A Brief History Lesson on Act 60
January 17th of 2012 the Puerto Rican government enacted Act 20 called the “Export Services Act.” Created to help stimulate and accelerate the economic recovery of Puerto Rico, Act 20 attracted new business and employment opportunities. Service businesses from accounting to legal services to consulting firms could qualify for the benefits under this Act.
Long story short, Act 20 provided a 4% corporate tax rate for business operating within PR that received income from customers outside of the island. While having to provide services remotely the businesses could receive these incentives because the Federal Government does not tax Puerto Rico residents.
January 1st, 2020, Act 20 was replaced with Act 60 (and Act 22 was replaced by Act 60, too) Act 60 brought about some changes to the tax incentives and requirements.
What exactly are the tax benefits under Act 60?
Qualifying business with operations within Puerto Rico that receive income from outside the island get these incentives:
- 4% corporate tax rate
- 100% tax exemption on earnings and profits from distributions
- 50% municipal tax exemption
- 75% tax exemption on municipal and state property taxes (can get up to 100% exemption for small to mid-size business during first 5 years of operation)
Clarifications:
“Operations inside Puerto Rico” means work output is created on island soil
The business owner and employees must have a reasonable salary being received based on their services provided. This salary is taxed at ordinary Puerto Rico income tax rates.
Note: The Office of Industrial Tax Exemption does execute audits of Act 60 businesses once every 2 years.
What businesses are eligible for Act 60?
- Creative industries
- Research and development
- Consulting services (i.e., marking, human resources, computer, scientific, etc.)
- Professional such as tax, legal, or accounting services
- Call centers
- Educational or training services
- Telehealth medicine and medical tourism services
- Blockchain-related services
- Assembly, bottling, and packing operation of exported products
This not a complete list of all the qualifying businesses. Just a list to provide examples.
An eligible business must not have related conduct within Puerto Rican limits. Meaning the service must not be related to the trade, business, or have other activity in relation to PR. The clients must be outside of Puerto Rico.
Eligible services that do have nexus with Puerto Rico:
- Income-producing activities that have been or are performed in Puerto Rico by the business
- Counseling on laws, regulations, and admin determinations of the Puerto Rican government and its entities
- Sale of property for use, consumption, or disposition of Puerto Rico
- Lobbying for laws, regulations, and admin determinations of Puerto Rican government
- Any other activities deemed appropriate by the Secretary of the Department of Economic Development and Commerce of Puerto Rico
To be deemed eligible, business that generate a minimum annual volume of $3,000,000 must directly employee one full time Puerto Rican that participates directly in business activities per the decree.