The Application Process

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1 The Application Process Do it Once. Do it Right. Dialy Mar Otero, CPA Chris R. Hamm, CPA Alicia Figueroa Llinás, Esq. Puerto Rico Investment Summit February 13, 2018

2 Facilitators Chris R. Hamm, CPA CEO CASPR Dialy M. Otero, CPA Director BDO Puerto Rico Alicia Figueroa Llinás, Esq. Counsel Pietrantoni Mendez & Alvarez LLC Page 2

3 DISCLAIMER This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact us to discuss these matters in the context of your particular circumstances. Consulting and Ancillary Services of Puerto Rico (CASPR), Pietrantoni, Méndez, & Álvarez, LLC, and BDO Puerto Rico, P.S.C., its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. Page 3

4 Beach + 0% 4% tax = Yeah!! I m moving to PR! Page 4

5 The Application Process Successful and Complete PLAN AND ANALYZE APPLY COMPLY Page 5

6 Pre-Move: Plan and Analyze Business Considerations Goals- lower effective income tax rate 4% PR fixed income tax rate; 0% tax on distributions No additional taxes for owners residing in PR; 15-20% additional taxes for US owners Challenges Relocation- need to move to PR; services must be rendered from PR Employees- need local workforce Are you providing a Service? Eligible Activities under Act 20 Seek experts advice (i.e. tax memos, opinions, etc.) Design an optimum business structure- to maximize your tax savings Plan to establish a bona fide business activity in PR Page 6

7 Pre-Move: Plan and Analyze Benefits of an U.S. Jurisdiction US Citizens on US soil US currency and banking system FINRA and SEC regulated financial services All the US legal protections, financial and regulatory framework Access to federal funds and government contracts Page 7

8 Pre-Move: Plan and Analyze Benefits of an U.S. Jurisdiction Intellectual property protected by US laws Fiscal autonomy at the state level Cost of doing business is on average 10% lower than US Quality, affordable office costs and commercial space Ability to use Made in USA label Benefits of US trade agreements Page 8

Physical presence Tax home Closer Connection Family &

9 Pre-Move: Plan and Analyze Personal Considerations Will you be able to comply with the PR bona fide residency tests? Physical presence Tax home Closer Connection Family & Lifestyle Considerations Real Estate Options in the Island Climate Page 9

When you are ready: Apply Applications will be

10 When you are ready: Apply Applications will be submitted online at Seek the advice of local experts to complete the applications Do not underestimate the power of planning Understand the application process Be aware of the effective date of the tax incentives Page 10

11 When you are ready: Apply Documents required Act 22 No Criminal Record Confirmation Copy of Social Security Card or national Identification Number Copy of a valid Passport or US Visa Resume, Bio or Curriculum Vitae Bank Account Evidence - PR Financial Institution Act 20 Company Name and Formation Documents Financial and Employment Projections Background Check as Evidence of No Criminal Record Resume or Curriculum Vitae for Owners Two (2) Commercial References Page 11

12 When you are ready: Apply Application Stages Application Created- you can still make changes Application Submitted- OITE will pre-evaluate the application to determine it is complete. Filing Pending- must proceed to sign application and upload copy to platform Submit Payment- must submit filing fee to OITE with copy of notification Application Successfully Filed -your application has been filed and will start review process FILING FEE: Pay $750 (per application) and Pay $5,000 one-time fee for act 22 Timeline to Complete Application: approximately 2 weeks Page 12

13 When you are ready: Apply Timeline for Tax Incentives Timeline for Approval: Expect approval within 3-4 months for the Act 22 grant; 5-6 months for the Act 20 Effective Date of Incentives: Act 22 - Date grantee qualifies as a bona fide resident of Puerto Rico. ü Year of move: If grantee qualifies as a bona fide resident of PR for the calendar year during which the grantee relocates to PR, the tax exemption is applicable as of January 1st of such calendar year. Act 20 - Upon commencement of operations (as notified to OITE) ü Earliest- date when filing fee was paid to OITE ü Latest- 1 year after the grant is issued Page 13

14 When you are ready: Apply Helpful Hints Criminal Record must be issued by the State of last residence Filing Fees must be paid with Certified Check or money order Notary Required Description of your Act 20 Serviceskey to approval If some owners will remain in US, consider US Tax Reform No minimum number of employees but need local workforce PR Office needed Acquisition of PR residence still needed to establish closer connections to PR Page 14

15 After you Move to PR: Comply Key Filings File the acceptance within 90 days of the issuance of the decree Notify OITE that date you became a bona fide resident of Puerto Rico within 1 year of receiving your Act 22 Grant File form 8898 with the IRS by April 15th following the end of the calendar year when you changed residence to PR and submit copy to OITE Notify OITE that you commenced your Act 20 operations within 1 year of receiving your Act 20 Grant or request an extension File your Exempt Annual Reports with OITE within 30 days of filing your PR income tax return confirming your compliance with the terms of your grant Page 15

16 After you Move to PR: Comply Follow the Rules Act 22 Establish physical presence, tax home and closer connections in PR $5,000 annual donation to charity registered with PR Treasury Any non-pr sourced income will be subject to federal taxation Page 16

17 After you Move to PR: Comply Follow the Rules Act 20 Only Activities Listed in the Act 20 Grant will be eligible for 4% Services must be provided from an office in PR Clients must have no nexus to PR Complete initial registrations, permits and licenses to do business in PR Must make all reasonable efforts to hire from local workforce New: Must have corporate governance program with at least 1 resident of PR May be subject to a Compliance Review by OITE Page 17

After you Move to PR: Comply Ongoing Required Services Advisory regarding compliance with grants Accounting and Tax returns services CPA Audit of Financial

