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ACT 20-2012

The sales pitch for Act 20 is relatively simple: move your business from a high-tax jurisdiction to Puerto Rico and pay a 4% tax rate on income. The process is straightforward and both existing and newly created qualifying businesses are eligible for the benefits of Act 20. An important aspect of Act 20 is that it allows for tax-exempt distributions to shareholders, further boosting the competitiveness of your decision to move or open your business in Puerto Rico. Allow our team at Bahía Tax to help you determine whether Act 20 is right for your business and for existing decree holders; we can advice you on the proper compliance terms for your business.

Act to promote the export of services from Puerto Rico

Eligibility

  • Entity with a bona fide office within Puerto Rico that export eligible services
  • The Act provides a very broad definition of eligible services

Tax Benefits

  • Corporate Income Tax- 4% fixed rate (may be reduced to 3% in certain circumstances)
  • E&P Distributions- No tax on distributions derived from the export services income
  • Municipal License Tax- 60% tax exemption
  • Property Tax- 100% tax exemption for the first 5 years of operations. After said 5-year period, a 90% exemption will apply during the term remaining under the Tax Exemption Decree.

Requirements

  • Apply for a Tax Exemption Decree
  • Employ at least three (3) direct jobs within six months and five (5) direct jobs in the first 2 years. However, HR Bill 878- approved by the House and the Senate- eliminates such requirement. The Bill is pending on Governor’s signature.

Exemption Period

  • The Tax Exemption Decree shall have a term of 20 years, with a possible 10-year extension.
  • The Decree will constitute a contract between the Eligible entity and the Government of Puerto Rico. As such, the benefits granted will be constitutionally secured during the term of the decree, irrespective of any changes in the applicable Puerto Rico tax laws.

AVERAGE US TAX RATES
  • Avg. State corporate income tax rate: 7%
  • Avg. Federal corporate income tax rate: 35%
  • Avg. State dividend tax rate: 6%
  • Avg. Federal tax rate: 20%
  • Potential change in tax rates

AVERAGE PR TAX RATES (ACT 20)
  • Corporate P.R. Income tax rate: 4%
  • Corporate federal income tax rate: 0%
  • P.R. dividend tax rate: 0%
  • Federal dividend tax rate: 0%
  • Certainty of tax rates during exemption period of 20 yrs