Puerto Rico
Act 60: Tax Incentives Codes

Its primary aim is to cultivate a sense of community and collective advocacy among those relocating to Puerto Rico to leverage these incentives. Founded by Robb Rill, one of the initial recipients of these incentives who moved his private equity firm to the island in late 2012, the organization has garnered attention from prominent business publications such as Bloomberg, Reuters, and Business Week. Drawing from years of experience and a network of trusted resources, the society offers its members valuable insights into professional services and guidance on the relocation process necessary to maximize the benefits of Act 60. Committed to giving back to Puerto Rico, the society operates a philanthropic arm known as The Act 20/22 Act Foundation, which provides grants to various local charities, contributing to the broader Puerto Rican community. For further details, please visit: www.the2022actsociety.org

Incentives:

• Income derived by the IFE will be subject to a fixed income tax rate of 4%.
• Interest, financing charges, dividends or partnership benefits will not be considered gross income from Puerto Rico sources; thus, not subject to taxation or withholding provisions applicable to non-residents.
• Fixed income tax rate of 6% on dividends and other distributions of profits received by Puerto Rico residents that are shareholders or partners.
• 75% property tax exemption for real and personal property of an IFE.
• 50% tax exemption from municipal taxes.

Eligibility:

• Entity can be incorporated or organized under the laws of Puerto Rico, the United States or a foreign country.
• Must employ at least four full-time employees at its Puerto Rico business office.
• It is required to apply for a permit and license with the Office of the Commissioner of Financial Institutions (“Commissioner”) and obtain a tax exemption decree from the Office of Incentives for Businesses.  The Decree will be effective for 15 years, but one additional extension of 15 years may be available.
• Payment of an initial license fee of $5,000, renewable annually with payment of a $5,000 fee.
• The entity must comply with all requirements established in the Federal Anti-Money Laundering Laws and Regulations, and with OFAC sanctions programs. 
• The amount of its authorized of capital stock cannot be less than $5 million, or $500,000 if limited to certain financial activities, or a higher amount, as required by the Commissioner, of which at least $250,000 must be paid before the license is issued.  
• To obtain the license, in addition to the minimum capital requirement, must own at least $300,000 in restricted assets (generally, a CD with a local bank or other IFE) free of liens or financial guarantees. 

Once the license is obtained, the IFE may engage in a list of permitted transactions, as established in its license.

Typically, investors eligible for these funds are partners in a partnership or members in a limited liability company opting for partnership treatment for Puerto Rico income tax purposes. These investors are required to meet the criteria of “Accredited Investors” as defined by Act 60.

Eligibility:

• The fund must be a partnership or limited liability company organized under laws of the United States, a foreign jurisdiction or the Commonwealth of Puerto Rico, engaged in the business of buying and selling securities that are not offered at public securities exchange markets in the U.S. or any foreign country.
• The fund must have an office located in Puerto Rico.
• 80% of its paid-in capital must be invested in securities issued by entities that at the time of the acquisition are not offered at public securities markets.
• Invest up to 20% in allowable short-term investments.
• Within 4 years of organization.
  • A “Private Equity Fund” must maintain a minimum of 15% of paid-in capital invested in securities that (i) are not offered at public securities exchange markets, and (ii) which have been issued by entities engaged in an active trade or business, or entities that derive at least 80% of their gross income from Puerto Rico sources or income effectively connected with a Puerto Rico trade or business (securities that comply with (i) and (ii) are referred to as “PR Securities”).
  • A “Puerto Rico Private Equity Fund” must maintain a minimum of 60% of the paid-in capital invested in PR Securities.
• Fund investors must qualify as “Accredited Investors” as defined in Act 60.
• Must use an investment advisor with an office in Puerto Rico engaged in a trade or business in Puerto Rico and duly registered with the Puerto Rico governmental authorities or exempt from registration, as applicable.
• Must operate as a diversified investment fund.
• Must have a minimum committed capital of $10 million on or before 24 months from the date of the first issuance of its partnership or membership interests.
• Must appoint at least one of its investors or limited partners to an advisory board.
• If the fund is organized outside of Puerto Rico, its General Manager or Investment Advisor must be engaged in trade or business in Puerto Rico and must generate at least 80% of its gross income from Puerto Rico sources or must be treated as income effectively connected with a Puerto Rico trade or business.

Incentives:

• Private Equity Funds are not subject to municipal taxes, and all property owned by the fund is 75% exempt from property taxes.
• Resident investors (which include PR resident individuals, US citizens which are not PR residents, foreign entities if all of its shareholders are residents of Puerto Rico, and a PR entity) are entitled to deduct from taxable income up to a maximum of 30% (60% if the investment is in a Puerto Rico Private Equity Fund) of their initial investment within a maximum period of 10 years (15 years if investment in a Puerto Rico Private Equity Fund) provided the deduction does not exceed 15% (30% if investment is in a Puerto Rico Private Equity Fund) of their net income prior to such deduction.
• An accredited investor’s share of income derived by a Private Equity Fund from interest and dividends is subject to an income tax rate of 10%, while capital gains are exempt.
• Capital gains from the sale of ownership interests by an Accredited Investor in a Private Equity Fund are generally taxed at a fixed rate of 5%. 
• General Managers and Investment Advisors are also subject to certain tax benefits on income attributable to their ownership interest in a private equity fund.

