax rate. 

However it should be noted if your crypto activity could be considered “business activity,” you may be subjected to the 4% rate. When in doubt, speak to a tax professional like ours at TokenTax for clarity and to remain compliant in your jurisdiction.

Per the IRS, US citizens and resident aliens who are not bona fide Puerto Rico residents for the entire tax year must report income worldwide on their US tax return. However, a US citizen who changes residence from Puerto Rico and who was a bona fide resident for the previous two years before changing residency can exclude Puerto Rico source income attributable to the part of the year he was a bona fide resident of Puerto Rico.

Individuals may also have an obligation to file a return with the United States reporting self-employment income derived from a trade or business in Puerto Rico and/or elsewhere. When in doubt, speak to a tax professional like ours at TokenTax for clarity.

Moving to Puerto Rico does not trigger a taxable event. However, as we’ve noted you are subject to the usual taxation on capital gains prior to your relocation. To make this calculation for crypto investments, establish your investment price on the day you move to the island. Profit up to that price is considered earned prior to the move and is thus taxable by both Puerto Rico and the US. The remainder of any profit after you relocated to Puerto Rico is not taxable.

Puerto Rico has unique rules and regulations when it comes to filing taxes. Crypto tax filing is no exception. When in doubt, TokenTax can help.

If you are a bona fide resident of Puerto Rico during the entire tax year, you’ll be expected to file two returns: 

• A Puerto Rico tax return (Form 482) for your income worldwide. 

• A US return (Form 1040) to report your income worldwide, excluding your Puerto Rico income.

Note that if you report US income on your Puerto Rico return, you’re able to claim that against your Puerto Rico tax, up to the limit permitted, on income tax paid to the US

For those who are not bona fide residents of Puerto Rico for the entire tax year, you must instead file:

• A Puerto Rico tax return (Form 482) reporting only your income from Puerto Rico. Wages for services performed in Puerto Rico, whether for a private employer, the US Government, or otherwise, is income from Puerto Rico. 

• A US tax return (Form 1040) reporting all income worldwide. If you are double taxed by both Puerto Rico and the US, you’ll be able to claim a foreign tax credit on Form 1116 for income taxes paid to Puerto Rico.

Because bona fide residents are not taxed in crypto capital gains in Puerto Rico, using crypto for payments and services there also benefits from this tax free situation. Where in other jurisdictions the use of appreciated crypto for a purchase, say a new automobile, would trigger a taxable event, for bona fide Puerto Rico residents this is not the case. 

This means you can be more fluid with your crypto in Puerto Rico, and benefit from using it without first having to move into fiat, with businesses that accept crypto as payment.

Businesses operating in Puerto Rico can benefit from Puerto Rico crypto tax regulations by way of utility tokens. There are several structuring options available to blockchain businesses that would like to launch a token sale from Puerto Rico. 

A business might use a blockchain-as-a-service model to issue utility tokens, through which they ultimately provide a service via a software platform accessible to customers outside of Puerto Rico. In such a case, the business would only be subject to a 4% tax rate on the proceeds, under Act 60. In this way, a business could avoid meeting the standards of issuing a “security” set out by the SEC and enjoy a very low Puerto Rico crypto tax rate.

Just as bona fide Puerto Rico residents are not subject to tax on crypto, on the flip side there’s no tax benefit to realized losses. If you’re planning a strategic, long-term move to Puerto Rico to avoid future capital gains tax, there may be some benefit to a crypto tax loss harvesting strategy prior to your relocation.

Crypto tax-loss harvesting is a strategy in which investors sell assets at a loss during market dips or at the end of the tax year to offset other capital gains, lowering their total tax liability. 

For example, you might consider selling some of your crypto holdings for a loss while in the US mainland, then repurchasing when you arrive in Puerto Rico, which could allow you to offset other capital gains for the purpose of your US tax filing prior to relocating.

There are four income tax brackets in Puerto Rico, ranging from 0% to 33%, relative to which tax rate an individual income falls under. Each tax rate is determined based on the taxpayer's marital status and dependents and can be further influenced by other factors such as a child or dependent allowance. 

Accounting records in Puerto Rico must be prepared following the Generally Accepted Accounting Principle (GAAP) followed in the United States. The IRS allows taxpayers to choose which variation of specific identification accounting they will use. Specific ID methods match up sales and acquisitions differently. One method on your trading data to calculate crypto gains can produce a different cost basis than using another. 

Commonly used methods are:

• First in, first out (FIFO): Assets acquired first are sold first.

• Last in, first out (LIFO): Assets acquired last are sold first.

• Highest in, first out (HIFO): Highest price assets are sold first.

Here are answers to some frequently asked questions about crypto taxes Puerto Rico.

Why do crypto people move to Puerto Rico?

Puerto Rico has extremely favorable tax regulations for crypto, both for individuals and corporations, and is especially enticing for American taxpayers who are subject to taxes on income globally by the United States.

Which country has no tax on cryptocurrency?

Including Puerto Rico, there are numerous crypto tax free countries and territories.

Can you live in Puerto Rico to avoid taxes?

Yes, you can live in Puerto Rico to avoid crypto taxes but as outlined in this article, the process is not simple and involves a number of steps, including annual donations to qualified nonprofits.

Does Puerto Rico have zero capital gains tax?

Yes, Puerto Rico offers a 0% tax on capital gains for bona fide residents.

Can I use Coinbase in Puerto Rico?

Yes, you can use Coinbase in Puerto Rico.