American Abroad – Federal & Puerto Rico | ACT 20 & 22

In order to create, promote and develop a strong cluster of industries that export products and services, the Government of Puerto Rico has implemented a series of unparalleled tax and operational advantages and incentives. Prospective investors and entrepreneurs can benefit from this unique program, especially from those areas regarding tax exemptions.
Acts 20 and 22 of this program stand out as pillars of the complete tax package. Exemptions included in Act 20, Export Services Act, cover three main areas. Businesses that export services can enjoy a 4% flat income tax rate on income related to such services. This rate may be reduced to 3% when more than 90% of the eligible business’s gross income is derived from export services and such services are considered “strategic services” as set forth under the Act.
In addition, eligible businesses will receive a 100% tax exemption on dividends derived from the export services income. They can also enjoy a 100% exemption on property taxes when they use local facilities as corporate headquarters, call centers, or shared service centers. This exemption extends for a five-year period, and a 90% exemption will apply thereafter for the remaining period of time covered by the Tax Exemption Decree.
The program also encourages non-residents doing business in Puerto Rico for the past 15 years to become bona fide residents. Act 22, Individual Investors Act, provides a 100% tax exemption from Puerto Rico Income Taxes on all dividends and interest. This exemption also applies to both short and long-term capital gains accrued after the individual becomes an official resident.
For more information on the program and eligibility requirements please contact us at Torres CPA Group.