Take Advantage of Puerto Rico’s Act 20 and Act22 Tax Benefits
When many people think of Puerto Rico, they think glorious coastlines, lush mountains and blissful balmy breezes. And while there’s no denying Puerto Rico is a picture-perfect paradise, the island has also become a tax haven for wealthy individuals and small businesses.
Puerto Rico tax advantages, such as Act 20 and Act 22, are a huge draw for the island because they mean capital gains, dividends and investment income are exempt. Imagine what you could do with the money you save?
As a Commonwealth of the United States, no passport is needed to travel from mainland U.S. to the island. Though Puerto Rico enjoys fiscal autonomy, it shares currency, federal laws, military protection and citizenship with the U.S. Due to its sovereignty, the island can offer incredible financial benefits and tax incentives to its residents with a considerable amount of protection under U.S. law.
Act 20 and Act 22 came about as a result of the 2008 Economic Incentives Act for the Development of Puerto Rico. The laws were enacted in 2012, designed to promote the export of services from Puerto Rico and encourage wealthy individuals to reside on the island. The news laws established a legal framework of incentives designed to stimulate the economy through an array of business ventures including, social media, other internet-based operations, manufacturing, commercial businesses, and the export of services.
Act 20 – Export Services Act
Specifically, the Export Services Act 20 helps to establish Puerto Rico as a hub for international export services, promoting businesses in accounting and other financial services, consulting, advertising and public relations, architectural and engineering services and more. The incentives include:
- 4 percent corporate tax rate or lower
- Export business services are 100 percent exempt from dividends, profit distributions and property taxes for certain services
- Decree of 20 years, with the option to renew for an additional 10 years
Act 20 offers advantages for services provided from Puerto Rico to outside markets. The following are some of the areas that are eligible to receive benefits under Act 20:
- Research and development
- Economic, scientific, environmental
- Human resources and managerial
- Consulting services for any trade or business
- vGraphic and commercial art
- Professional services such as legal, tax and accounting services
- Call centers
- Medical, hospital and laboratories services
This is only a partial list of who may be eligible to receive these tax benefits. Get a complete list and more information on Act 20.
Act 22 – Individual Investors Act
In an effort to attract new residents to the island of Puerto Rico, the Individual Investors Act 22 exempts new residents from all income taxes on passive income. Qualifying residents must not have been residents of Puerto Rico from January 16, 1997 through January 16, 2012. Those who qualify receive 100 percent tax exemption from Puerto Rico income taxes on all dividends, interest, and short- and long-term capital gains.
The benefits of Act 22 are only available to “bona-fide” residents of Puerto Rico. Bona-fide residents in this case means anyone who:
- Was not a resident of Puerto Rico for the 6-year period prior to the law’s enactment.
- Resides in Puerto Rico for at least 183 days during the taxable year.
- Does not have a tax home outside of Puerto Rico during the taxable year.
Puerto Rico offers its residents additional incentives such as partial or full exemption on some earnings in agriculture, financial institutions, creative services, education, hospitality and more.
If you’re considering relocating to Puerto Rico and would like to know more about how ACT 20/22 and owning property in Puerto Rico can benefit you, please get in touch with me today. Together we can make sure you keep more of your money and live in paradise.