Puerto Rico Tax Incentives – Act 20 / 22

ACT 20

Created to promote the export of services, Act 20 offers attractive tax incentives for companies at fixed rate of 4% and minimal requirements that establish and expand the export services industry. The tax incentive is guaranteed for 20 years as long as you comply with the requirements.

This Act encourages the Relocation of Individual Investors to Puerto Rico.  It offers a total tax exemption on passive income generated or accumulated once the individual is a bona fide resident of Puerto Rico.  A Puerto Rico bona fide resident is an individual who is domiciled in Puerto Rico.  Physical presence in Puerto Rico for a period of 183 days during the taxable year will create a presumption of residence in Puerto Rico for tax purposes.  They must also comply with a Tax Home and closer connection tests (special tax Rule under US Code).

Known as the “Economic Incentives for the Development of Puerto Rico Act”, it was enacted in 2008 to provide an efficient environment and opportunities for the development of local industry.  It offers an attractive tax proposal, (4% or 8% fixed income tax rate among many other) to attract foreign direct investment and to promote the economic and social development of Puerto Rico.

Enacted in 2012 to regulate the organization and operation of International Financial Institutions (IFE).  They must be authorized by the Office of the Commissioner of Financial Institutions to operate in Puerto Rico.  This Act provides tax exemptions to eligible activities.  The export of services has been identified as one of the key pieces for the economic development of Puerto Rico and financial services employ the largest number of people per business under the tax incentives. The IFE tax incentive is generally used by international banks, investment funds, hedge funds and family offices.

International insurers and re-insurers act allows entities to organize a captive insurance in Puerto Rico. Insurers that qualify for an international insurer license are 100% exempt on all income (including liquidation and dissolution of its operations in PR) derived by the international insurer or international insurer holding company. Also, 100% tax exemption on municipal license tax, property tax, dividends, and distributions to its shareholders.

Private Equity Funds not only represent a proven alternative to investment, but also constitute a financing and economic tool that facilitates the pooling of private capital in order to make financing available to companies.  By promoting this investment vehicle used by investors around the world, it stimulates the job creation for professionals in the field of securities and financial business in Puerto Rico.  Private equity funds generally pay a 4% tax rate on gains.

The Young Entrepreneurs Act was established for hard working young adults within the ages of 16 to 35. The subsections of this Act grants tax exemption for individuals (from ages 16 to 26 making under $40,000) and new business (from ages 16 to 35 until $500,000).

The Act for Tourism Development, offered through the Puerto Rico Tourism Company, provides incentives for the development of world-class tourist industry.  All benefits granted under this act are for 10 years from the date that the eligibility of the tourism project is established and can be extended under the operational phase for an additional 10 years.

This Act aims to retain health professionals in Puerto Rico and also promotes the return health professionals to the island by offering a fix 4% tax rate for 15 years.   As of July 11, 2017, Act 14 can be combined with the telemedicine components of the Act 20 tax incentive program.

Establishes standards to promote renewable energy, in accordance with short, medium and long-term compulsory targets, known as the Renewable Energy Portfolio.  This Act could become one of the most applied for after the effects of Hurricanes Irma and Maria in the electrical power infrastructure of the island.