Puerto Rico’s Act 60 Tax Incentives: Opportunities for Businesses and Individual Investors
Puerto Rico’s Act 60 provides exceptional tax incentives, positioning the island as a thriving hub for businesses, entrepreneurs, and individual investors. Whether you’re looking to relocate your business, grow your investments, or enjoy significant tax savings as a resident, Act 60 offers a range of tax benefits designed to support you.
Unique Advantages for Individual Investors
If you’re considering relocating to Puerto Rico, Chapter 2 of Act 60 presents a compelling set of incentives for individual investors. By establishing residency in Puerto Rico, you can enjoy a 100% exemption on Puerto Rico income tax for interest, dividends, and certain capital gains. Here are some of the unique benefits:
- Exemption on Puerto Rico-Sourced Income: Once you establish bona fide residency in Puerto Rico, interest, dividends, and qualifying capital gains are fully exempt from Puerto Rico income tax.
- Federal Tax Exclusion: Under Section 933 of the U.S. Internal Revenue Code, Puerto Rico-sourced income is also excluded from U.S. federal income tax, providing substantial tax relief on earnings within Puerto Rico.
- Capital Gains Exemption: If you acquire certain assets after becoming a Puerto Rico resident, gains from their sale can also qualify for full tax exemption when sold while you are a resident.
To qualify, an individual must meet specific criteria for bona fide Puerto Rico residency, including spending at least 183 days on the island within the taxable year and establishing Puerto Rico as their primary tax home.
Requirements for Individual Investors
To retain eligibility, individual investors need to meet these requirements:
- Annual Donation: A minimum $10,000 donation must be made each year to Puerto Rico-based nonprofits, with half going to organizations dedicated to child poverty eradication.
- Real Estate Purchase: Within two years of receiving Act 60 benefits, investors must purchase real property in Puerto Rico for use as their principal residence.
- Annual Reporting: An annual report, accompanied by a $5,000 filing fee, must be submitted to maintain compliance.
These incentives remain in place for individual investors until December 31, 2035, making this a valuable long-term opportunity for those who qualify. Schedule an online consultation today to discuss how you could be eligible and how you could benefit.
Business Benefits under Act 60 for Export Services & Commerce
Puerto Rico also offers significant tax advantages for businesses that set up operations on the island to provide services to customers outside of Puerto Rico. Chapter 3 of Act 60 supports Puerto Rico as an international export hub by offering tax reductions on income and exemptions from certain property and municipal taxes.
Eligible Activities for Export Services & Commerce
To qualify for these benefits, businesses must maintain a physical presence in Puerto Rico and perform eligible export activities. Some examples of qualifying activities include:
Export Service Activities
- Consulting, corporate headquarters, and financial services
- Creative industries, such as app development, music, and design
- Professional services like legal, accounting, and marketing
- Telecommunications and data processing centers
Export Commerce Activities
- Assembly, bottling, and packaging for export
- Distribution and storage centers for Puerto Rican-made products
- Commercial resale to international clients
- Sale and licensing of intangible products to customers outside Puerto Rico
Export services must have no direct connection to Puerto Rican economic activities. For example, they cannot involve advising on Puerto Rican laws or regulations.
Tax Benefits for Exempt Businesses
Businesses qualifying under Chapter 3 of Act 60 can take advantage of the following tax breaks:
- Income Tax: A 4% income tax rate on net income for businesses with over $3 million in volume. Smaller businesses may qualify for an initial 2% rate for five years, which then adjusts to 4%.
- Property Tax Exemptions: Partial or full exemptions on real and personal property taxes, depending on business size.
- Dividend Exemptions: Dividends from exempt operations are fully exempt from Puerto Rico income tax.
- Municipal Tax Reductions: Up to a 50% exemption on municipal taxes, with full exemption for the first five years for smaller businesses.
The tax exemption period is set for 15 years, with the option to extend for an additional 15 years if specific criteria are met. Additionally, larger companies must meet minimal employment requirements, such as hiring one full-time Puerto Rico resident. Schedule an online consultation today to discuss how your business could qualify to become an Act 60 beneficiary.
Ready to Learn More?
The incentives available under Act 60 make Puerto Rico an attractive option for both businesses and individual investors seeking significant tax savings. Whether you’re interested in developing your business or relocating as an individual investor, now is the time to take advantage of these unique tax benefits.
Schedule an online consultation today to discuss how Act 60 could benefit you. We’ll help you strategize your investments and business plans, ensuring that you maximize the tax advantages of becoming an Act 60 beneficiary.
