Act 60: A New Puerto Rico
Tax Incentive Code
Act 60 (2019) - Puerto Rico Tax Incentive
Act 60 was created in 2019 to establish the new Puerto Rico Incentives Code. With the goal of promoting economic development in Puerto Rico, Act 60 offers an array of tax incentives to attract investment to the island. One of the benefits of Act 60 is that it consolidates in one place dozens of previously approved incentive Acts, harmonizing and standardizing as much as possible, tax incentives applied to income, royalties, dividends and distribution of interest, and profits from capital, promoting and welcoming new sources of investment into Puerto Rico’s economic development. Furthermore, the small and medium businesses eligible under this Act, as well as exempt companies with operations in Vieques and Culebra, could receive additional tax incentives during the first five years of operation.
This new tool will be an important component to promote job creation, investment in strategic sectors, innovation, exports, talent retention, international competitiveness, and economic development of Puerto Rico. All changes are forward looking and do not apply to existing incentive contracts.
Act 60 provides tax exemptions to businesses and investors that relocate to or are established in Puerto Rico. The incentives are particularly attractive to U.S. citizens who move to Puerto Rico because they do not need a residency permit, their Puerto Rico sourced income is exempt from U.S. federal and state income taxes, and they get to keep benefits such as Medicare and Social Security.
To take full advantage of Act 60’s tax incentives, the most important requirement is that business owners and investors become bona fide residents. There are some basic requirements to be considered a bona fide resident of Puerto Rico. Each requirement has its own tests/options that allow an individual to meet the standard of becoming a bona fide resident:
Presence Test: an individual must have been physically present in Puerto Rican soil for at least 183 days during the taxable year
Tax Home Test- individual does not have a tax home outside of Puerto Rico during any part of the taxable year. The IRS defines a “tax home” as the general place of business, employment, or post of duty, regardless of where the individual maintains their family home.
Closer Connection: individual does not have a closer connection to the U.S. or a foreign country than to Puerto Rico during any part of the taxable year. Evidence includes but is not limited to how you designate your country of residence, the location of your permanent home and family, and where your current social, cultural, and religious affiliations are.
Puerto Rico now requires the purchase of real estate property within two years of obtaining your tax exemption decree. Two years should be plenty of time to decide where to live in Puerto Rico. The property must also remain the individual’s primary residence throughout the validity of the decree.
There is also an annual donation requirement of $10,000 split between two certified nonprofits not owned or controlled by the individual investor or their relatives.
- Individual Investors Income Tax Benefits
After such individual investor becomes a bona fide resident of Puerto Rico Act 60 provides 100% tax exemption from Puerto Rico income taxes on all interest and dividend income, and on certain capital gains realized and accrued during the period of the exemption. Interest and dividends received by an individual that qualifies as Puerto Rico source income will not be subject to federal income tax under the US Code.
The tax incentives will expire on December 31, 2035.
- Export Services and Commerce Tax Benefits
Applies to a business that has a bona fide office or establishment in Puerto Rico and conduct eligible services as an export service provider or an export commerce business.
Those companies with sales over $3M are subject to 4% income tax rate on net income from the exempt operation. For businesses with sales of $3M or less the income tax rate will be 2% for five years and 4% thereafter.
The tax exemption period is 15 years. It can be extended for 15 additional years.
Learn more about Act 60: https://www.ddec.pr.gov/en/puerto-rico-incentives-code/