Puerto Rico Tax Act 60 | Business Opportunities and Tax Incentives in the Caribbean

Several Caribbean Islands are offering VISA and incentive programs to attract remote workers, digital nomads, and other entrepreneurs that bring their job and income with them. Countries such as Anguilla, Antigua & Barbuda, Aruba, Barbados, Bermuda, Caymen Islands, and Montserrat have temporary resident VISA programs to encourage these remote workers to live in the Caribbean and contribute to their economy.

For many years, Puerto Rico offered Tax Act 20 for businesses and Tax Act 22 for Individuals to entice U.S. citizens and permanent residents looking for sun and tax savings. The program is now expanded under the Tax Act 60 to include more industries and business opportunities. Residents already living on the island or anyone that wants to move to Puerto Rico may benefit from these incentives.

If living in the Caribbean sounds like the ideal life to you, read on to determine whether the Tax Act 60 incentives and tax exemptions are right for you.

Disclaimer: I am not a lawyer or Accountant, check with the professionals for your specific situation and tax implications.

Act 60 Export Services – for Businesses (Formerly Tax Act 20)

Business owners can benefit from the lucrative tax exemptions of the Act 60 Export Services decree in Puerto Rico if their business qualifies. Below are the primary benefits of the decree:

• 4% corporate tax rate
• 0% tax rate for distributions from earnings and profits
• 50% tax exemption on municipal taxes “Patente” (tax rate varies by municipality ranging from 0.2% to 0.5% of gross revenue) paid with annual Volume of Business declaration form
• 75% tax exemption on municipal and state property taxes (if your business is small or mid-sized, this is expanded to 100% for your first five years of business activities)

The business owner must pay themselves a “reasonable salary” that is taxed at the regular income tax rate, but the 4% corporate tax rate still allows for massive savings. Puerto Rico sourced income (such as the business owner salary) earned by Puerto Rico bona fide residents during the entire taxable year is exempt from U.S. federal taxation.

The name “Export Services” provides a clue as to the types of businesses that qualify: those that export their goods or services to jurisdictions outside Puerto Rico.

• Project Management
• Software as a Service (SaaS)
• Consulting firms
• Graphic design companies
• Call centers
• Crypto Start-ups
• Research & Development projects
• Manufacturing

These are just examples of businesses that would qualify for Export Services. Recent changes are attracting crypto startups and investors.

Move or Expand—It’s Your Choice

If you’re interested in the Act 60 Export Services tax incentive for your business, you can take advantage of the exemptions in one of three ways:

• Relocate your entire business, employees included, to Puerto Rico and ending all US-based operations
• Open a Puerto Rico subsidiary, tracking the percentage of revenue and expenditure the entity generates, and taxing its share of the overall business income under the Export Services tax exemptions
• Launch a new business in Puerto Rico that fulfills the Export Services requirements – this is a great option for current residents as well as newbies to the island!

Who Can Start a Export Services Company?

Anyone! Existing residents of Puerto Rico now make up the majority of Tax Act 60 decree holders since 2019! US Citizens moving to the island and (legal resident) foreign nationals can apply, too.

The restrictions are based on the qualifying business activities are within Puerto Rico and those services are for customers outside Puerto Rico, which can be mainland United States and/or any foreign country.

Act 60 Export Services Application Fees

Act 60 Export Services applicants must include $750 with their application as a one-time filing fee. Every year, you must file an annual report to maintain compliance, and a $300 fee must accompany each filing. Note that if you are operating an LLC, you’ll also have to file an annual LLC report, which incurs its own $150 fee.

Act 60 Individual Resident Investor – for Individuals (Formerly Tax Act 22)

It’s an understatement to say the Act 60 Individual Resident Investor tax benefits are generous. Savings include:

• 0% tax rate on all dividends
• 0% tax rate on all interest
• 0% tax rate on all short-term and long-term capital gains
• 0% tax rate on all cryptocurrencies and other crypto assets

These benefits are available to any Act 60 Individual Resident Investor decree holder who fulfills the requirements for bona fide residency in Puerto Rico, pay the applicable filing fees, meets the minimum annual charitable donations (currently $10 annual to approved PR registered non-profit), and lives on the island at least 3 years. If you’re truly committed to relocating your life to Puerto Rico, passing the bona fide residency tests should be a breeze.

How to Establish Bona Fide Residency in Puerto Rico

There are three tests you must pass to become a bona fide Puerto Rican resident:

• Presence test: Spend at least 183 days of the year in Puerto Rico or fewer than 90 days in the United States
• Tax home test: Set up your office or primary workplace (if you work from home, your primary workplace is your home) in Puerto Rico
• Closer connection test: Demonstrate stronger ties to Puerto Rico than to the US by, for example, moving your family and possessions, buying property in Puerto Rico, registering to vote in Puerto Rico, getting a Puerto Rican driver’s license, establishing community ties, etc.

Unfortunately, the Individual Resident Investor incentive is not available for Puerto Rico residents that were living on the island for the last 10 years, prior to applying for the Act. This is the only incentive of Tax Act 60 that discriminants against Puerto Rico residents, and it the most controversial (due to that discrimination).

What Happens with Capital Gains Earned Prior to Your Move?

If you have accrued unrealized capital gains before relocating to Puerto Rico, how they are treated depends on when you realize them. If you realize the gains within 10 years of moving to Puerto Rico, you must pay U.S. tax rates on them. If you realize them after 10 years of your move, you can forgo U.S. taxes and just pay Puerto Rico taxes on them—in this case, a flat rate of 5%.

All gains accrued during bona fide residency in Puerto Rico are tax-exempt under the Act 60 Individual Resident Investor tax incentive.

These tax incentives are granted for long-haul residents. Forget about loopholes to vacation here part of a year and receive all the benefits – Yes, people have seriously asked me if that is possible!

Fees Associated with the Act 60 Individual Resident Investor Tax Benefits

When you apply for the exemption, you must include a $750 application fee for the Office of Industrial Tax Exemption. The decree also incurs a one-time acceptance fee of $5,000 upon approval. Then, each year, decree holders must file an annual report accompanied by a $5,000 fee as well as make two $5,000 donations ($10k annual donation minimum) to qualifying Puerto Rican nonprofits each calendar year before December 31. Donations can be split between multiple qualifying 1101.01(2a) status registered charitable organizations, but no more than $5,000 donated to any individual charity.

Tax Act 60 offers Business Opportunities and Incentives for these Industries & Programs

1. Export Service businesses
2. Individual Investors
3. Financial and Insurance Services
4. Visitor Economy and Tourism
5. Manufacturing, including Research and Development
6. Infrastructure
7. Agriculture
8. Movie and Film Production, including editing studios
9. Creative Industries
10. Business Startup for under 35’s (Formerly Tax Act 135)
11. Sustainable and Green Energy
12. Doctors and Medical Practitioners
13. Other Entrepreneurship Programs

Tax Exemption decrees issued under Tax Act 60 are issued for 15 years!

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If you don’t qualify for Tax Act 60, there are some other great short term programs throughout the Caribbean for remote workers.

What are you waiting for? The Caribbean is ready to welcome you!