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Comprehensive Guide to Act 60 in Puerto Rico

Overview

Act 60, also known as the “Puerto Rico Incentives Code,” consolidates and extends previous tax incentives from Acts 20 and 22. It is designed to encourage investment in Puerto Rico by offering businesses and individual investors favorable tax treatment. This legislation has become a crucial tool for economic development, attracting U.S. citizens and international investors who seek a favorable tax environment. In this guide, we will break down the key components of Act 60, the tax incentives it offers, and how it benefits both businesses and investors.Caribbean real estate developers are the architects of paradise, transforming untouched land into luxurious resorts, stunning villas, and vibrant communities. They understand the unique challenges and opportunities that come with building in this idyllic region. Whether you’re looking to invest in a vacation home or a commercial property, these developers offer the expertise and local knowledge you need to make informed decisions. Dive into the world of Caribbean real estate development and discover how these experts can help you find your slice of paradise.

What is Act 60?

Act 60 is a comprehensive law designed to promote economic development in Puerto Rico by providing tax incentives for both individuals and businesses. It consolidates various tax incentive programs, including the highly successful Acts 20 and 22, and provides new benefits to attract new residents, businesses, and investments to the island. The law was enacted to stimulate growth in key sectors such as export services, real estate, manufacturing, and renewable energy.

Key Benefits of Act 60

Act 60 offers a range of tax incentives that make Puerto Rico an attractive destination for businesses and investors. These benefits are available to both new businesses establishing a presence on the island and U.S. citizens or international investors who move to Puerto Rico. Below, we’ll go into the specific details of these benefits:

Corporate Tax Benefits (Act 20)

Under Act 60, eligible businesses that export services from Puerto Rico can enjoy a significant reduction in their corporate tax rate to just 4%. This is a dramatic reduction from the U.S. corporate tax rate, which makes Puerto Rico a highly favorable environment for businesses looking to reduce their tax burden. These businesses also benefit from:

  • Exemption on Dividends: Businesses can pay dividends to shareholders without incurring taxes, allowing for efficient capital distribution.
  • Property Tax Exemptions: Certain types of property, including those used in manufacturing or export services, may be exempt from property taxes.
  • Access to U.S. Markets: Since Puerto Rico is a U.S. territory, companies operating under Act 60 still have access to the U.S. market, providing a unique advantage for international businesses.

Individual Tax Benefits (Act 22)

For individuals, Act 60 consolidates the tax incentives of Act 22, which offers highly favorable tax exemptions for new residents who establish bona fide residency in Puerto Rico. These benefits include:

  • Exemption on Dividends: Individuals who qualify under Act 60 are exempt from Puerto Rico taxes on dividends received from Puerto Rican sources.
  • Capital Gains Exemption: Long-term capital gains from the sale of securities and investments are 100% exempt from Puerto Rican taxes for bona fide residents.
  • Interest Income Exemption: Interest income earned by qualified individuals is also exempt from Puerto Rican taxation.

Additional Tax Incentives for Certain Industries

Act 60 offers additional tax benefits for certain industries that contribute to Puerto Rico’s economic development, including:

  • Renewable Energy: Investors in renewable energy projects can benefit from tax credits and exemptions for production and investment, helping to grow Puerto Rico’s green energy sector.
  • Tourism and Hospitality: Companies involved in tourism or hospitality development, including hotels and resorts, can access tax exemptions for qualified investments in Puerto Rico’s tourism infrastructure.
  • Film and Digital Media: Producers and creators in the film and media industry can receive tax credits for qualified expenditures related to production activities in Puerto Rico.

Who Qualifies for Act 60 Benefits?

Act 60 benefits are available to both businesses and individuals who meet certain qualifications. These include U.S. citizens, international investors, and business owners who are willing to relocate to Puerto Rico or start a business on the island. Below are the requirements for qualifying under Act 60:

Individuals

To qualify for the individual tax incentives under Act 60 (formerly Act 22), individuals must:

  • Establish bona fide residency in Puerto Rico, which requires living on the island for at least 183 days a year.
  • Be a U.S. citizen or resident alien, or a foreign national who establishes permanent residency in Puerto Rico.
  • Ensure that the income being claimed for exemptions is Puerto Rican-sourced income.

