Puerto Rico is a unique jurisdiction when it comes to corporate taxes. While it is a U.S. territory, it has a distinct tax system that operates independently from the federal Internal Revenue Code. For corporations, especially those looking to expand or relocate operations, Puerto Rico offers an attractive mix of tax incentives and competitive rates—particularly through laws like Act 60, which has gained popularity among U.S. entrepreneurs and multinational companies.
Whether you’re starting a local business or launching an export services company, understanding the corporate tax structure in Puerto Rico is essential for planning and compliance.
Overview: Puerto Rico's Tax System
Puerto Rico has its own Department of Treasury (known as “Hacienda”), and corporations operating on the island are generally subject to:
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Corporate income tax
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Alternative minimum tax (AMT)
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Municipal license taxes
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Property taxes
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Sales and use tax (SUT)
However, companies that qualify under Act 60 (Incentives Code) may receive major tax reductions and exemptions in several of these areas.
Standard Corporate Tax Rates (Non-Act 60)
If a corporation does not qualify for any tax incentives, it is taxed under Puerto Rico’s general corporate tax system.
Corporate Income Tax (Regular Rates)
Puerto Rico has a two-tiered tax on corporate income:
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Normal tax: 18.5% of net taxable income
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Surtax: Graduated rates from 5% to 19%, depending on taxable income
The maximum combined corporate tax rate for a regular Puerto Rican corporation can reach up to 37.5%.
Alternative Minimum Tax (AMT)
If a corporation is subject to special deductions or exemptions, it may instead pay a minimum tax of 30% on adjusted net income.
Municipal License Tax
Most municipalities in Puerto Rico impose a gross receipts tax on businesses operating within their boundaries. Rates vary by location and industry, but typically range between 0.2% and 0.5%.
This is not based on net income, but rather gross revenue, which means it applies even if the company is not profitable.
Personal and Real Property Taxes
Businesses must pay taxes on the value of their real estate and personal property (equipment, machinery, inventory, etc.) located in Puerto Rico.
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Rates: Typically between 1.3% and 1.5% of assessed value
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Assessed value is usually lower than market value, based on government formulas
Sales and Use Tax (SUT)
Puerto Rico has a combined sales and use tax rate of 11.5%, broken down as:
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4.5% state-level tax
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1.0% municipal tax
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6.0% special state tax for specific services and business-to-business (B2B) transactions
Some business services are subject to this tax, so companies must register, collect, and remit SUT accordingly.
Act 60: Tax Incentives for Corporations
To stimulate economic development, Puerto Rico offers aggressive tax incentives through Act 60, known as the Puerto Rico Incentives Code. Businesses that qualify can drastically reduce their tax burden.
Let’s break down the main benefits for corporations under Act 60.
Export Services Businesses (Formerly Act 20)
Corporations that provide services from Puerto Rico to clients located outside the island can apply for an Act 60 tax decree.
Eligibility:
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The business must be exporting services from Puerto Rico.
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Services must be performed physically in Puerto Rico.
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Clients must be located outside of Puerto Rico.
Benefits:
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4% flat corporate income tax rate on eligible export service income.
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100% exemption on dividends paid from those profits to shareholders who are bona fide residents of Puerto Rico.
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75% exemption on property taxes for business assets.
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50% exemption on municipal license taxes.
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Valid for an initial 15-year term, with renewal options.
Examples of Eligible Services:
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Legal and tax consulting
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Software development
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Advertising and marketing
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Call centers and customer support
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Investment and asset management
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Engineering and architecture
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Research and development (R&D)
Manufacturing and Industrial Incentives
Puerto Rico also offers incentives under Act 60 for companies in the manufacturing, agriculture, and renewable energy sectors.
Key Benefits:
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4% or lower tax rate on net income from qualified industrial activity
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Exemptions from import duties for raw materials and machinery
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100% exemption on dividend distributions
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Tax credits for R&D, job creation, and infrastructure investment
Puerto Rico has long been home to major pharmaceutical and medical device manufacturers because of these benefits, along with a skilled bilingual workforce.
Tourism and Hospitality Businesses
Corporations involved in the tourism sector—such as hotels, eco-lodges, golf courses, and cultural tourism companies—may also qualify under Act 60.
Incentives Include:
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4% tax on net income
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100% exemption from property and municipal taxes
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Tax credits for construction, rehabilitation, and job creation
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Up to 50% tax credit on the cost of developing or renovating tourism facilities
This program has been particularly effective in boosting luxury hotels, short-term rentals, and sustainable tourism ventures.
Requirements to Qualify for Act 60
To enjoy these corporate tax benefits, businesses must:
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Apply for and obtain an Act 60 Tax Exemption Grant (Decree)
This grant is a legal agreement between the business and the Puerto Rican government, locking in the tax rates and exemptions for a fixed term (usually 15 years). -
Establish operations physically in Puerto Rico
Employees, contractors, or management must work on the island. -
Comply with reporting and operational requirements, including:
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Filing annual reports
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Paying a government compliance fee (typically $300–$5,000 per year)
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Meeting minimum employment requirements in some sectors
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U.S. Federal Taxes and Puerto Rico Corporations
Puerto Rico corporations that are created and operate solely on the island are treated as foreign corporations for U.S. federal tax purposes. That means:
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They are not subject to U.S. federal corporate income tax (unless they have U.S.-source income).
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Puerto Rico residents do not pay U.S. federal tax on Puerto Rico-sourced income.
However, U.S. corporations (like Delaware C-corps) that set up operations in Puerto Rico may still be liable for U.S. taxes, depending on their structure and where management decisions are made.
Careful tax planning is essential to avoid double taxation or compliance issues.
Final Thoughts
Puerto Rico’s corporate tax structure offers both challenges and enormous opportunities. For traditional local companies, the standard tax rates are somewhat similar to those found in the mainland U.S. However, businesses that qualify under Act 60 can enjoy:
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A flat 4% corporate tax
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Exemptions from dividend, property, and municipal taxes
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Long-term stability through a tax decree
These benefits make Puerto Rico one of the most competitive jurisdictions for service-based businesses, manufacturers, and tourism operators.
If you’re considering forming a corporation in Puerto Rico or expanding your existing business to the island, it is highly recommended to work with a local CPA, tax attorney, or legal advisor familiar with Puerto Rican and U.S. tax law. Proper planning can help you reduce your tax burden legally while contributing to the island’s growing economy.
