Discover Puerto Rico, Tax incentives
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The New tax act 60
Puerto Rico, officially the Commonwealth of Puerto Rico, is a self- governing, a territory of the United States, located in the northeastern Caribbean, east of the Dominican Republic and west of both the US Virgin Islands and the British Virgin Islands.
Puerto Rico has created an aggressive tax incentive program to connect with the global economy to establish an ever-growing array of service industries and to establish as an international service and trading hub center.
As of January 1, 2020, Act 20 and 22 have been replaced by The New Tax Act 60, which brings with it some changes to the requirements. We have reviewed the language of the new law and are pleased to share the major changes to Act 20 and 22 programs below.
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Who can get benefited by the PR Tax Incentive Program?
Available approved qualified services for application includes but are not limited to:
An Eligible Service must qualify as either service for exportation or a promoter service. Services for exportation are services performed for non-resident individuals and foreign entities that have no nexus with Puerto Rico, which means that the eligible service is not, and will not be, related to the conduct of trade, business, or other activity in Puerto Rico. Promoter services are services rendered to non-resident individuals and foreign entities related to the establishment of a new business in Puerto Rico, as defined by the Export Services Act.
The benefits of Act No. 22, are only available to bonafide residents of Puerto Rico that were not bonafide residents of Puerto Rico for the 6 years preceding the enactment of the Act on January 12, 2012 (“Eligible Individuals”). Generally, a bonafide resident of Puerto Rico is a person who: (1) is present for at least 183 days during the taxable year in Puerto Rico; (2) does not have a tax home outside of Puerto Rico during the taxable year; and (3) does not have a closer connection to the United States or a foreign country than to Puerto Rico.
Although Puerto Rico is a U.S. territory, under Section 933 of the U.S. Internal Revenue Code of 1986, as amended, bonafide residents of Puerto Rico are not subject to U.S. federal income taxes on income derived from sources within Puerto Rico.
Therefore, U.S. citizens that are bonafide residents of Puerto Rico benefiting from the Act will only be subject to federal income taxation on income derived from sources outside of Puerto Rico.
An eligible service provider is required to obtain a Tax Exemption Decree that will endure for a term of 20 years and may be renewed for an additional 10 years. The Tax Exemption Decree constitutes a contract between the service provider and the Government of Puerto Rico and will be unaffected by any future legislation.
Please note that Act 20 was recently amended, and any new business applying for Act 20 must comply with a minimum of 5 full-time employees (FTE) for the period of the grant, for which the company should comply with the end of the 6th month after starting its operation. FTE are employees who work 2,080 hours a year, including paid-time-off. 5 FTEs are equal to 10,400 hours. If the company needs to recruit part-time employees, to qualify for this requirement, he/she must at least work 1,040 (50%) hours or more.
