A 3-MINUTE GUIDE TO PUERTO RICO’S ACT 60

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Puerto Rico’s status as a top tax haven is undisputed. Each year, the island welcomes new, ambitious Americans and others who wish to keep more of their money while enjoying the island lifestyle Puerto Rico offers. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Rico’s Act 60 offers.

Export Services Tax Incentive – For Businesses

Business owners who establish a qualifying business in Puerto Rico can enjoy significant tax benefits:

  • 4% corporate tax rate
  • 100% tax exemption on distributions from earnings and profits
  • 50% tax exemption on municipal taxes
  • 75% tax exemption on municipal and state property taxes (small and medium businesses can receive a 100% exemption during their first five years of operation)

To qualify, the business model must be concentrated around exporting services outside of Puerto Rico. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. The owner must also take out a reasonable salary for him- or herself, which is subject to normal Puerto Rico income tax rates.

How to qualify for the Act 60 Export Services Tax Incentive

Owners of existing businesses can qualify for the Act 60 business tax incentives in one of two ways:

  • Moving the entire company, including employees, to Puerto Rico and ceasing all operations in the United States
  • Establishing a Puerto Rico subsidiary and recording the percentage of business income and expenses related to the Puerto Rico entity so that it can be taxed under the Act 60 incentives
  • Application costs

    You’ll have to pay a one-time fee of $750 when you file your initial application. Then, you’ll be required to file an annual report each year along with a $300 fee.

    Individual Resident Investor Tax Incentive

    The tax incentives enjoyed by Individual Resident Investors in Puerto Rico are perhaps the most impressive of all Puerto Rican tax incentives:

    • 100% tax exemption from Puerto Rico income taxes on all dividends
    • 100% tax exemption from Puerto Rico income taxes on all interest
    • 100% tax exemption from Puerto Rico income taxes on all short-term and long-term capital gains
    • 100% tax exemption from Puerto Rico income taxes on all cryptocurrencies and other crypto assets

    Just keep in mind that to qualify for these generous incentives, you must become a bona fide resident of Puerto Rico, which involves spending the majority of your time in Puerto Rico, making Puerto Rico your tax home, and establishing closer connections in Puerto Rico than in the US.

    Passing the residency tests

    As a basic overview, here’s what you have to do to pass the three tests to establish bona fide residency in Puerto Rico:

    • Be physically present in Puerto Rico for at least 183 days of each tax year
    • Make Puerto Rico your tax home by establishing your office or primary place of work there
    • Buy property in Puerto Rico, move your family and possessions there, get a Puerto Rican driver’s license, register to vote in Puerto Rico, and do other things that demonstrate your commitment to a life on the island

    Capital gains before moving to Puerto Rico

    Capital gains accrued prior to your move to Puerto Rico are treated differently depending on when they are recognized:

    • If the gains are recognized within 10 years of your move, they are taxed at the U.S. rate
    • If the gains are recognized after 10 years of your move, they are taxed at Puerto Rico’s preferential 5% flat tax rate, and you do not owe U.S. taxes on them

    Applying for the Individual Resident Investor Act

    There is a $750 fee due with your application, which you are to submit to the Office of Industrial Tax Exemption. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. Afterward, each year, you will have to make a $10,000 charitable donation and submit an annual report along with a $300 fee.

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