18 After you Move to PR: Comply Ongoing Required Services Advisory regarding compliance with grants Accounting and Tax returns services CPA Audit of Financial Statements if gross income is more than $3 Million Benchmarking, Valuations and Transfer Pricing will be required if services are being provided to a related party Page 18

19 U.S. IMMIGRATION OPTIONS FOR ENTREPRENEURS AND FOREIGN INVESTORS

20 U.S. Immigration Options for Entrepreneurs and Foreign Investors The most common immigration visa options for entrepreneurs and foreign investors come in two categories: Temporary Work Visas L-1A Intracompany Transferee E-2 Treaty Investor Immigrant Visas EB-5 Investor/Entrepreneur EB-1C Multinational Manager or Executive BDO: The Application Process Page 20

U.S. Immigration Options for Entrepreneurs and Foreign Investors Temporary Work Visas L-1A Intracompany Transferee To qualify, you must have been employed as a manager or executive by a non-u.s. company for at least one continuous year out of the past three years.

21 U.S. Immigration Options for Entrepreneurs and Foreign Investors Temporary Work Visas L-1A Intracompany Transferee To qualify, you must have been employed as a manager or executive by a non-u.s. company for at least one continuous year out of the past three years. The U.S. company where you will be working must be either the parent company, branch, subsidiary, affiliate or joint venture partner of the non-u.s. company. Note: 15 days Premium Processing Service BDO: The Application Process Page 21

22 U.S. Immigration Options for Entrepreneurs and Foreign Investors E-2 Treaty Investor To qualify for an E-2 visa, a treaty investor must: Be a national of a country that has a treaty of commerce and navigation with the U.S.; Have invested, or are actively in the process of investing, significant capital into a U.S. enterprise; Seek to enter the U.S. for the sole purpose of managing their investment in the U.S. enterprise; Provide proof that the investment capital or assets have not been obtained through a criminal enterprise. BDO: The Application Process Page 22

23 U.S. Immigration Options for Entrepreneurs and Foreign Investors Requirements: Treaty Investor (E-2) The requisite treaty exists; The applicant must be a national of a treaty country; The applicant has invested or is in the process of investing; The enterprise is a real and operating commercial enterprise; The applicant's investment is substantial; The investment is more than a marginal one solely for earning a living; BDO: The Application Process Page 23

24 U.S. Immigration Options for Entrepreneurs and Foreign Investors Requirements: Treaty Investor (E-2) (Cont.) The applicant is in a position to "develop and direct" the enterprise; The applicant, if an employee, is destined to an executive/supervisory position or possesses skills essential to the firm's operations in the United States; and, The applicant intends to depart the United States when the E-2 status terminates. BDO: The Application Process Page 24

To qualify for an EB-5 visa, a foreign investor must make an at-risk investment in a U.S.

25 U.S. Immigration Options for Entrepreneurs and Foreign Investors EB-5 Investor/Entrepreneur Overview The EB-5 Program is designed to encourage financial investment in the United States that will lead to job creation. To qualify for an EB-5 visa, a foreign investor must make an at-risk investment in a U.S. enterprise that will earn profits. There are 10,000 immigrant visas set aside each fiscal year for this program. BDO: The Application Process Page 25

26 U.S. Immigration Options for Entrepreneurs and Foreign Investors Investors An investor must demonstrate that he has made a qualified investment in a commercial enterprise. The investment may be used to create a new business, purchase an existing business, or expanding an existing business. The investment must generate 10 or more full-time jobs. The Investment $1,000,000 capital contribution OR $500,000 capital contribution if the investment is made in a targeted employment area an area that has experienced unemployment of at least 150 percent of the national average or a rural area designated as such by OMB. The source of the investment must be revealed and established as legitimate. BDO: The Application Process Page 26

U.S. Immigration Options for Entrepreneurs and Foreign Investors Capital Defined Capital means cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by

27 U.S. Immigration Options for Entrepreneurs and Foreign Investors Capital Defined Capital means cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the Investor, provided the Investor is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness. Capital is valued at fair market value in U.S. dollars. BDO: The Application Process Page 27

28 U.S. Immigration Options for Entrepreneurs and Foreign Investors After initial investment, the Investor becomes a conditional resident of the United States for a period of two years. This residency status is often referred to as having a conditional Green Card. Upon meeting the job creation requirement, conditionality is removed and the foreign investor becomes the holder of a permanent residency i.e. a Green Card in the United States, with no conditions attached. After five years of holding a conditional residency/green Card, the foreign investor can apply for U.S. citizenship. There is no obligation to remain in the United States on a continuous basis as a conditional or permanent resident to be able to apply to become a citizen i.e. travel is possible, but residence in the United States must be maintained during that time. BDO: The Application Process Page 28

29 U.S. Immigration Options for Entrepreneurs and Foreign Investors EB-1C Multinational Manager or Executive This employment-based immigration visa is designed specifically for multinational executives and managers, and must be sponsored by a U.S. employer. In order to qualify for the EB-1C, the foreign manager or executive: Must have been employed outside the U.S. in the three years preceding the petition and for at least one year by a firm or corporation; Must be seeking to enter the U.S to continue service with that firm or organization s affiliated U.S. entity; Must have been employed outside the U.S. in a managerial or executive capacity and with the same employer, an affiliate, or a subsidiary of the U.S. prospective employer; Must have duties that are at a high level involving critical decision-making, supervising, and other job duties that are essential to the livelihood of the business. BDO: The Application Process Page 29

30 THANK YOU QUESTIONS?

EB5 Program. Note: Investors may only be credited with preserving jobs in a troubled business.

EB5 Program. Note: Investors may only be credited with preserving jobs in a troubled business. EB5 Program EB5 Immigrant Investor The EB5 program goal is to promote economic growth. There are very specific requirements placed on the potential investor as highlighted below: All EB5 investors must