Dual-Qualified Plan In Puerto Rico

Does anyone know what's involved in getting a plan to become a dual-qualified plan so a person who lives in Puerto Rico could be eligible?  Are there forms/fees involved in completing the process?

It's something I've never done and I have a client that's looking to hire a Puerto Rican citizen and wants them to be able to participate.

Thanks in advance!

Although Puerto Rico is a part of the United States, Puerto Rico has its own income tax regime, which displaces the U.S. Federal income tax. Unlike other U.S. people who might pay income taxes not only to the U.S government but also under one or more States’ additional income tax regimes, a bona fide Puerto Rico resident is subject to tax under the Puerto Rico Internal Revenue Code of 2011, and “income derived from sources within Puerto Rico” is excluded from gross income for the U.S. Federal income tax purposes. Likewise, the U.S. Federal income tax regime disallows deductions and credits allocable to the excluded Puerto Rico-source income. Internal Revenue Code of 1986 (26 U.S.C.) § 933.

To be useful for a Puerto Rico resident, a retirement plan must meet Puerto Rico law, and must have a tax-qualification approval from the Hacienda (Puerto Rico’s analogue of the U.S. Treasury department and its Internal Revenue Service).

For a government source about these plans, https://hacienda.pr.gov/sites/default/files/publicaciones/2016/12/cc_pc_16-08_reglas_cualificacion_planes_retiro_post-codigo_2011.pdf.

In English, Bloomberg Tax Portfolio, International Pension Planning—Puerto Rico, No. 324 explains laws, rules, and practices to establish, tax-qualify, and administer retirement plans in Puerto Rico. https://pro.bloombergtax.com/portfolio/international-pension-planning-puerto-rico-portfolio-324/

If you need advice, one might consult that Portfolio’s author: https://pro.bloombergtax.com/person/carlos-gonzalez/.

For a Hacienda-approved document, ask CuseFan (Kenneth M. Prell, CEBS, ERPA, Vice President, BPAS Actuarial & Pension Services). https://benefitslink.com/boards/index.php?/topic/68765-is-there-a-vendor-with-a-hacienda-preapproved-document-to-tax-qualify-for-puerto%C2%A0rico/

There's an election that must be made with Hacienda (although maybe Peter's links above already tell you that).

https://www.irs.gov/retirement-plans/international-issues-affecting-retirement-plans

Here's some more info from IRS. Having a dual qualified plan to accommodate one person is not likely very cost efficient and unlike IRS, Hacienda requires submission for approval of future amendments. Although counterintuitive, it might actually be better to have a separate PR 1165 plan on the island. I don't know all the ins and outs but we have a dedicated PR RK unit, PR trust company, and PR pre-approved plan and I can put you in touch with a knowledgeable person who could discuss pros/cons of a dual qualified plan versus separate plans.

Thanks everyone!  Does anyone know what the cost is to do the registration through Puerto Rico (obviously there will be additional fees for the administration/filings), but the client is considering it and asking what the costs would be.

Thanks in advance!

On 8/26/2022 at 8:01 AM, Peter Gulia said:

Although Puerto Rico is a part of the United States, Puerto Rico has its own income tax regime, which displaces the U.S. Federal income tax. Unlike other U.S. people who might pay income taxes not only to the U.S government but also under one or more States’ additional income tax regimes, a bona fide Puerto Rico resident is subject to tax under the Puerto Rico Internal Revenue Code of 2011, and “income derived from sources within Puerto Rico” is excluded from gross income for the U.S. Federal income tax purposes. Likewise, the U.S. Federal income tax regime disallows deductions and credits allocable to the excluded Puerto Rico-source income. Internal Revenue Code of 1986 (26 U.S.C.) § 933.

To be useful for a Puerto Rico resident, a retirement plan must meet Puerto Rico law, and must have a tax-qualification approval from the Hacienda (Puerto Rico’s analogue of the U.S. Treasury department and its Internal Revenue Service).

For a government source about these plans, https://hacienda.pr.gov/sites/default/files/publicaciones/2016/12/cc_pc_16-08_reglas_cualificacion_planes_retiro_post-codigo_2011.pdf.

In English, Bloomberg Tax Portfolio, International Pension Planning—Puerto Rico, No. 324 explains laws, rules, and practices to establish, tax-qualify, and administer retirement plans in Puerto Rico. https://pro.bloombergtax.com/portfolio/international-pension-planning-puerto-rico-portfolio-324/

If you need advice, one might consult that Portfolio’s author: https://pro.bloombergtax.com/person/carlos-gonzalez/.

For a Hacienda-approved document, ask CuseFan (Kenneth M. Prell, CEBS, ERPA, Vice President, BPAS Actuarial & Pension Services). https://benefitslink.com/boards/index.php?/topic/68765-is-there-a-vendor-with-a-hacienda-preapproved-document-to-tax-qualify-for-puerto%C2%A0rico/

Thanks everyone!  Do you happen to know what the cost is to file with Puerto Rico?  The information I've found are all in Spanish.

Thanks!

If your client has not engaged an attorney-at-law admitted to Puerto Rico practice, you might take up CuseFan's invitation to ask your and your client's questions to those in BPAS's special-focus practice for Puerto Rico.