Puerto Rico’s Primary Incentive Laws

Act 20: Export Service act

Promotes the export of services with unique tax benefits for companies establish on the island.

Primary Benefits:

  • 100% tax exemption on dividends or profit distributions
  • 100% exemption on property taxes
  • 4% corporate tax rate

Act 22: Individual Investor Act

 Promotes the establishment of individuals to Puerto Rico and become a bona fide resident on paradise. 

Primary Benefits:

  • 100% tax exemption on all dividends and interest income.
  • 100% tax exemption on all capital gains.
  • 4% corporate tax rate.

Act 73: Economic Incentive Law

Was established to provide the adequate environment and opportunities to continue developing a local industry, offer an attractive tax proposal, attract direct foreign investment and promote economic development in Puerto Rico.

Primary benefits:

  • 100% tax exemption on dividend distributions and on municipal
    construction taxes
  • 100% tax exemption on excise taxes and sales and use tax on
    raw material and certain equipment used in the production process
  • 100% first-year bonus depreciation
  • 90% tax exemption from personal and real property taxes.
  • A 50% tax credit on eligible research and development activity costs
  • 35% tax credit on purchases of products manufactured in Puerto Rico
    that are made from recycled materials.
  • A 25% tax credit on purchases of products that are manufactured
    in Puerto Rico
  • 12% tax credit for royalties paid to foreign entities

Act 273: International Financial Entities Act 

Provides tax exemptions to businesses engaged in eligible activities in Puerto Rico. To avail from such benefits, a business needs to become an International Financial Entity (“IFE”) by applying for a permit and license and obtaining a tax exemption decree.

Primary Benefits:

  • IFEs will enjoy a 4% flat income tax rate on their income
  • Distributions from earnings and profits derived from IFEs:
    • Taxed at 6% for shareholders that are Puerto Rico residents
    • 100% exemption from Puerto Rico taxes on such dividends
  • Municipalities in Puerto Rico may levy a gross receipts tax of up to 1.5% for financial services
  • IFEs will be 100% exempt from all property taxes
  • A 15-year tax decree, renewable for two (2) additional 15-year periods

EB-5: Immigrant Investor Program

The U.S. Congress created the fifth-employment based (EB-5) immigrant visa category in 1990 for the qualified foreigner willing to invest in a business that will benefit the U.S. economy and create or save at least 10 full-time jobs. The investment requirement is typically US $1,000,000 per foreign investor. A minimum investment of US $500,000 is accepted if the investment is made in a designated Target Employment Area, such as a rural or high unemployment area, and through a designated EB-5 Regional Center. Puerto Rico is a Target Employment Area and therefore all projects offered by Caribbean USA Economic Development Regional Center require only the minimum of $500,000 in investment by the foreign investor.