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Puerto Rico consolidated Act 20 (Export Services Tax Incentive) into Act 60 (Puerto Rico Tax Incentives Code) in 2019. The goal was to streamline multiple tax incentive programs into a single, comprehensive framework. This consolidation eliminated confusion between overlapping incentives, simplified administration, and created clearer compliance pathways for businesses and investors.
Under Act 60, former Act 20 benefits now operate through Chapter 3 (Export Services and Commerce). The chapter maintains the core 4% corporate tax rate and adds enhanced property tax exemptions and stricter residency requirements.
Key Takeaways
- Act 60 consolidated Act 20 and other tax incentives into one unified code.
- The 4% corporate tax rate for export services remains unchanged.
- Act 60 introduced stricter residency and compliance requirements.
- Investor decree holders must meet charitable contribution obligations.
- Puerto Rico remains attractive for service businesses and investors.
Why Act 20 Was Consolidated into Act 60
Puerto Rico's government recognized that managing separate tax incentive laws created administrative complexity and potential conflicts between different programs. Act 20 focused solely on export services, while Act 22 targeted individual investors, leaving gaps for businesses seeking to combine both benefits. The consolidation under Act 60 eliminated these silos and created a unified system that allows qualifying entities to access multiple incentive categories simultaneously.
The Puerto Rico Tax Incentives Code streamlined the application process and reduced bureaucratic delays that previously plagued the separate programs. Businesses no longer need to navigate different government agencies or reconcile conflicting requirements between Act 20 and Act 22 applications.
Tax Rate Comparisons Between Act 20 and Act 60
The core tax benefits remain largely unchanged between Act 20 and Act 60, with some notable enhancements under the new framework. Both programs offer the same 4% fixed corporate tax rate on eligible export service income, maintaining Puerto Rico's competitive advantage for service-based businesses. The key difference lies in the additional benefits that Act 60 provides beyond the original Act 20 structure.
|
Tax Type |
Act 20 |
Act 60 Chapter 3 |
|---|---|---|
|
Corporate Tax (Export Services) |
4% |
4% |
|
Property Tax Exemption |
Often 90–100% exemption on certain property used exclusively in the export service operation, depending on the decree’s terms. |
75% exemption on property tax for eligible property used in the exempt export‑services business, generally for a 15‑year term. |
|
Municipal License Tax |
Often subject to partial municipal license tax exemptions for qualifying export‑service income, depending on the decree language. |
50% municipal license tax exemption for exempt business income (with up to 100% exemption for certain small businesses during the first years of operations). |
|
Dividend Tax (PR Source) |
Dividends from Act 20-exempt businesses may qualify for reduced Puerto Rico tax rates or exemptions, subject to the terms of the decree. |
Dividends from exempt export‑services income may be 100% exempt from Puerto Rico income tax for qualifying resident shareholders, subject to decree and residency requirements. |
|
Capital Gains (PR Source) |
Standard Puerto Rico tax treatment applies to most capital gains, unless another incentive program applies. |
Qualifying resident individual investor decrees can provide 100% Puerto Rico tax exemption on certain Puerto Rico‑source capital gains realized after establishing residency, subject to timing and asset‑holding rules. |
Eligibility Requirements and Business Activities
Act 60 keeps the core export‑services concept from Act 20 but adds clearer rules on what activities qualify and what level of business presence is required in Puerto Rico.
Qualifying Export Services
Act 60 Chapter 3 maintains the same broad definition of export services that made Act 20 attractive to international businesses. Eligible activities include consulting services, software development, financial advisory, marketing services, and professional services provided to clients outside Puerto Rico. The new code clarifies that cryptocurrency and digital asset services qualify as eligible export activities, addressing modern business models that emerged after Act 20's original passage.
- Professional services (legal, accounting, consulting)
- Software development and IT services
- Financial and investment advisory services
- Digital marketing and advertising services
- Research and development activities
- Cryptocurrency and blockchain services
Operational Requirements
Act 60 introduced more stringent operational requirements compared to the original Act 20 framework. Businesses must demonstrate substantial business presence in Puerto Rico, including hiring local employees and maintaining physical office space. The new requirements aim to ensure genuine economic activity rather than paper entities designed solely for tax benefits.
