Tax Benefits in Puerto Rico

In addition to being a picturesque tropical vacation spot, Puerto Rico is an investor’s dream for those looking to relocate to the island. In 2012, Puerto Rico adopted Act 20 and Act 22, laws that makes the Commonwealth a tax haven for new residents. Designed to encourage service-based businesses to set up shop and for wealthy Americans to relocate, the goal of these two tax incentives is to improve the area’s economic climate.

Export Services Act – Act 20

Service-based industries such as banking and financial services, professional services, advertising and public relations, human resources, call centers, medical services and consulting services benefit from Act 20. It provides a 4 percent fixed income tax rate and 100 percent tax exemption on distributions from earnings and profits. In addition, businesses can take advantage of:

• 90 percent tax exemption from personal property taxes and real property taxes for some businesses (100 percent for the first five years of operation)
• 60 percent tax exemption on municipal taxes (90 percent if the business operates in specific industrial development zones)

Individual Investors Act – Act 22

Act 22 incentives are available to bona-fide residents of Puerto Rico that were not bona-fide for the six years preceding the Act. A bona-fide resident of Puerto Rico is present for at least 183 days during the taxable year, does not have a tax home outside of Puerto Rico during the taxable year and does not have a closer connection to the U.S. or another country than to Puerto Rico. Under Act 22, qualified residents benefit from 100 percent tax exemption from Puerto Rico income taxes on all dividends, interest and all short- and long-term capital gains.

Additional Incentives

Tax incentives in Puerto Rico don’t stop there. The island’s competitive economic incentives also include those for industrial development, international finances and more.