Puerto Rico Tax Incentives – Act 60

Why Puerto Rico?

Puerto Rico is a Caribbean island and an unincorporated US territory. Although it is part of the United States and the same laws apply, it has an independent tax system, where the IRS lacks taxation jurisdiction. To stimulate economic growth, Puerto Rico introduced generous tax incentives with Act 20 and Act 22.

Puerto Rico Act 60, formerly known as Act 20 and 22, offer outstanding tax incentives to bonafide residents (over 183 days), such as a flat 4% corporate tax rate for qualifying companies and 0% tax on capital gains and dividends. This makes Puerto Rico an attractive location for digital nomads, online entrepreneurs, day traders, crypto investors and high net worth individuals.

Also, Puerto Rico offers additional advantages over other locations:

  • Puerto Rico has the same Federal Court System as all other states in the USA. It has a very similar civil court system to USA, because it is derived from a combination of both civil and common law.
  • Puerto Rico’s corporate law is modeled after the Delaware Corporate Law, which offers substantial privacy and property protections.
  • Puerto Rico offers the SAME financial protections than any other USA location:
    • SEC regulations apply for investments.
    • KYB requirements apply for financial transactions.
    • FDIC insured banking system.

Here’s a brief list of some of the tax benefits Puerto Rico offers:

  • Introductory 2% flat rate corporate tax for 2 years.
  • Afterwards, 4% flat rate corporate tax.
  • No Capital Gains Tax
  • No Distribution of Dividends Tax
  • No Personal Income Tax
  • No Property Tax
  • No Municipal Tax
  • No Estate Tax

Individual Resident Investors (IRI) can benefit from a 0% capital gains.

Also, Export Services are eligible services rendered to a foreign person or entity located outside of Puerto Rico.

In general, the services will be considered to have a connection with Puerto Rico if they are, among others, related to (i) commercial or for-profit activities that have been or will be carried out in Puerto Rico; or (ii) advice regarding the laws and regulations of Puerto Rico, as well as procedures and administrative orders of the Government of Puerto Rico and its agencies. The entity engaged in an export commerce activity must generate at least 80% of its gross income from exportation of services activity.

USADefend LLC can evaluate the tax savings of Puerto Rico in comparison to another offshore jurisdiction, bringing our expertise in both areas to offer a truly unique approach that many competitors do not possess the knowledge to present. USADefend LLC can analyze how they would qualify for Puerto Rico’s Act 60, the cost benefit analysis of doing so, and determine how this would be incorporated in an overall financial scenario.

Why invest in Puerto Rico?

Puerto Rico is a United States territory nestled in the middle of the Caribbean. It has been -and continues to be- an important social and economic bridge between the Americas. U.S. citizens can travel freely between the island and the U.S. mainland without passports.

Puerto Rico enjoys fiscal autonomy, which means that it can offer very attractive tax incentives not available on the mainland U.S., with the advantages of being in a U.S. environment. The local government has enacted multiple tax incentives to attract foreign investment, which are available to Tax Residents and EB-5 Visa program applicants.

The U.S. dollar is the official and only currency and is subject to the United States Federal Court System and Laws, but with valuable tax advantages for individuals and corporations that are not available on the mainland. All U.S. banking regulations apply, including the credibility and protections afforded by the Federal Deposit Insurance Corporation (FDIC). Also, all the legal framework and protections, such as intellectual property and patent protection, apply in Puerto Rico.

What tax benefits does Puerto Rico offer?

Here’s a brief list of SOME of the tax benefits Puerto Rico offers:

  • For Individual Resident Investors:
    • No Foreign Earned Income Tax
    • No Capital Gains Tax
    • No Distribution of Dividends Tax
    • Income is Earned Outside the USA for Tax Purposes
  • For Export Service Businesses:
    • No Property Tax for a limited time.
    • No Municipal Tax for a limited time.
    • No Capital Gains Tax
    • No Distribution of Dividends Tax
    • Additional Municipal, State and Employment Tax Benefits

What is Puerto Rico Act 60 / Act 20 / Act 22

To stimulate economic growth, Puerto Rico introduced generous tax incentives with Act 20 and Act 22, currently Act 60, which offer outstanding tax incentives to residents and companies, such as an introductory 4% flat corporate tax rate for qualifying businesses and 0% tax on income tax, capital gains tax and dividends. This is a HUGE TAX SAVINGS,,compared to the 21% IRS tax rate in the United States.

What businesses can benefit from Puerto Rico Tax Benefits?

Export Services Eligible Services

All businesses that have an office or establishment in Puerto Rico and conduct eligible services as an export service provider or an export commerce business can benefit from Act 60 Benefits. This is not a definitive list, and any business can meet the requirements if structured adequately. 

