List of All Puerto Rico Tax Incentives - Relocate to Puerto Rico with Act 20 & Act 22

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List of All Tax Incentives in Puerto Rico

 

Puerto Rico offers many economic incentives, like low fixed income tax rates, tax exemptions, tax credits, and special deductions, with the goal of helping to increase competitiveness. While Act 20 and Act 22 are the most common and well known, certain individuals and industries may benefit from other programs. See below for the most common Puerto Rico tax incentives.

Puerto Rico Tax Incentives

ACT 14 – Retention and Return of Medical Professionals

Act 14 was designed to guarantee accessible and quality health services for all residents of Puerto Rico and offer an attractive tax incentives proposal for medical professionals to stay in Puerto Rico, and at the same time, attract the setup of other professionals’ medical practice in Puerto Rico.

Tax advantages:

  • 4% income tax rate for eligible activities
  • 100% exemption on dividends (up to $250k/year)

ACT 20 – Export Services Act

Act 20 was designed to promote the exportation of services, by providing the appropriate environment and opportunities to make Puerto Rico a center for international services. The Act is focused on encouraging local service providers to expand their businesses by offering their services to clients located outside the Island.

Tax advantages:

  • 4% corporate tax rate
  • 100% exemption on dividends
  • 60% exemption on municipal taxes

ACT 22 – Individual Investors Act

Act 22 was established to promote the relocation of individual investors to Puerto Rico, in order to attract new residents by providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents.

Tax advantages:

  • 0% tax on short and long-term capital gains
  • 0% tax on dividend and interest income sourced in Puerto Rico

ACT 27 – Puerto Rico Film Economic Incentives Act

Act 27 was designed to set forth a framework for developing the Puerto Rican film industry. Act 27 eligible activities include the production and/or post-production of projects such as short-films, feature-length films, documentaries, series, mini-series, music videos, commercials, video games, and TV productions such as reality shows.

Key tax advantages:

  • 4% income tax rate on net income derived from the act
  • 90% exemption on real and personal property taxes
  • 100% exemption on dividend distributions
  • 40% tax credit on local production expenditures
  • 20% tax credit on production expenditures on non-resident talent, provided they are subject to income taxation in Puerto Rico.

ACT 73 – Economic Incentives for the Development of Puerto Rico Act

Act 73 generally provides tax incentives to businesses that are established in Puerto Rico for manufacturing products on a commercial scale, and to businesses engaged in a wide range of specific economic activities, such as scientific research and development, recycling, hydroponics, intangible property licensing, and software development.

Tax advantages:

  • 4% income tax rate on net income
  • 12% income tax withholding rate on certain royalty payments
  • No income tax on any dividend distributions the Act 73 business makes from its earnings and profits derived from eligible activities
  • 4% capital gains tax on gains realized on the sale or exchange

ACT 74 – The Puerto Rico Tourism Development Act

Act 74 was designed to promote the establishment of tourism-development projects throughout Puerto Rico. Under this act, the following business activities generally should qualify as eligible tourism activities:

  • Owning and/or operating hotels, condo hotels, timeshares/vacation clubs, hostels or guesthouses, as well as owning and operating casinos and restaurants within such facilities; theme parks, golf courses, marinas for tourism purposes or port facilities in areas that promote tourism activities; natural resources as a source of entertainment value; other entertainment or recreational tourism-related facilities
  • Operating a rental/leasing business which rents or leases property to be used in carrying out these activities
  • Acquiring an existing Act 74 business and making substantial renovations

Tax advantages:

  • 90% exemption on the net income derived
  • 12% withholding tax on royalty payments made to non-Puerto Rico residents
  • 90% exemption on real and personal property taxes
  • 100% exemption on municipal license taxes for new businesses

ACT 83 – Puerto Rico Green Energy Incentives Act

Act 83 aims to promote the production of renewable energy. This act provides tax incentives to businesses that engage in eligible green energy activities. These may include producing and selling green energy, installing machinery and equipment for the production of green energy, and leasing property used for the production of green energy.

Tax advantages:

  • 4% income tax rate on net income derived from the act
  • No income tax on any dividend distributions the Act 83 business makes from its earnings and profits derived from eligible activities
  • 60% exemption from municipal license taxes on the volume of business derived from the act

ACT 135 – The Young Entrepreneurs Act

Those between the ages of 16 and 26 will receive income tax exemption on the first $40,000 of gross income generated for wages, services, and/or self-employment. Those between the ages of 16 and 35 will receive income tax exemption on the first $500,000 of gross income generated during the first 3 years of operation of a new business. Other terms apply – please reference the application process online.

Tax advantages:

  • 100% tax exemption from income tax
  • 100% tax exemption from municipal license tax
  • 100% tax exemption on personal property
  • Expedited process to obtain permits

ACT 185 – Private Equity Funds Act

Act 185 has two aims: to promote investment in entities that do not have access to public capital markets and to attract capital investments to Puerto Rico.

Act185 provides that any limited liability company or partnership − domestic or foreign − engaged in the business of investing in such instruments as notes, bonds, or stock (not traded or quoted in the public markets when acquired) may elect to be treated as a private equity fund (PEF), subject to certain conditions. Among other requirements, this limited liability company or partnership must have an office in Puerto Rico and must enter into a contract with a registered investment advisor who is engaged in trade or business in Puerto Rico. Under the act, the PEF must notify the Puerto Rico Treasury Department of its election to be treated as a PEF on or before the last day of the third month after its creation.

Tax advantages:

  • A PEF is not subject to Puerto Rico income tax; instead, the investors are subject to Puerto Rico tax with respect to their distributive share of the income of the PEF
  • The share of an accredited investor of dividends and interest derived by the PEF is subject to a Puerto Rico fixed income tax rate of 10%
  • Capital gains from the sale of the private equity fund interest are subject to a Puerto Rico fixed income tax rate of 5%

ACT 273 – The International Financial Center Regulatory Act

Act 273 was enacted to help make Puerto Rico a financial industry hub. This act offers incentives to financial institutions that provide services to non-Puerto Rico persons.

Tax advantages:

  • 4% income tax rate on net income derived from the act
  • 100% income tax exemption on dividends distributed by the IFE to non-Puerto Rico residents or IRIs
  • 6% tax on dividends the IFE distributes to Puerto Rico residents other than IRIs
  • 100% exemption on real and personal property taxes and municipal license taxes

ACT 399 – The International Insurers and Reinsurers Act of Puerto Rico

Act 399 was enacted to promote the exportation of insurance and reinsurance services to markets outside of Puerto Rico. Generally, an international insurance company operating
under Act 399 only insures risks outside of Puerto Rico, but may also provide surplus lines coverage and reinsurance for risks located in Puerto Rico.

Tax advantages:

  • The first $1.2 million of net income derived by the international insurer is exempt from Puerto Rico income tax
  • Dividends distributed by an international insurer are totally exempt from Puerto Rico income tax
  • 100% exemption on real and personal property taxes and municipal license taxes.

EB5/EB2 – The Immigrant Investor Program

Also known as EB-5, was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by immigrant investors by creating a new commercial enterprise or investing in a troubled business.

This is not a Puerto Rican government-initiated program, but may be relevant to your needs.

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