Understanding the Caribbean & US Territories as Tax Homes
Many in the Caribbean—Cayman Islands, Bermuda, Bahamas, and BVI—are territorial or zero-income-tax jurisdictions. Puerto Rico has a unique U.S. territorial status, with certain Act 60 regimes offering tax benefits for individuals relocating from the U.S. mainland. Digital nomads considering relocation must evaluate tax residence, sourcing of income, and treaty benefits (if applicable).
Key Pathways for Digital Nomads: Forms & Residency
| Jurisdiction | Residency Path | Must Meet | Tax Benefit |
|---|---|---|---|
| Cayman Islands | Temporary or permanent resident visas | Physical presence & perhaps investment; no personal income tax | Zero income tax, no capital gains tax |
| British Virgin Islands (BVI) | Work permits or Registered Agents for business setup | Business registration, economic substance requirements | No personal rate, but must satisfy substance rules |
| Puerto Rico | Under Act 60 (formerly Acts 20/22) | Must be bona fide resident: 183-day rule; 3-year physical presence; close connection rules to mainland US | Greatly reduced tax on passive income, dividends; U.S. source income (in many cases) exempt from U.S. tax |
Reporting, Source Rules & U.S. Obligations
For U.S. citizens or green card holders:
- Global income must still be reported to the IRS. Self-employment income earned abroad may qualify for the Foreign Earned Income Exclusion (FEIE) (2026 amount: US$132,900) (irs.gov).
- The U.S. remittance transfer tax, introduced under the “One, Big, Beautiful Bill”, may apply for transfers using physical instruments from the U.S. to other countries after Jan 1, 2026. (irs.gov).
Common Structures & Their Pros/Cons
- Setting up a local LLC / corporation: Offers limited liability and may help local access, but must satisfy economic substance regulations (especially in BVI and Cayman) to avoid de facto taxation or reputational risks.
- Act 60 / Tax Incentive Act in Puerto Rico: Offers excellent tax benefits for exporters, service providers, and investment income—but requires actual residency and significant substance.
- Representing clients remotely: If all services and contracts are outside the nomad’s country of domicile, income may be territorial. But careful of “management fee rules” if contracting to U.S. firms.
Sample Scenarios & Actionable Steps
- Scenario A: U.S. citizen doing software development remotely from Cayman—no Puerto Rico affiliation. They earn $150,000 from clients globally. FEIE excludes ~$132,900. Remainder taxed by IRS at ordinary rates.
- Scenario B: Puerto Rico bona fide resident under Act 60, earning dividends from U.S. stocks and providing consulting services internationally. Dividends largely exempt from U.S. tax if properly structured. Local Puerto Rico tax rate much lower.
Actionable advice:
- Establish residency: get a bona fide residence certificate (e.g. in Puerto Rico), or long-term visa (in Cayman/Bermuda).
- Maintain detailed records of days present, contracts, income sources.
- Engage with local professional advisors to ensure compliance with economic substance laws, reporting standards (CRS, FATCA, BEPS).
Digital nomad life offers great tax opportunities—but only if you know your obligations and structure carefully.