- At least one full-time Puerto Rico resident employee dedicated to the export‑services operation (with higher staffing expectations for larger businesses)
- Physical office space is maintained year-round
- A bona fide office and meaningful local payroll that is consistent with the size and nature of the business
- Detailed quarterly reporting to maintain decree compliance
Residency and Compliance Changes
Act 60 combines separate incentive categories for businesses and individuals into a single code, and many business owners pursue both a Chapter 3 export‑services decree and a resident-individual investor decree.
Individuals seeking the investor decree must generally:
- Establish bona fide Puerto Rico residency
- Spend sufficient time on the island to meet the 183‑day and related tests
- Purchase a qualifying primary residence in Puerto Rico within a specified period, and
- Make annual charitable contributions to approved nonprofits.
By contrast, Act 20 focused primarily on business‑level requirements and did not impose these personal residency and donation obligations on export‑service companies.
Under the current resident individual investor program within Act 60, decree holders must make recurring charitable contributions to approved Puerto Rico nonprofits, which have historically totaled at least $10,000 per year across specified causes. This obligation applies to qualifying individual investor decrees, not to every business‑only export‑services decree.
IRS Scrutiny and Documentation Requirements
Act 60 strengthened oversight of Puerto Rico tax incentives by increasing documentation and reporting obligations for decree holders to address both local and federal scrutiny.
Enhanced Reporting Standards
Act 60 introduced more comprehensive reporting requirements designed to address IRS concerns about Puerto Rico tax incentive programs. Decree holders must maintain detailed records of their Puerto Rico presence, business activities, and income sources to demonstrate compliance with both Puerto Rico and federal tax obligations. The enhanced documentation requirements reflect lessons learned from IRS challenges to earlier Act 20 and Act 22 decree holders.
Federal Tax Implications
The consolidation under Act 60 did not change the fundamental relationship between Puerto Rico tax benefits and federal tax obligations. U.S. citizens who establish bona fide Puerto Rico residency can exclude Puerto Rico source income from federal taxation, but they remain subject to federal taxes on worldwide income from sources outside Puerto Rico. Act 60 decree holders must carefully structure their affairs to maximize Puerto Rico benefits while maintaining federal tax compliance.
- Form 8898 filing requirements for bona fide residents
- Controlled Foreign Corporation reporting for business entities
- Transfer pricing documentation for intercompany transactions
- Annual decree compliance certifications
Transition Options for Existing Act 20 Decree Holders
Current Act 20 decree holders face a strategic decision: transition to Act 60 or maintain their existing agreements until expiration.
- Existing Act 20 decrees generally remain valid under their original terms, which often provide up to 20 years of benefits with potential extension options.
- New Act 60 Chapter 3 export‑services decrees typically grant a 15‑year exemption term, with the possibility of renegotiation for an additional period, so holders must weigh the value of their grandfathered terms against the standardized benefits available under Act 60.
The transition process requires submitting a new application and paying updated fees, but it allows access to property tax exemptions and other benefits not available under the original Act 20 structure.
Many decree holders choose to maintain their current Act 20 terms to avoid additional compliance costs and requirements, particularly the mandatory charitable donation requirement. This approach works well for businesses focused solely on export services without plans to combine individual investor benefits.
Practical Implications for New Applicants
New applicants should consider how Act 60’s unified framework, documentation standards, and personal residency rules will affect both the timeline and the overall value of pursuing an export‑services decree.
Application Process Differences
Act 60 applications require more comprehensive documentation than original Act 20 applications, including detailed business plans, financial projections, and compliance frameworks. The integrated approach means applicants can request both business and individual benefits in a single application, potentially reducing overall processing time and administrative costs. New applicants should expect longer review periods but more predictable outcomes due to clearer regulatory guidance.
