TerraLex Cross-Border Guide to Crypto Assets

Crypto assets are characterized as personal property but have not been defined in Puerto Rico.

Crypto assets are not prohibited in Puerto Rico.

No law or regulation has been enacted or promulgated by the Puerto Rico Legislative Assembly or Puerto Rico governmental authorities to regulate crypto assets.

See response under Question 3.

No specific anti-money laundering measures in connection with crypto assets activities have been introduced by Puerto Rico regulators. Federal anti-money laundering measures are applicable in the jurisdiction. An administrator or exchanger that accepts and transmits convertible virtual currencies or buys or sells convertible virtual currencies for any reason is considered a money transfer business under federal regulations and must be registered as a money service business (MSB) and are subject to federal AML regulations. Likewise, operators of Bitcoin Teller Machines (BTMs), which are automated kiosks or teller machines engaging in the transfer of virtual currency in Puerto Rico, need to obtain a licence with the Office of the Commissioner of Financial Institutions prior to operate such business.

Not regulated.

Crypto assets in general, although characterized as personal property, should be exempt from property taxes in Puerto Rico as intangible assets.

Gain from the sale or exchange of crypto assets such as digital currency would be eligible for capital gains treatment, provided such assets do not constitute inventory in the hands of the transferor. If the crypto asset is a capital asset in the hands of the transferor and has been held for more than a year, any gain derived in connection with the sale or exchange of the same would constitute a long-term capital gain taxed at a preferential rate of 15% in the case of individuals (may become up to 24% upon application of the alternate basic tax) and 20% in the case of corporations. Gains not eligible for preferential rates would be subject to tax as ordinary income at graduated rates the current maximum of which is 33% in the case of individuals and 37.5% in the case of corporations.

Crypto assets are characterized as personal property under Puerto Rico law.

Intangible assets are treated as personal property. In the absence of a contractual agreement, in the event of a conflict, applicable law is determined in accordance with international treaties, federal laws, and the Civil Code. The Civil Code provides that in the absence of a choice of law provision, a contract for the sale of non-consumer personal property are governed by the laws where the seller has its principal place of business and a contract for the sale of consumer personal property are governed by the laws of Puerto Rico if the consumer was in the jurisdiction at the time of contracting.

Yes. Smart contracts transferring ownership on a crypto asset are not prohibited under Puerto Rico law.

It may be possible to take security over a crypto asset. Puerto Rico has adopted the model Uniform Commercial Code (“UCC”), including its personal property and general intangibles definitions and rules on perfection. If crypto assets are treated as personal property and fall under the UCC category of general intangible, these are subject to security interest under the UCC. The application of the UCC provisions to the perfection of such a security interest has not been addressed by the Puerto Rico legislature or courts.

There is no inheritance tax currently in effect in Puerto Rico.

Senate Bill No. 421 (“SB 421”), which proposes to amend the Economic Development Bank for Puerto Rico Act to authorize the Economic Development Bank for Puerto Rico to receive cash deposits in the form of savings accounts or commercial accounts exclusively for entities engaged in emerging industries, including cryptocurrency or bitcoin. SB 421, however, has been sitting idle before the Senate since May 13, 2021.

No.

The Puerto Rico Incentives Code provides tax exemption on capital gains to individual investors relocating to Puerto Rico, subject to certain investment and residency requirements. Taxpayers covered by an individual resident investor grant of tax exemption may enjoy:

1. a 5% income tax rate on long-term capital gains attributable to the appreciation of certain assets (including coins and any digital asset based on blockchain technology) and securities held prior to becoming a bona fide resident of Puerto Rico which are recognized after ten years of becoming a resident and before January 1, 2036; and
2. a total (100%) income tax exemption on long-term capital gains attributable to appreciation of certain assets (including coins and any digital asset based on blockchain technology) or securities after becoming a bona fide resident of Puerto Rico, before January 1, 2036.

Non-fungible tokens (“NFTs”) are considered specific digital products for sales and use tax purposes and the sale of the same is generally sourced to the physical address of the buyer to whom the sale is made. If the sale transaction is sourced in Puerto Rico, it is subject to Puerto Rico sales and use tax at a rate of 11.5%.