Puerto Rico is a U.S. Commonwealth; it’s part of the US, but enjoys a level of independence that includes tax breaks not available in other states and jurisdictions.
Puerto Rico Tax Haven: Act 20 Basics
On January 17, 2012 Puerto Rico enacted the “Act to Promote the Export of Services” — a.k.a., Act 20. The provision bestows tax exemptions and credits on businesses engaged in eligible activities on the island. To leverage Act 20, businesses must apply for a tax concession and obtain an exemption decree. The decree is available for 20 years, with a possible 10-year extension.
Puerto Rico offers generous tax incentives to eligible businesses. For example:
- 4% fixed income tax rate on export service income (or even lower on certain cases; e.g. 3% for services considered strategic);
- 100% tax exemption on distributions from earnings and profits;
- 90% tax exemption from personal and real property taxes for certain types of businesses (100% tax exemption for the first five years of operation); and
- 60% tax exemption on municipal taxes (or even higher on certain cases).
Puerto Rico Tax Haven: Act 22 Basics
At the same time, Puerto Rico enacted the “Individual Investors Act” — a.k.a., Act 22. A resident cultivation attempt, the law obliterated all manners of tax obligations. Eligible participants enjoy:
- 100% tax exemption from Puerto Rico income taxes on
all dividends; - 100% tax exemption from Puerto Rico income taxes on
all interest; 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
(“Puerto Rico Gain”).
Exemptions under Act 22 are valid through December 31, 2035.
Puerto Rico Tax Haven: Act 20 and 22 for Internet Business
To make conditions even more attractive, Puerto Rico recently eliminated the five employee requirement. After moving your business to Puerto Rico, you will only pay 4% on Puerto Rico sourced business profit. And if you yourself move to Puerto Rico as well, you can then pay all the profits as dividends to yourself which are 100% tax exempted. Therefore, since many internet businesses are highly portable, relocating to Puerto Rico is relatively easy and may give you one of the most competitive tax incentives around. Besides, the year-around summer weather!
Disclaimer: This article is not intended to provide legal advice. Please consult an attorney for legal advice for your particular situation.
