Puerto Rico Taxation & The Section 933 Exclusion: A Strategic Opportunity for U.S. Taxpayers

Puerto Rico offers a unique tax environment that combines the benefits of its status as a U.S. territory with its own tax code. For U.S. citizens who establish bona fide residency in Puerto Rico, Section 933 of the U.S. Internal Revenue Code (IRC) provides a significant advantage: income sourced within Puerto Rico is excluded from U.S. federal income taxes.

Here’s how it works:

• As a Puerto Rico resident, you’ll only pay taxes to Puerto Rico on income sourced locally, often at lower rates than on the mainland.

• U.S. federal taxes are not imposed on Puerto Rico-sourced income due to the Section 933 exclusion.

  
  

This strategy is particularly advantageous for high-net-worth individuals, entrepreneurs, and investors who can relocate to Puerto Rico. By leveraging Puerto Rico’s Act 60 incentives (covering income tax exemptions and reduced capital gains taxes), individuals can potentially reduce their overall tax burden to single-digit effective rates.

However, navigating the bona fide residency requirements and determining what qualifies as Puerto Rico-sourced income requires careful planning. It’s a powerful strategy for U.S. taxpayers, but only when done right.

Ready to learn how this can work for you? Book a session with us today and start maximizing your tax savings while enjoying all the perks of island living!