Eligibility: 

The following are considered tourism activities eligible to benefit from Act 60:

• Guesthouses, hotels, hostels, condo-hotels, timeshares, vacation clubs, country inns, bed and breakfasts.
• Theme parks.
• Golf courses (if operated by or associated with a hotel or within a resort).
• Casinos (if located within a hotel).
• Tourism Marina, Nautical Tourism, or facilities in port areas for tourism purposes.
• Agrohospices and Agrotourism.
• Medical Tourism.
• Development and administration of sustainable tourism and ecotourism businesses and of natural resources as a source of active, passive, or recreational entertainment, such as caverns, forests, canyons, natural reserves and lakes.
• Activities of eSports and Fantasy Leagues.
• The lease of real property and certain personal property to an exempt business.
• Other facilities or activities that due to their use as a source of active, passive, or recreational entertainment stimulates internal or external tourism.
• Any other tourism sector if the Secretary of the DDEC determines that the operation is necessary and convenient for the development of tourism in Puerto Rico.

Incentives: 

• Tourism Tax credits of either 30% or 40% of the Tourism Eligible Investment, which generally includes the amount of cash contributed to the exempt business in exchange for its ownership interest and loans guaranteed by the exempt business, its parent, or affiliates. 
• Municipal construction excise tax exemption of up to 75%.
• Excise and sales and use tax exemption of up to 100%.
• Municipal license and other municipal tax exemptions of up to 50%.
• 4% fixed income tax rate.
• 100% exemption on the dividends or distributions of tourism development income.
• Real and personal property tax exemption of up to 75%.
• 100% exemption on petroleum derived products and any other hydrocarbon mixture (including propane and natural gas) used as fuel by the exempt business to generate electricity or thermal energy for the tourism activity.
• 4% income tax rate on any gain from the sale of substantially all the assets or ownership interests of the exempt business.
• 12% special withholding income tax rate on royalties, rents or rights paid to foreign entities for the use of intangible property.
• 100% exemption from income tax and municipal taxes on interest, charges and other revenue paid by the exempt business on account of bonds, notes or other obligations if the proceeds are used for the development, construction, rehabilitation, or improvement of an exempt business.
• 90% exemption from the payment of internal revenue and notarial stamps, vouchers and other fees paid for execution and filing of public instruments.

Benefits: 

• Alternative risk management strategies as captive or associated captive insurers.
• Insurers or reinsurers’ vehicle to enter Latin America or U.S. markets.
• Special purpose vehicles.
• Vehicle for integrated insurance plans.
• Corporate reorganization using international insurer holding companies.
• Segregated assets plans.
• Securitization programs.

Incentives: 

• 100% exemption from premium taxes
• 100% exemption from income taxes on dividends and other profit distributions made by the International Insurer and International Insurer Holding Company.
• 75% property tax exemption for real and personal property.
• 50% municipal tax exemption.
• 100% exemption form income withholding taxes on payments of dividends and other profit distributions.
• Isolation of proceeds and benefits paid by international insurers are not subject to income taxes.
• Tax exemption of up to $1.2 million on net income applicable at individual cell level for Protected Cell Company arrangements and at company level.
• Preferred 4% tax rate on net income.

Incentives:

• Fixed income tax of 4%.
• Income tax rate for innovative activities of 1% to 4%.
• 4% income tax rate on any gain from the sale of substantially all the assets or ownership interests of the manufacturing business.
• 12% special withholding income tax rate on royalties or rights paid to foreign entities for the use of intangible property.
• 100% tax exemption for distributions of earning and profits.
• 75% property tax exemption for real and personal property used in the exempt manufacturing business.
• 50% tax exemption for municipal taxes (taxable portion of gross receipts subject to regular tax rate of 0.5%).
• Tax credit of up to 25% for purchasing local and recycled local products.
• Tax credit of up to 50% of eligible investment in research and development.
• Rebates for investing in structures, machinery and equipment.
• Cash incentives for job creation.

Eligibility:

• Must meet the requirements provided in the request for proposal designed for the Partnership.
• Proponent must be a person authorized to do business in Puerto Rico.
• Proponent must have available corporate or equity capital or securities or other financial resources necessary for the proper operation of the Partnership.
• Proponent must have a good reputation and the managerial, organizational, and technical capability, as well as the experience, to develop and administer the Partnership.
• Certification that neither the Proponent nor any of its members, directors, bondholders or any person that is the alter ego or the passive economic agent thereof, have been convicted for acts of corruption.

Incentives:

• Small scale projects (with estimated $55 million budget) enjoy an expedited process of evaluation.
• 100% exemption from real and personal property taxes on property used exclusively in the facility and owned by the Partnering Government Entity.
• The contractors and the municipal governments may establish payment agreements or exemptions from municipal license fees, excise taxes or municipal taxes.
• Fixed income tax rate of 10% on net income derived from the operations under the partnership contract.
• Shareholder of a special contracting partnership will be subject to a fixed income tax rate of 20% on net income derived from operations under the partnership contract.
• For Sales and Use Tax purposes, contractors may qualify as Government agents, and therefore enjoy exemption if they comply with certain requirements imposed under the Puerto Rico Internal Revenue Code and Administrative Determinations issued by the PR Treasury Department.