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ACT 60: BENEFITS YOU SHOULD KNOW ABOUT

ENJOY ZERO TAXES ON FEDERAL INCOME TAX ON PUERTO RICO SOURCE INCOME.
REDUCE YOUR CORPORATE TAX RATE TO 4%.
EARN TAX-FREE SHORT AND LONG-TERM CAPITAL GAINS.
​​​​​​​0% FIXED INCOME TAX RATE (FOR THE FIRST $500,000) FOR YOUNG ENTREPRENEURS.

 




Puerto Rico is a territory of the United States, and Puerto Ricans are US citizens who have a US passport.

Puerto Rico Entities and bona fide residents of Puerto Rico do not pay Federal Income Taxes on Puerto Rico source income.

  • Puerto Rico has its own hybrid tax system outside of Federal Code
  • Puerto Rico sourced income is explicitly excluded from Federal Taxation through Internal Revenue Code: 26 U.S. Code § 933

Tax Benefits include exemptions on most dividends, interest and capital gains from Puerto Rican income and much lower income tax rates. 

Act 60:
​​​​​​​Incentives Code of Puerto Rico

Signed into law on July 1, 2019, and coming into effect on Jan 1, 2020, the Puerto Rico Incentives Code, or Act 60, consolidates and modifies various tax incentives, decrees and benefits, including among others: Act 20, the Promotion of Export Services Act; Act 22, the Act to Promote the Relocation of Individual Investors to Puerto Rico and Act 135, the Young Entrepreneurs Incentive and Financing Act.

All tax exemptions granted in this Code are considered to constitute a contract between the Government of Puerto Rico, the Exempt Business, its shareholders, partners, and owners.

The Code consists of eleven chapters. Chapter 1 explains the changes made to the economic incentives, which include organizing exemptions by industry segments and sectors to allow for various incentive laws to be grouped together under a single category, as stated hereinbelow: 

​​​​​​​Chapter 2: Individuals (Act 22-2012)

Chapter 3: Export of Good & Services
​​​​​​​(Act 20-2012)

Chapter 4: Finance, Investments and Insurance

Chapter 5: Visitor Economy

Chapter 6: Manufacturing

Chapter 7: Infrastructure & Green Energy

Chapter 8: Agro-Industries

Chapter 9: Creative Industries

Chapter 10: Entrepreneurship

Chapter 11: Other Industries

Most Significant Changes

Act 20 is now Chapter 3 of Act 60:
Act 22 is now Chapter 2 of Act 60:
Employment requirement for business with an annual revenue of $3 million or more
Property tax incentive reduced from 90% to 75%
Municipal tax incentive reduced from 60% to 50%
Must provide evidence of acquiring property as a sole owner within two years after decree acceptance
Crypto currency and block chain included as eligible for capital gains incentive
The annual donation to a non- profit entity operating in Puerto Rico increase to a minimum of $10,000.00 per year.

Chapter 2 of Act 60 (Act 22): Resident Individual Investors

ELIGIBILITY

In order to qualify for the tax benefits under Chapter 2 of the Incentives Code, the applicant must be a bona fide resident of Puerto Rico for the entire tax year.

Chapter 2 applies to any individual investor who becomes a Puerto Rico resident (“Individual Investor”) on or before the taxable year ending on December 31, 2035, provided that the individual was not a resident of Puerto Rico at any time from January 17, 2006 to January 17, 2012.

As per the U.S. Internal Revenue Code (Sections 933 and 937), a bona-fide resident of Puerto Rico is a person who meets the following tests:

1) Presence Test. The individual must meet one of the following: (1) be present in Puerto Rico for at least 183 days during the calendar year; (2) be present in the United States for no more than 90 days during the calendar year; (3) have no earned income from sources within the United States (that is, compensation for labor or personal services rendered by the manager in the United States exceeding $3,000) and be present in Puerto Rico for more days than in the United States; (4) be present in Puerto Rico for a minimum of 549 days during the three-year period that includes the cur- rent tax year and the two preceding calendar years, as long as he is also present in Puerto Rico for a minimum of 60 days during each of those three years; or (5) have no ‘‘significant connection’’ to the United States.

2) Tax Home Test. The individual’s regular (or principal, if more than one) place of business that he or she claims for purposes of determining income tax deductions for traveling expenses while away from home in the pursuit of a trade or business must be in Puerto Rico. Thus, to meet the tax home test, the individual must spend substantially more time working from his office in Puerto Rico than from an office in the United States or a foreign country.