Businesses

Businesses can qualify for Act 60 benefits by meeting the following criteria:

  • They must export services from Puerto Rico or engage in eligible activities such as manufacturing or scientific research.
  • The business must be established on the island and must meet certain operational requirements, such as maintaining a certain number of local employees.
  • For export businesses, 80% or more of the business activity must be outside of Puerto Rico to qualify for the 4% corporate tax rate.

How to Apply for Act 60 Tax Incentives

Applying for Act 60 tax incentives involves a series of steps that must be carefully followed to ensure eligibility. Below are the general steps for applying:

  • Initial Consultation: Consult with a tax advisor or attorney familiar with Puerto Rican tax law to ensure eligibility for Act 60 incentives.
  • Prepare and Submit Application: Submit an application to the Puerto Rico Department of Economic Development and Commerce (DDEC), including documentation to verify residency status or business qualifications.
  • Government Review: The Puerto Rican government will review the application and determine whether the business or individual qualifies for the incentives. Upon approval, a tax exemption decree will be issued.
  • Compliance and Reporting: Once approved, recipients must comply with Act 60’s requirements, including submitting annual reports and maintaining a qualifying business or residency status.

Conclusion: Why Act 60 Is Attractive for Investors

Act 60 offers some of the most attractive tax incentives in the Caribbean and U.S. territories, making Puerto Rico a prime destination for investors seeking to reduce their tax liabilities. Whether you’re an individual investor looking for tax-free capital gains or a business owner seeking a low corporate tax rate, Puerto Rico’s favorable tax climate under Act 60 can provide substantial savings and opportunities for growth. The act’s comprehensive nature, combined with its sector-specific incentives, makes it an appealing choice for both U.S. citizens and international investors.

As Puerto Rico continues to recover and grow economically, Act 60 presents a unique opportunity to be part of its revitalization. The island’s beautiful landscapes, access to U.S. financial systems, and the significant tax advantages offered under Act 60 ensure that it remains an attractive destination for investors and entrepreneurs alike.

Frequently Asked Questions

Act 60, also known as the “Puerto Rico Incentives Code,” consolidates and enhances the benefits of earlier tax laws, including Acts 20 and 22, to encourage investment and economic growth on the island. It offers significant tax incentives such as a 4% corporate tax rate for export service businesses, full exemptions on capital gains for bona fide residents, and additional benefits for industries like renewable energy, tourism, and manufacturing. These incentives attract both U.S. citizens and international investors, making Puerto Rico a prime destination for reducing tax burdens while accessing U.S. markets.

Both individuals and businesses can qualify for Act 60 tax benefits. Individuals must establish bona fide residency in Puerto Rico, which includes living on the island for at least 183 days a year and ensuring their qualifying income is Puerto Rican-sourced. Businesses must operate on the island, engage in eligible activities like exporting services or manufacturing, and meet certain criteria, such as maintaining local employees and deriving 80% or more of their revenue from outside Puerto Rico for export services.

Act 60 offers unprecedented tax advantages compared to U.S. federal laws. For bona fide residents of Puerto Rico, long-term capital gains, dividends, and interest income sourced from Puerto Rico are completely exempt from Puerto Rican taxes. These exemptions eliminate significant federal tax liabilities while allowing individuals to retain their U.S. citizenship and access to U.S. financial markets. This makes it especially attractive for investors seeking to grow and preserve their wealth.

Act 60 supports a wide range of industries, but sectors like export services, renewable energy, tourism, and manufacturing benefit the most. Export service businesses enjoy a 4% corporate tax rate, while renewable energy projects receive tax credits and exemptions to boost Puerto Rico’s green economy. Tourism developers, including hotels and resorts, gain access to tax exemptions on investments, and manufacturers benefit from property and income tax reductions, making Puerto Rico an appealing hub for economic activity across these industries.

Applying for Act 60 benefits involves several steps. First, consult a Puerto Rican tax advisor or legal professional to ensure eligibility and prepare the necessary documentation. Next, submit an application to the Puerto Rico Department of Economic Development and Commerce (DDEC), including proof of residency for individuals or business qualifications for companies. The application undergoes government review, which typically takes a few months. Once approved, recipients receive a tax exemption decree and must comply with annual reporting and operational requirements to maintain their benefits.

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