Puerto Rico Tax Incentives for Young Entrepreneurs Act 135 - Relocate to Puerto Rico with Act 20 & Act 22

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Act 135 for Young Entrepreneurs

The Young Entrepreneurs Act

Unlike other well known tax incentives offered in Puerto Rico that aim to bring in established businesses and new residents (Act 20 for export services and Act 22 for individual investors), Act 135 focuses on the talent that is already on the island. This act, also known as the Incentives and Financing for the Young Entrepreneur Act, was established for young adults aged 16 to 35 who reside in Puerto Rico.   

Introduced in August of 2014, Act 135 was established by the Puerto Rican government to provide incentives for young professionals until the end of 2019. This act grants a tax exemption of up to $40,000 for salaries, services rendered, and self-employment income earned during the taxable year for those aged 16 to 26.

The act also exempts new businesses up to $500,000 from municipal license tax, income tax, and on personal property for those 16 to 35 years of age. The goal is to encourage young professionals who may have left the island to come back and develop their own business in the growing start-up culture that Puerto Rico offers.

What does Act 135 offer young entrepreneurs?

Entrepreneurship is growing as younger generations explore the upsides of developing their own business. According to the Kauffman Foundation, entrepreneurs aged 20 to 34 comprised 26% of the  new entrepreneurship activity of the United States in 2012. Act 135 is seeking to lure these young entrepreneurs to Puerto Rico by offering a handful of benefits and tax incentives:

  • Anyone who worked during 2016 and was between the ages of 16 and 26 years of age in Puerto Rico as of December 31, 2016 may claim an exemption on their income tax returns for the income earned as an employee, independent contractor, self-employed, or as a business owner up to an amount of $40,000.
  • 100% tax exemption from municipal license tax, income tax, and on personal property for those 16 to 35 years old on the first $500,000 gross income generated during the first 3 years of operation of a new business.
  • A fastpass to obtaining permits.
  • Access to financing, financial advice via the Economic Development Bank of Puerto Rico, and Venture Capital Investment.
  • Special access to low rent PRIDCO real estate properties.

How do you qualify for Act 135?

Before sending in an application, young entrepreneurs must meet the following requirements:

  • Must be 16 to 35 years old
  • Puerto Rican resident
  • Have a high school diploma or equivalent certification
  • Must sign a “Special Agreement for Youth Entrepreneurship” with the CCE before starting commercial operations
  • Company must be run specifically by young entrepreneurs
  • Company must be original and not a product of a reorganization nor operate through an affiliated company

If you qualify, the following documents are required:

  • Photo ID
  • Original birth certificate
  • High school diploma, equivalent certification, or college degree
  • Recent certification of No Tax Debt from the Treasury Department
  • Tax Return Filing Certification of the last 5 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 highly trained workforce and a strong infrastructure has made San Juan, Puerto Rico a rising start-up hotspot. Several accelerator-type programs for entrepreneurs offered by groups such as Grupo Guyacán, StartUp Popular, and Parallel 18 exist to offer funding, investment, mentorship, and a unique place to work among other things. With new people and ideas flourishing on the island, Puerto Rico serves as a great neighborhood to network, prosper, and grow as a young professional.

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