Puerto Rico’s Act 60, officially known as the Puerto Rico Incentives Code, is a comprehensive tax incentives law enacted in 2019. It was designed to consolidate various previous tax laws and encourage economic development, job creation, and foreign investment on the island. For individuals and businesses, Act 60 offers substantial tax benefits in exchange for relocating operations or residency to Puerto Rico.
Purpose of Act 60
Act 60 aims to stimulate economic activity in Puerto Rico by attracting new residents, promoting entrepreneurship, expanding exports of services and goods, and revitalizing the tourism and manufacturing industries. The law is part of Puerto Rico’s long-term strategy to recover from economic stagnation, government debt, and population decline.
Key Benefits of Act 60
1. Individual Investor Incentives
Individuals who become bona fide residents of Puerto Rico can apply for significant tax advantages, including:
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100% tax exemption on all Puerto Rico-sourced capital gains accrued after becoming a resident.
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A 4% fixed income tax rate on eligible income, including certain types of service income.
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75% exemption on property taxes.
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50% exemption on municipal license taxes.
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Tax-free dividend distributions from eligible Puerto Rican entities.
To qualify, individuals must:
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Become bona fide residents of Puerto Rico, meaning they must meet physical presence, tax home, and closer connection tests.
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Purchase residential property in Puerto Rico within two years of receiving their tax decree.
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Donate at least $10,000 annually to qualified Puerto Rican non-profit organizations.
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File an annual compliance report with Puerto Rico’s Department of Economic Development and Commerce.
These benefits typically last for 15 years, with the potential for renewal under certain conditions.
2. Export Services Businesses
Businesses providing services to clients outside Puerto Rico are eligible for generous tax incentives, such as:
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A 4% fixed corporate income tax rate on net income from eligible services.
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100% tax exemption on dividends distributed from these services.
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75% exemption on property taxes related to business assets.
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50% exemption on municipal license taxes.
Eligible export services include professional services (legal, tax, consulting), software development, graphic design, call centers, investment management, and others. The goal is to position Puerto Rico as a competitive global hub for service-based industries.
These benefits are also granted for a 15-year term, renewable under certain criteria.
3. Manufacturing and Industrial Incentives
Manufacturing companies that relocate or expand operations to Puerto Rico may qualify for:
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A fixed 4% corporate income tax rate.
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Exemptions from property taxes on industrial equipment and real estate (up to 75%).
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50% municipal license tax exemption.
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Tax exemptions on imports of raw materials and machinery.
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Special treatment for export activity.
Puerto Rico aims to attract advanced manufacturing, biotechnology, pharmaceuticals, and medical device companies, capitalizing on its skilled labor force and U.S. legal framework.
4. Tourism Industry Incentives
Act 60 includes benefits for businesses involved in the tourism sector. Eligible projects include hotels, bed and breakfasts, theme parks, golf courses, and tourist marinas. Benefits include:
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4% fixed income tax rate on profits from tourism-related activities.
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75% property tax exemption.
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50% municipal license tax exemption.
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Incentives to offset high development and construction costs in the hospitality industry.
These tax breaks are also available for a 15-year period and can be extended upon approval.
How to Qualify
To take advantage of Act 60, individuals and companies must:
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Apply for a Tax Exemption Grant
Applicants must submit documentation to the Puerto Rico Department of Economic Development and Commerce and obtain a signed tax decree. This document outlines the rights and responsibilities under Act 60 and serves as a binding contract with the government. -
Establish Residency (For Individuals)
To be considered a bona fide resident, individuals must: -
Spend at least 183 days in Puerto Rico during the calendar year.
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Not have a tax home outside of Puerto Rico.
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Not have a closer connection to another jurisdiction.
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Maintain Compliance
Individuals must comply with annual reporting, charitable donation, and property ownership requirements. Businesses must meet local employment standards (if applicable) and maintain operational status to retain benefits.
Considerations and Criticisms
While Act 60 provides powerful tax incentives, there are several important considerations:
IRS Oversight
The U.S. Internal Revenue Service (IRS) closely monitors individuals claiming Puerto Rico residency for tax benefits. The residency tests are strict, and failure to comply can result in federal tax liabilities, penalties, and the loss of Act 60 benefits.
Who Should Consider Act 60?
Act 60 is best suited for:
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Entrepreneurs running export service businesses.
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Remote workers with clients based outside Puerto Rico.
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Investors and fund managers seeking favorable tax treatment.
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Retirees and high-net-worth individuals looking for capital gains exemptions.
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Manufacturers and tourism operators willing to establish or expand operations on the island.
Final Thoughts
Act 60 of Puerto Rico is one of the most aggressive and attractive tax incentive laws in the United States jurisdiction. It has the potential to transform the financial situation of individuals and companies willing to relocate and comply with the legal requirements. However, it is not without its challenges. Due diligence, legal consultation, and tax planning are essential before pursuing residency or launching a business under Act 60.
For those who qualify and are prepared to integrate into Puerto Rican life and economy, Act 60 can be a powerful tool to achieve both financial efficiency and business growth.
