Act 20 Archives - MasterCompliance

Act 20, known as the “Export Services Act”, provides tax exemptions and tax credits to businesses engaged in eligible activities in Puerto Rico and has made the island a hot spot for exportation of international services worldwide. These tax laws were the response to Puerto Rico’s ballooning national debt that started accumulating when the US government cut federal subsidies to the island in 1996. Beginning in 2012, Puerto Rico used its special status within the United States to create unique tax incentives that would lure successful employers down to the island to bring capital and create jobs. The tax benefits Puerto Rico’s Act 20 offers are as follows:

Corporate tax rate reduced to 4%;
100% tax exemption on all distributions from earnings and profits;
90% tax exemption from personal property taxes for certain types of businesses;
90% tax exemption from real property taxes for certain types of businesses; and
60% tax exemption on municipal taxes.

For more details on the benefits of Act 20, check out our Act 20: Puerto Rico Tax Incentives blog now.

To be able to take advantage of Act 20, there are 3 major steps you need to take for your company to qualify for these tax benefits.

In January of 2012, Puerto Rico passed legislation making it a tax haven for U.S. citizens that become residents of Puerto Rico. The tax laws, known as Act 20, the Export Services Act, and Act 22, the Individual Investors Act, shields new residents residing in Puerto Rico for at least half of the year from paying most federal income taxes. The U.S. Tax Code generously exempts Puerto Rico sourced income from federal tax, and, under the law, residents pay minimal or possibly no taxes on interests and dividends, as well as capital gains. Additionally, property taxes are significantly lower than property taxes in the mainland U.S. Thus, making Puerto Rico a hot spot for exportation of international services worldwide.

These tax laws were the response to Puerto Rico’s ballooning national debt that started accumulating when the US government cut federal subsidies to the island in 1996. Beginning in 2012, Puerto Rico used its special status within the United States to create unique tax incentives that would lure successful employers down to the island to bring capital and create jobs.

Once granted, the benefits under Act 20 and 22 will be secured during the entire term of the act, regardless of changes in the Puerto Rico tax laws applicable. The act shall have a term of 15 years (from 2012) with possible 15-year extension in the case of Act 20 and until December 31, 2030 in the case of Act 22.

Tag: Act 20

How to Qualify for Puerto Rico’s Act 20

Act 20: Puerto Rico Tax Incentives