Act 60 Tax Incentives in Puerto Rico
Puerto Rico's Act 60, formally known as the Puerto Rico Incentives Code, is one of the most powerful tax incentive programs available to U.S. citizens and businesses. Enacted in 2019, Act 60 consolidated previous tax incentive laws — including Act 20 (Export Services Act) and Act 22 (Individual Investors Act) — into a single comprehensive framework that continues to attract entrepreneurs, investors, and service professionals from across the United States and worldwide.
At Riefkohl Law, we help clients navigate the Act 60 application process, structure their businesses to qualify for maximum tax benefits, and maintain ongoing compliance with decree requirements. Our deep understanding of Puerto Rico tax law ensures you receive the full benefit of these incentives while avoiding common pitfalls.
Understanding Act 60: The Puerto Rico Incentives Code
Act 60 provides a unified legal framework for economic incentives in Puerto Rico. The law is organized into chapters, with Chapter 2 covering individual investor incentives and Chapter 3 addressing export service businesses. Each chapter offers distinct tax benefits designed to attract capital, talent, and business activity to the island.
Unlike tax incentives in many other jurisdictions, Act 60 benefits are granted through individual tax decrees — legally binding agreements between the applicant and the Puerto Rico government that guarantee specific tax rates and exemptions for a defined period, typically 15 years with the option to extend.
Chapter 3: Export Services Tax Incentives
Act 60 Chapter 3 (formerly Act 20) provides significant tax benefits to businesses that export services from Puerto Rico to clients outside the island. This is one of the most popular provisions of the incentives code and has attracted hundreds of businesses to establish operations in Puerto Rico.
Key Tax Benefits for Export Service Businesses
Qualifying export service businesses can enjoy a 4% fixed corporate income tax rate on eligible export service income, compared to the standard Puerto Rico corporate tax rate of 18.5% to 37.5%. Additional benefits include 100% tax exemption on distributions from earnings and profits to shareholders, 75% exemption on municipal license taxes (patente municipal), 60% exemption on personal and real property taxes, and 100% exemption on dividends from export service income.
Qualifying Export Services
A wide range of professional and business services qualify under Chapter 3, including consulting and advisory services, technology and software development, financial services and fund management, marketing and advertising, research and development, engineering and architecture, call centers and shared service centers, educational and training services, and creative and media production. The key requirement is that services must be provided to clients located outside Puerto Rico.
Operational Requirements
To maintain Chapter 3 benefits, businesses must establish a bona fide office in Puerto Rico, hire a minimum number of employees (typically at least one full-time employee in addition to the owner within the first two years), maintain adequate substance in Puerto Rico, and file annual reports with the Department of Economic Development and Commerce (DDEC).
Chapter 2: Individual Investor Tax Incentives
Act 60 Chapter 2 (formerly Act 22) provides extraordinary tax benefits to individuals who become bona fide residents of Puerto Rico. These incentives are particularly attractive for investors, traders, and individuals with significant capital gains income.
Key Tax Benefits for Individual Investors
Qualifying individual investors receive 100% tax exemption on capital gains accrued after becoming a bona fide Puerto Rico resident, including gains from stocks, bonds, cryptocurrency, and other investment assets. They also receive 100% tax exemption on dividends and interest income from Puerto Rico sources, and reduced tax rates on other types of income.
Residency Requirements
To qualify for Chapter 2 benefits, individuals must become bona fide residents of Puerto Rico, which requires being physically present in Puerto Rico for at least 183 days per year, having a tax home in Puerto Rico (your primary place of business or employment), demonstrating closer connections to Puerto Rico than to any other jurisdiction, purchasing residential property in Puerto Rico within two years of the decree grant, and making an annual charitable donation of $10,000 to qualifying Puerto Rico nonprofits.
The Act 60 Application Process
Obtaining an Act 60 tax decree involves several steps that require careful preparation and legal guidance.
Step 1: Eligibility Assessment
We begin by evaluating your business model or investment activities to determine which Act 60 chapter best fits your situation. This includes analyzing your income sources, service delivery model, and relocation plans.
Step 2: Application Preparation
We prepare a comprehensive application package for submission to DDEC, including a detailed business plan (for Chapter 3), proof of eligible income sources, personal background documentation, and projected economic impact on Puerto Rico.
Step 3: Filing and Negotiation
After filing the application and paying the required fees, we work with DDEC to address any questions and negotiate favorable decree terms. The typical processing time ranges from 60 to 120 days.
Step 4: Decree Execution
Once approved, you receive a tax decree — a binding legal document that guarantees your specific tax benefits for the decree period. We review all terms carefully before execution to ensure your interests are protected.
Compliance and Annual Reporting
Maintaining your Act 60 benefits requires strict compliance with decree conditions and Puerto Rico regulations. Annual requirements include filing an annual report with DDEC, paying the annual compliance fee, maintaining bona fide operations or residency in Puerto Rico, filing Puerto Rico tax returns accurately reflecting decree benefits, making required charitable donations (Chapter 2), and meeting minimum employment thresholds (Chapter 3). Our firm provides ongoing compliance support to ensure you never risk losing your valuable tax benefits.
Common Mistakes to Avoid
Many Act 60 applicants and decree holders make costly mistakes that can jeopardize their benefits. These include failing to establish genuine Puerto Rico residency (spending insufficient time on the island), not maintaining adequate business substance for export service decrees, misclassifying income as eligible export service income, failing to file required annual reports on time, not purchasing residential property within the required two-year window, and inadequate record-keeping to support claimed tax benefits. Working with an experienced Puerto Rico tax attorney from the outset helps you avoid these pitfalls and protect your investment.
Frequently Asked Questions
What is Act 60 in Puerto Rico?
Act 60 is the Puerto Rico Incentives Code that consolidated previous tax incentive laws (Acts 20 and 22) into a single framework. It provides significant tax benefits to qualifying businesses and individual investors who establish bona fide presence in Puerto Rico.
What are the tax benefits for export service businesses?
Export service businesses under Act 60 Chapter 3 can benefit from a 4% fixed corporate income tax rate, 100% exemption on distributions, 75% exemption on municipal taxes, and 60% exemption on property taxes.
What are the requirements for individual investor benefits?
You must become a bona fide Puerto Rico resident (183+ days per year), purchase residential property within two years, make $10,000 annual charitable donations, and demonstrate closer connections to Puerto Rico than any other jurisdiction.
How do I apply for an Act 60 decree?
Applications are filed with the Puerto Rico Department of Economic Development and Commerce (DDEC). An experienced attorney can prepare your application, negotiate terms, and guide you through the 60-120 day approval process.
Can I lose my Act 60 benefits?
Yes, benefits can be revoked for non-compliance, including failing to maintain residency, not meeting employment requirements, missing annual reports, or not making required charitable donations.
Schedule Your Act 60 Consultation
Whether you are considering relocating to Puerto Rico, establishing an export service business, or optimizing your tax position through Act 60 incentives, Riefkohl Law provides the expert legal guidance you need. Attorney Hans Riefkohl has extensive experience helping clients secure and maintain Act 60 tax decrees.
Call us today at (787) 236-1657 or schedule a consultation online to discuss how Act 60 can benefit your business or investment strategy.