The back office forms the backbone of any company. By being responsible for the most crucial operations such as administration, logistics, accounting, record maintenance, IT, and more, the back office acts as the foundation on which a business can evolve and achieve its objectives. Even though they are not directly involved in generating revenue for the company, the functions that the back office performs behind the scenes contribute to the efficiency of the entire business. Therefore, a successful business is one with strong back-office support.

One of the major challenges faced by both small and large companies today is to have an efficient and cost-effective back office that can keep up with the growing competiveness of the global market and the ever-changing demands of the business landscape. In this context, businesses in the United States can find a storehouse of advantages in Puerto Rico. Whether you have a business that is solely designed to provide back-office support to other companies or the back office is a part of your business, moving these operations to this island paradise holds plenty of rewards.

Why Puerto Rico?

Outsourcing back-office operations has proven to be highly advantageous for businesses as it cuts down on the costs of vital operations such as personnel management, logistics, and research. Nevertheless, moving your company’s back office to a place like Puerto Rico has even more benefits than just cost-cutting. Being an island that is close to the mainland and shares the same time zone as the eastern part of the country, conducting back-office operations in Puerto Rico is much easier to manage for U.S. companies and enables them to focus more efficiently on core business areas such as customer relations and product innovation.

Despite these lucrative managerial benefits, the cost-cutting factor is still one of the most significant reasons to move or outsource your back office to Puerto Rico. Other than the fact that the territory has a generally lower cost of living when compared to the mainland, Puerto Rico also offers incredible tax incentives to businesses that can help them escape the heavy federal tax rates of the mainland. According to the Act 60 Export Services Tax Incentive, Puerto Rican businesses that operate inside Puerto Rico and cater to clientele outside pay a corporate tax rate of only 4%. And that’s not all. Your back office will have a tax exemption of 50% on municipal taxes, 75% on municipal and state property taxes, and 100% on distributions from earnings and profits.

Whether you run a back-office service provider or your company has a back-office department, it is quite clear that transferring these operations to Puerto Rico would make your business immensely profitable. In fact, the territory also possesses a well-developed business infrastructure consisting of numerous start-ups and entrepreneurs that allows for easy access to the latest businesses resources and support networks. Given the high literacy rate in Puerto Rico, the island is also home to a proficient and qualified talent pool that can take care of your back office impeccably. Overall, moving the most crucial operations of your company to Puerto Rico would give you a chance to reach your business objectives more smoothly.

How to Benefit from Act 60

Your business could be entirely a back-office service provider or have a back office as one of its departments. Either way, the Puerto Rico Act 60 Export Services Tax Incentive will allow your business to derive its many tax advantages. In both cases, the first step is to obtain the Act 60 tax exemption decree by handing in an application to the Office of Industrial Tax Exemption (OITE) of Puerto Rico. All necessary information regarding the tax rates and the criteria that your business needs to satisfy are written in this decree.

One of the principal requirements that your back-office entity needs to fulfill is that all income-producing activities must be carried out within Puerto Rico and the income must be derived from customers located outside of the island. In other words, the business entity must not have a nexus with Puerto Rico, i.e. none of the services provided by the back office should have any association with trade, business, or any other activity on the island. This amounts to moving your entire back-office operations to Puerto Rico and establishing an office there.

If your business is a back-office service provider, then you simply have to move your entire business to the island. All income-producing activities and back-office services will be transferred to Puerto Rican soil, and all of the income will be taxed under Act 60.

On the other hand, if back-office operations are only a part of your company and you want to move these activities to Puerto Rico, then Act 60 allows for this structure as well. You need to move your back-office services to the island, and only the income derived from these services will be taxed as per Act 60 regulations, while the rest of your business functions separately on the mainland. Although this particular arrangement means more paperwork in the form of a transfer pricing study and intercompany agreements, you can rest assured that it will certainly be fruitful.

Finally, when the process is done, you will be able to witness how efficiently your back-office operations can run in Puerto Rico. With the added benefits of an economical and highly-qualified workforce along with an increasing demand for companies to outsource their back-office services, you can sit back and watch your business prosper. So contact our PRelocate team and figure out how to get the process started as soon as possible.

Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the “Materials”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.