There are few places on planet that can offer a return on investment the way the Island of Puerto Rico can. Blessed with an enviable geographical location, where it is always summer, a diversified economy, a skilled and educated workforce, and incentive laws that favor and stimulate business, your organization will have the potential to grow and gain momentum in a way that is just not possible in the mainland USA.
Puerto Rico or, officially, the Commonwealth of Puerto Rico has been part of the U.S. since 1898 and those born in Puerto Rico are citizens of the U.S. since 1917. Yet, because Puerto Rico is not a state, federal taxes do not apply to income generated by individuals or corporations within the Commonwealth (for the most part).
Puerto Rican corporations are treated, for federal tax purposes, as foreign corporations and are not subject to U.S. corporate taxes (for the most part). Individual bona-fide residents of Puerto Rico are not subject to federal taxes on income derived from Puerto Rico sources (except freelancers). Products manufactured in Puerto Rico can be labeled “Made in USA”.
What does this mean to you?Here's where things get interesting: On January 17, 2012, the Act 20 Tax Incentives are approved by Puerto Rico’s Legislative Assembly. Known as the The Export Services Act, it was designed to be a new law that would promote the economic development of Puerto Rico through specific tax incentives for different industries and investors.
The purpose of the Export Services Act has been to establish and develop in Puerto Rico as an international export services center. Puerto Rico’s Act 20 law seeks to encourage local service providers to expand their services to organizations outside of Puerto Rico, thereby introducing the development of new businesses in Puerto Rico and stimulating the immigration of foreign service providers to Puerto Rico.
The Export Services Act applies to any entity with a bona fide office or establishment located in Puerto Rico that is engaged in an eligible service.
Tax exemption and savingsIn order to participate in the tax incentives granted under the Export Services Act, the services provider organization must request and obtain a tax exemption decree. This decree has a term of 20 years, and is renewable for 10 additional years, provided certain conditions are satisfied.
The Tax Exemption Decree constitutes a contract with the Government of Puerto Rico (through the Department of Economic Development and Commerce) and is not subject to subsequent legislative changes.
- Service provider organizations operating under a Tax Exemption Decree will qualify for the following tax incentives during the term of this decree:
• 4% fixed income tax rate; 3% fixed income tax rate in the case of services considered strategic
• 90% tax exemption from personal property taxes for certain types of businesses (100% tax exemption for the first five years of operation).
• 90% tax exemption from real property taxes for certain types of businesses (100% tax exemption for the first five years of operation).
• 60% tax exemption on municipal taxes (90% tax exemption if business operates in the industrial development zone constituted by the municipalities of Vieques and Culebra).
• For more detailed information on eligibility and the full tax incentive list, please see PDF document linked here:
Business in Puerto RicoPuerto Rico is the business destination every business leader should be looking at. From its relationship with the US, that provides a legal framework and protection, with no passports needed in order to travel to the island's highly skilled bilingual workforce, its world-class infrastructure and aggressive tax incentives laws, Puerto Rico is more than just an island paradise, its also a prime hub to do business.
Contact Trident RMC Puerto Rico to find out if you have a qualifying organization or business model. We can help you navigate the application process, the submission, the initial reports, the requirements, as well as the post setup processes, like management, staffing, the tax itself, among other things.
Trident RMC Puerto Rico provides its services as a customized turn-key solution that will cater to each of our partners' unique business needs, and this allows your organization to achieve maximum cost reductions and tax savings.