Puerto Rico Governor Signs Bill Providing “Window Period” Allowing Participants in Retirement Plans to Pre-pay at a Reduced Rate the Tax on Amounts Accumulated Under a Retirement Plan

In an effort to increase revenues and to set up the basis for an upcoming restructuring of our tax system, the Puerto Rico Governor signed into law Act 77 of July 1, 2014 (Act 77). Act 77 amends various tax legislation, including the Puerto Rico Internal Revenue Code of 2011 (the New PR Code).

Act 77 amends the New PR Code to provide, among other things, a reduced tax to individuals, estates and trusts on the gain derived from the sale of capital assets or pre-pay the tax on the total or partial increase in value of certain assets.  Act 77 provides for a reduced tax of 8% for “long term capital assets,” and of 15% for “included assets,” the income of which is taxable as ordinary income under the New PR Code. Retirement plans, whether qualified or not, are classified as included assets and, therefore, generally are subject to the 15% reduced tax rate.

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