Does the business need to move to Puerto Rico? Yes, because the work needs to be performed in Puerto Rico to receive the tax advantages. To accomplish this, there are two conditions where one needs met:
- Businesses moving 100% of their income producing activities: A new business entity would be setup within Puerto Rico and then all income producing employees would relocate to Puerto Rico. The US entity would stop operations and then 100% of the income would become produced on Puerto Rico soil.
- Moving a portion of the income producing activities to PR: Under this one a new entity would still need to be setup in Puerto Rico, but then would charge a management fee to the existing domestic business entity. Intercompany agreements would need established, and a transfer pricing analysis would need done, too, to ensure the appropriate revenue is made using US v. Puerto Rico resources (since the Puerto Rican company is not a US-entity). Tax jurisdictions want to maximize their keep.
After you have relocated or moved your qualifying business, you can now obtain the tax exemption decree. The business will need to submit the application to the Office of Industrial Tax Exemption of Puerto Rico.
On your decree, which acts as a contract between the business and the Puerto Rican government, you will find the details of the tax rates and conditions mandated by Act 60. Once the decree is obtained the benefits granted are locked in for the term of the decree which is typically 15 years. The decree can be extended an additional 15 years. But note, there is a cost for applying and maintaining the decree.