Eligible Export Service activities are the following:

  • Advertising and Public Relations
  • Call Centers
  • Consulting
  • Corporate Headquarters
  • Creative Industries (design, art, music, publications, development of apps and video games, creative education)
  • Development of Computer Programs
  • Distribution in Physical Form, through the Internet, Cloud Computing or Blockchain, Income from Licensing, Subscriptions or Charges for Services.
  • Education Services and Training
  • Electronic Data Processing Centers
  • Engineering, Architecture, Project Management
  • Hospital and Laboratory Services, including Telemedicine
  • Investment Banking and other Financial Services (including advisory and broker dealer operations)
  • Marketing Centers
  • Professional Services (law and accounting)
  • Research and Development
  • Shared Service Centers
  • Voice and Data Telecommunications

Among the eligible Export Commerce activities are the following:

    • Assembly, Bottling and Packaging of Products for Export
    • Commercial and Mercantile Distribution of Products Manufactured in P.R.
    • Commissions on the Sale of Products to Customers outside P.R.
    • Purchase of Products for Resale to Customers outside P.R.
    • Sale of Intangible Products to Customers outside P.R.
    • Storage and Distribution Centers
  • This is a non-exhaustive list. Any service business can qualify if services are rendered OUTSIDE of Puerto Rico.

What benefits does Puerto Rico offer to tourism businesses?

Tourism related businesses that invest and operate in Puerto Rico can benefit from the following:

  • 100% exemption on municipal construction excise tax
  • 100% exemption on imported goods and sales tax
  • 100% exemption on municipal licenses
  • 90% exemption on income tax
  • 90% exemption on property tax
  • Tax credits equal to the lesser of 10% of total project cost or 50% cash from investors, which can be monetized.

The benefits under this law will remain valid for a period of 10 years from the opening date of the eligible tourism project and includes a 10-year extension.

What benefits does Puerto Rico offer to foreign investors?

In the United States, investors pay as much as 37% on short-term capital gains and up to 20% on long-term gains.

This applies to crypto and other assets held for more than a year. Under Puerto Rico Act 60, known as the Individual Investors Act, that tax obligation is reduced to zero if certain qualifications are met.

There is also a major tax incentive for business owners to invest in Puerto Rico.

Stateside companies are subject to a 21% federal corporate tax, plus a state corporate tax, which varies.

If a firm exports its services out of Puerto Rico, to the U.S. or anywhere else, they pay a flat 4% corporate tax rate. 

Can you give me an example of a business?

You create a domestic corporation in Puerto Rico, which acquires one or several real estate properties, destined to the tourism industry, with a minimum investment of $500,000 USD. Then, you employ 10 employees to book, schedule, manage, maintain and care for the real estate properties in Puerto Rico.

Any services provided to clients outside of Puerto Rico are subject to Puerto Rico Act 60 Tax Benefits.

All marketing of the rentals is done by your own Export Services company, including:

  • Graphic Design
  • Social Media Management
  • Booking and Scheduling
  • Payment Processing
  • Payroll Management
  • Management and Administration of Properties

This is a gross oversimplification for illustration purposes, only. 

What tourism related businesses can benefit from Puerto Rico Tax Benefits?

  • Guesthouses, hostels, hotels, condo-hotels, and timeshare vacation clubs.

  • Theme parks, golf courses managed by, or associated with, a hotel that is an exempt business, marinas and port facilities in areas that promote and encourage tourism.

  • Natural resources used as entertainment sources.

  • Other facilities acting as recreational or entertainment sources, which encourage internal and/or external tourism.

What conveniences does Puerto Rico offer compared to other locations?

Puerto Rico offers many conveniences for clients:

  • Short travel time from the Eastern coast.
    • About 2 hour flight from Miami.
    • About 3 hour flight from New York.
  • International airport with multiple daily flights on all major airline carriers.
  • Same shipping services available: UPS / FedEx / USPS
  • Amazon Prime is available.
  • Netflix is available, without a VPN.
  • Warm and comfortable weather all year round.
  • Diversity of microclimates around the island.
  • Bilingual Education available.
  • No immigration border crossings.
  • No customs declarations.
  • Quality of consumer goods available is equal or superior.
  • Quality and variety of electronics is equal to the mainland USA.
  • Variety of consumer goods sold is identical to the mainland USA.
  • Quality of produce is superior than mainland USA, with more variety.
  • Longstanding and rich cultural heritage that spans over 500 years.

Will Puerto Rico tax benefits go away?

Despite media foreshadowing, and the occasional sensationalist detractor, the government of the Commonwealth of Puerto Rico has no intentions of eliminating years of groundbreaking tax developments and benefits.

Also, under the Puerto Rico legal system, an individual or a business cannot be hindered from an established acquired right, such as favorable tax proceedings, without Due Process.

The doctrine of Due Process requires several fundamental proceedings in order to curtail an established taxpayer right, such as, but not limited to:

  • Legislative commission reviews and hearings, which require public participation.
  • Court proceedings which must conclude by exhausting judicial forums.
  • Regulatory changes, which require prior publishing of proposed measures.

Therefore, it is undeniable that any change to current Puerto Rico tax policy will gain a measure of notoriety beforehand, upon which USADefend LLC will advise its current and former clients, so that adequate measures can be taken to prevent or minimize any possible tax exposure.

 

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