In the midst of a complicated fiscal situation, Puerto Rico continues to attract investors and companies through two extant tax incentive packages: Puerto Rico’s Act 20 – the Promotion of Export Services Act – and Act 22 – the Act to Promote the Relocation of Individual Investors to Puerto Rico.
Act 20 and Act 22 were enacted in Puerto Rico in 2012 to promote the exportation of services by companies and individuals providing such services from Puerto Rico and the relocation of high-net-worth individuals to Puerto Rico. Both laws aim to provide attractive incentives to encourage investors to relocate to Puerto Rico, while also encouraging local service providers to expand their businesses by offering their services to clients located outside Puerto Rico. The laws strive to contribute to the growth of the Island’s economy and, since their enactment over four years ago, have been embraced on a bipartisan basis on the Island as an important part of the government’s economic development plan.
At the heart of these incentives is Puerto Rico’s unique tax status: even though Puerto Rico is a territory of the United States (and generally subject to all US. federal laws), it is treated as a “foreign country” for US federal income tax purposes, and a special tax treatment applies to its residents. This unique situation has allowed Puerto Rico to enact tax incentives that are geared to promote its economic development and that may be attractive to US persons. These incentives promote the establishment of manufacturing operations, tourism activities, international banking operations, international insurance operations and production of films in Puerto Rico, among others.
In this alert, we summarize the tax benefits available under Act 20 and Act 22 that may be of interest to individuals and companies seeking a general understanding of the potential tax benefits of moving to or relocating all or part of their operations to Puerto Rico.