Puerto Rico Tax Incentives Overview

Tax Incentives Puerto Rico

Not too many places in the world can offer Return on Investment the way the beautiful island of Puerto Rico does. In fact, most of the fast-expanding array of services and rising industries generally attribute their success to the incentives made available by the Puerto Rican government.

All US federal laws apply to Puerto Rico. They share a common currency, the US dollar, a common military defense and citizenship with the US. In traveling to and from the US mainland, no passports are needed. But because it is not a state but a commonwealth of the US, Puerto Rico enjoys fiscal independence and autonomy. This means attractive Puerto Rico tax incentives not available in the US mainland.

These elements critical to investors and businessmen are formidable. Over and above these, investments are safeguarded by the prevailing rule of law, the absence of any risks on the currency and Puerto Rico’s political stability.

Puerto Ricans And Corporations Are Not Subject To US Federal Taxes

All Puerto Ricans born from 1917 onwards have automatically become citizens of the US. Because they all reside within the commonwealth, US federal taxes do not apply to income generated by individuals and corporations. For federal tax purposes, corporations in Puerto Rico are treated as foreign corporations and are not subject to US corporate taxes.

Act 20 Puerto Rico (The Export Services). Act 20, 22 

Act 20, 22 were two additional laws passed in 2012. These new laws enabled the establishment of a legal framework of incentives which were worked out to stimulate the development of a wide range of ventures. Among these, were manufacturing, social media, other interest-based businesses and operations and the export of services.

In particular, The Export Services Act 20 Puerto Rico was aimed at developing in Puerto Rico an international export services center. This was enacted to encourage local service companies to expand their services to persons and groups outside of Puerto Rico and rev-up the development of new businesses. Below are the major tax incentives that went along with these:

  • Corporate tax rate of only 4%
  • 100% tax exemption on dividends or profit distributions
  • 100% exemption of property taxes for certain export service businesses
  • Decree of 20 years guaranteeing these rates, renewable for an additional 10 years.

The Individual Investors Act 22 provided the following key incentives:

  1. 100% tax exemption from Puerto Rico income taxes on all dividends.
  2. 100% tax exemption from Puerto Rico income taxes on all interest
  3. 100% tax exemption from Puerto Rico income taxes on all short and long-term capital  gains accrued after the individual investor becomes a bona-fide resident of Puerto Rico.

These are but some of the incentives available to those who would like to invest in Puerto Rico. Depending on which industry an entrepreneur may want to invest his money in, several other sets of incentives are available.