Save on Corporate Tax in Puerto Rico with the Act 60 Export Services Tax Incentive
- Posted: February 3, 2021
- Posted by: Travis Lynk
- Last Reviewed: May 20, 2021
Year-round beach weather, a fun and vibrant culture, and lucrative tax incentives for U.S. citizens and permanent residents—what’s not to love about Puerto Rico? Every year, droves of U.S. tourists flock to Puerto Rico, the United States’ own Caribbean territory, to enjoy the beachside lifestyle without all the hassle of traveling abroad. But for some, a simple vacation doesn’t cut it—some prefer to relocate to the island.
In particular, Puerto Rico’s generous tax benefits, such as Act 60 Export Services or Act 60 Individual Resident Investor, draw hundreds of U.S. professionals to the island each year. These tax incentives allow decree holders to save considerable amounts in taxes as long as they fulfill certain requirements meant to benefit Puerto Rico and its economy.
The Benefits of Act 60 Export Services Tax Incentive
Do you run a business or are you planning to establish one? If your business satisfies the requirements, you may be eligible for the Act 60 Export Services tax incentive, as long as you relocate to or set up your business in Puerto Rico. The Export Services tax incentive is a powerful tax benefit that can save a young business considerable amounts of money, as it slashes your corporate tax rate to just 4%. This is significantly lower than the regular corporate tax rate of 39% in Puerto Rico and the U.S. federal corporate tax rate of 21%.
Businesses with an Act 60 Export Services decree also enjoy other benefits. In addition to the 4% corporate tax rate, Export Services businesses owe 0% on distributions from earnings and profits, save 50% on municipal taxes, and save 75% on municipal and state property taxes. If your business qualifies as a small or medium-sized business, it’s completely exempt from municipal and state property taxes for your first five years of operation.
One caveat to bear in mind is that the business owner must be paid a “reasonable salary” based on the services they render, and this income is taxed at regular Puerto Rico income tax rates, which can be as high as 33%. Thus, it’s not as simple as passing all your business revenue through the 4% corporate tax rate, but even with your salary, the savings you can amass through the Act 60 Export Services tax incentive are immense.
Requirements of Act 60 Export Services Businesses
How do you know whether your business qualifies for the Act 60 Export Services tax incentive? A hint lies in the name: export services. The idea behind the tax incentive is to stimulate the Puerto Rican economy and potentially generate new jobs for Puerto Rican workers, which means the business shouldn’t negatively affect the Puerto Rican job market by taking away opportunities from other Puerto Rican businesses.
To be eligible for the tax incentive, a business must be located or established in Puerto Rico but provide remote services to clients located outside of Puerto Rico. The types of businesses that qualify are numerous—consultancy, accounting, tech, graphic design, and more—as long as the business renders its services to clients abroad and not in Puerto Rico, it may be eligible. Qualifying businesses are furthermore only eligible if they do not engage in certain activities, such as selling property for use in Puerto Rico or lobbying the Puerto Rican government.
If your business qualifies for the Act 60 Export Services tax incentive, consider relocating your business to Puerto Rico—you can save significantly on your taxes and help grow your business far more than under regular U.S. corporate tax rates. You may also consider relocating yourself to Puerto Rico under the Act 60 Individual Resident Investor tax incentive. Many of those who benefit from these tax incentives apply for both.
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.