The two well-known Puerto Rican tax incentives are Export Services (formerly Act 20) and Individual Resident Investor (formerly Act 22), but they aren’t the only tax incentives Puerto Rico offers. There are various other tax incentives that aim to bring specific types of businesses to the island or, in the case of the Young Entrepreneurs, foster the talent already on the island. The Young Entrepreneurs tax incentive is open to any Puerto Rico resident between the ages of 16 and 35.

The Young Entrepreneurs tax incentive was formerly known as Act 135 before the introduction of Act 60 in 2019. While Act 135 offered, in addition to tax incentives for businesses, tax exemptions for salaries, services rendered, and self-employment income for young Puerto Rican professionals between 16 and 26, the revised Young Entrepreneur Act focuses only on businesses launched by young Puerto Rican entrepreneurs. The Puerto Rican government’s intention with the act is to entice young professionals who have left Puerto Rico to return to their homeland and start a business under favorable startup conditions.

Benefits of the Young Entrepreneur Act:

• 0% fixed income tax rate (for the first $500,000)
• 100% tax exemption on property taxes
• 100% tax exemption on municipal taxes

Who Can Be a Young Entrepreneur?

The young and innovative contribute thousands of new businesses to the U.S. economy yearly. A 2012 study found that 26% of the new entrepreneurship activity in the US was conducted by young entrepreneurs between the ages of 20 and 34. With the Young Entrepreneur tax incentive, Puerto Rico is endeavoring to bring more of that entrepreneurial spirit to the island.

To qualify, a young entrepreneur must be between 16 and 35 years of age and a bona fide resident of Puerto Rico. The entrepreneur must have a high school diploma or equivalent certification or be studying to obtain one. The entrepreneur’s business must be an original, standalone venture that does not operate through an affiliated company. The company must be run specifically by young entrepreneur(s) only, and the entrepreneur(s) must intend to own and operate the long-term business indefinitely. To obtain the decree, the entrepreneur must apply for the incentives before launching the business and must sign a special agreement with the Secretary of the DDEC.

It is important to note that the Young Entrepreneur Act is valid for three years and is void if the entrepreneur receives a different tax incentive, such as the Export Services Act (formerly Act 20). Young entrepreneurs can receive the grant for a single business only.

Qualifying entrepreneurs require the following documents:

• Photo ID
• Original birth certificate
• High school diploma or equivalent certification, or a college degree
• Recent certification of No Tax Debt from the Treasury Department
• Tax return filing certification from the last five years with the Department of Finance
• Certificate of Incorporation, if applicable
• Recent Negative Real Property Certification of CRIM (with statement)
• Compliance Certifications Administration for Child Support

The Puerto Rico Startup Culture

A vibrant and energetic city, San Juan has become a hotspot for entrepreneurship in Puerto Rico. The city boasts numerous accelerator-type programs for entrepreneurs offered by groups such as Grupo Guyacán, StartUp Popular, and Parallel 18, providing Puerto Rican entrepreneurs with funding, investment, mentorship, and a unique place to work, among other benefits. The Young Entrepreneur Act is just a further incentive to launch a business in San Juan (or elsewhere in Puerto Rico), adding to the already favorable startup environment the island offers.

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.