Puerto Rico Act 60, also known as the Puerto Rico Incentives Code, is a law enacted in 2019 that consolidates and modifies various tax incentive programs previously available under different laws. It includes the well-known Acts 20 and 22, which were originally passed in 2012 to attract businesses and high-net-worth individuals to Puerto Rico.
Key Aspects of Act 60
Export Services (formerly Act 20)
- 4% corporate tax rate on income from eligible services exported outside Puerto Rico.
- 100% tax exemption on dividends or profit distributions from these businesses.
- Services include consulting, financial services, software development, and more.
Individual Investors (formerly Act 22)
- 100% tax exemption on capital gains, dividends, and interest income for new residents.
- Requires individuals to become bona fide residents of Puerto Rico.
- Applicants must make a $10,000 annual donation to local nonprofits and purchase residential property in Puerto Rico within two years.
Other Incentives in Act 60
- Tourism and Hospitality: Tax benefits for hotel development and eco-tourism projects.
- Manufacturing and Renewable Energy: Tax credits and reduced corporate tax rates.
- Film and Creative Industries: Incentives for media production and digital businesses.
Who is impacted by Puerto Rico Act 60?
Individual Investors (Formerly Act 22)
- U.S. citizens and other individuals looking to relocate to Puerto Rico to benefit from tax incentives.
- Investors in stocks, cryptocurrencies, real estate, and other assets who seek 0% tax on capital gains, interest, and dividends.
- Must establish bona fide residency in Puerto Rico (spend at least 183 days per year there, sever significant ties with the U.S., etc.).
Business Owners & Entrepreneurs (Formerly Act 20)
- Business owners operating export service companies (tech, finance, consulting, etc.) who can benefit from a 4% corporate tax rate instead of higher U.S. rates.
- Businesses must provide services to clients outside of Puerto Rico to qualify.
Puerto Rican Residents & Economy
Benefits:
- increased investment
- job creation
- real estate demand.
Criticisms:
- Raised cost of living
- benefits wealthy individuals to a greater degree than the general population
Application Process
- Register the Business in Puerto Rico – Taxpayers must register or incorporate the company in Puerto Rico.
- Apply through the Department of Economic Development & Commerce (DDEC) – Business owners submit the application online via Single Business Portal.
- Provide Required Documentation – This includes a business plan, financial projections, proof of non-Puerto Rico clients, and compliance with economic substance rules.
- Pay the Application Fee – The fee is $750 for individuals and $1,500 for businesses.
- Await Approval – The government reviews the application and may request additional information before granting the decree.
Key Compliance Requirements
- The company must maintain economic substance in Puerto Rico (e.g., office space, employees, and business operations).
- Services must be provided exclusively to non-Puerto Rico clients.
- Annual reporting and compliance with local tax laws are required.
Why Is It Popular?
Act 60 makes Puerto Rico an attractive destination for entrepreneurs, crypto investors, and hedge fund managers, since it offers U.S. citizens a way to lower their federal tax burden while keeping U.S. citizenship. However, to qualify, individuals must genuinely move to Puerto Rico and meet IRS residency requirements.
Important Considerations
- Application Fee: A filing fee is required when submitting your application. The amount may vary, so ensure you verify the current fee structure on the Single Business Portal or consult with a professional.
- Required Documentation: Prepare to provide supporting documents such as a business plan, financial statements, and proof of services rendered to clients outside Puerto Rico.
- Professional Assistance: Given the complexity of the application process, consulting with legal or tax professionals experienced in Puerto Rico’s tax incentives can be beneficial.
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