3) Closer Connection Test. The individual must have a closer connection to Puerto Rico than the U.S. or any other foreign country. The closer connection is determined by a variety of factors including but not limited to the following: (1) the location of the individual’s permanent home; (2) the location of the individual’s family; (3) the location of the individual’s personal belongings, such as automobiles, furniture, clothing, and jewelry; (4) the location of social, political, cultural, or religious organizations with which the individual has relationships; (5) the location where the individual conducts routine personal banking activities; (6) the location where the individual conducts business activities (other than those that constitute the individual’s tax home); (7) the location where the individual holds a driver’s license; (8) the location where the individual votes; and (9) the country of residence designated by the individual on all official government forms, documents, and tax returns. The significant connections analysis can also take into account similar factors that attempt to show that the individual is no longer living in the United States. 

BENEFITS

  • 100% Tax Exemption from Puerto Rico income taxes on dividends from all sources. The US-IRC generally provides US income tax exemption on Puerto Rico source dividends and interest earned by a “bona-fide Puerto Rico resident”. However, dividend and interest income from non-Puerto Rico sources (i.e., US or foreign sources) will be subject to US income taxation;​​​​​​​​​​​​​​
  • 100% Tax Exemption from Puerto Rico income taxes on interests from all sources; and
  • 100% Tax Exemption from Puerto Rico income taxes on all short-term and long-term capital gains accrued after the individual becomes a bona-fide resident of Puerto Rico. The long and short term capital gains derived from appreciation of securities after the individual becomes resident of Puerto Rico are exempt from Puerto Rico income tax and will not be subject to US income tax if the securities were not owned prior to becoming a Puerto Rico resident. If the securities were owned prior to becoming a Puerto Rico resident, the gains will be considered Puerto Rico source income (as per the US Internal Revenue Code) when sold after 10 years of Puerto Rico residency. Long-term capital gains prior to becoming a resident of Puerto Rico are subject to a 10% tax rate if realized within 10 years of residency or 5% if realized after 10 years of residency. Under U.S. tax law, long-term capital gains prior to becoming a bona-fide resident of Puerto Rico that are realized within 10 years are subject to 20% tax rate. If the long-term capital gains are realized after 10 years, the U.S. tax rate is 0%. 

REQUIREMENTS

  • Individual must request and obtain a grant of tax exemption. There is filing fee of $750, and an acceptance fee of $5K. Act 60 provides that the grant will be considered a contract between the individual and the Government of Puerto Rico, so that it cannot be modified unilaterally and should not be impacted by amendments to Act 60 enacted after the grant is issued.
  • The individual must comply with becoming a bona-fide resident of Puerto Rico as per IRS Sec. 933 and 937.
  • Minimum annual charitable donation of $10K to a local nonprofit certified under PR-IRC. Half paid to a charity for the eradication of childhood poverty, and the other half to a Puerto Rican charity of the grantees' choice.
  • Grantee (the 'Individual Investor') must purchase real estate property in Puerto Rico within two years of obtaining the decree. The property must be the individual investor's primary residence throughout the validity of the decree and cannot be rented out.
  • Grantee must file an annual report with the Puerto Rico government.

Chapter 3 of Act 60 (previously known as Act 20): Export of Goods & Services

ELIGIBILITY

Chapter 3 of Act 60 applies to any entity with a bona-fide establishment in Puerto Rico that is engaged in an eligible service for export (from Puerto Rico to clients outside Puerto Rico).

Eligible services include but are not limited to:

  • Consulting
  • Investment banking
  • Investigation and development
  • Project management
  • Advertising and public relations
  • Engineering and architecture
  • Centralized management
  • Software development
  • Call centers
  • Creative industries
  • Educational and training
  • Hospital and laboratories
  • Storage and distribution centers
  • Electronic data processing
  • Assembling, bottling and packaging
  • Voice and data telecommunications

BENEFITS

  • 4% Corporate Income Tax Rate
    Entities with business volumes of over $3M are subject to a 4% tax rate on net income derived from exported services.  If the business volume is less than $3M, the income tax rate is 2% for five years, and 4% thereafter.
  • 100% Tax Exemption on Distributions
    Distributions of dividends or profits generated by the exempt operation are 100% exempt from Puerto Rico income tax.
  • 75% Exemption on Personal and Real Property Taxes
    Entities with a business volume of over $3M are entitled to a 75% exemption from personal and real property taxes.  For entities with a business volume of $3M or less, the property tax exemption is 100% for five years, and 75% thereafter. ​​​​​​​
  • ​50% Tax Exemption on Municipal Taxes
    ​​​​​​​Entities with business volumes of over $3M are subject to a 50% exemption on municipal tax.  If the business volume is less than $3M, the exemption is 100% for five years, and 50% thereafter.

REQUIREMENTS

  • Entities must request and obtain a grant of tax exemption. There is filing fee of $750. Act 60 provides that the grant will be considered a contract between the individual and the Government of Puerto Rico, so that it cannot be modified unilaterally and should not be impacted by amendments to Act 60 enacted after the grant is issued.​​​​​​​ 
  • Exempt businesses with actual or projected total revenue of more than $3 million must directly employ at least one full-time employee, which may be the business owner. 
  • Grantee must file an annual report with the Puerto Rico government.

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