Cost-Benefit Analysis
The total cost of Act 60 compliance exceeds the original Act 20 requirements due to mandatory charitable contributions, enhanced reporting requirements, and residency obligations. Businesses should evaluate whether the additional benefits, including property tax exemptions and the elimination of dividend tax, justify the increased compliance costs and operational requirements.
|
Cost Category |
Act 20 |
Act 60 Chapter 3 |
|---|---|---|
|
Application Fee |
$5,000-$15,000 |
$5,000-$15,000 |
|
Annual Compliance Fee |
$5,000 |
$5,000 |
|
Charitable Donation |
$0 |
$10,000 |
|
Property Purchase |
Not required |
Required within 2 years |
Strategic Considerations for Luxury Property Investors
Act 60's integration of business and individual benefits creates unique opportunities for luxury property investors who also operate service businesses. The 75% property tax exemption applies to both primary residences and investment properties held by decree holders, making luxury properties in Puerto Rico more attractive from a total cost perspective. High-net-worth individuals can combine export service businesses with investments in luxury properties in Puerto Rico to maximize their overall tax benefits under the unified Act 60 framework.
Puerto Rico luxury properties become particularly attractive when combined with Act 60 benefits. Owners can potentially eliminate both property taxes and income taxes on rental income from qualifying properties. The combination of tax benefits and Puerto Rico's growing luxury real estate market creates compelling investment opportunities for qualifying individuals.
Properties and Houses for Sale in Puerto Rico Real Estate
Act 20 offers a unique opportunity for entrepreneurs looking to migrate or establish their businesses in Puerto Rico, thanks to its attractive tax incentives and favorable business environment. For those planning to buy real estate for their business ventures, owning a property on the island not only enhances their corporate presence but also helps fulfill the residency requirements to fully benefit from Act 20. Discover the finest luxury properties for sale at Christie's International Real Estate Puerto Rico, featuring our curated selection of luxury listings tailored for residents and business owners.
Plaza Atlántico AVE ISLA VERDE #1001 CAROLINA PR, 00979
A move-in-ready, high-floor residence at Plaza Atlantico offering sleek modern finishes, 4 bedrooms, 3 bathrooms, and rare triple parking with sweeping beachfront views of Isla Verde’s iconic coastline.
Cond Esmeralda #7 CALLE AMAPOLA #602 CAROLINA PR, 00979
Aqua Terrazas in Dorado, Puerto Rico, is a prime oceanfront income-generating property featuring seven short-term rental units, a leased commercial space, 30 parking spaces, a private pool, and direct beach access, offering a turnkey investment opportunity in a desirable location.
11 THE MEADOWS ESTATES GUAYNABO PR, 00971
The Meadows Estates in Guaynabo introduces The Athena Design, a luxury wellness-inspired enclave with expansive lots, nature preserves, and only 19 exclusive homes.
Check out more of our properties in our Neighbourhoods Section.
Conclusion
Act 60 modernized Puerto Rico’s incentive system by consolidating Act 20 into a single, more comprehensive framework for businesses and investors. While the core 4% export services tax benefit remains, the updated law introduced stricter compliance standards, residency requirements, and additional reporting obligations. For qualifying individuals and companies, Act 60 continues to position Puerto Rico as one of the most attractive tax incentive jurisdictions in the Caribbean.
Whether you are buying, selling, or renting luxury real estate, expert guidance is essential for navigating Puerto Rico’s evolving investment landscape. Christie's International Real Estate Puerto Rico offers specialized expertise in high-end properties, relocation opportunities, and investment-focused real estate strategies across the island. Explore the best opportunities in Puerto Rico’s luxury market with a trusted global real estate brand.
FAQs
Does Act 20 apply if my clients are in the U.S.?
Yes—U.S.-based clients generally count as “outside Puerto Rico” for export services purposes, but you must ensure the services are performed from Puerto Rico and properly sourced and documented under the decree rules.
Can non-U.S. citizens apply for Act 60 Chapter 3 benefits?
Yes. Puerto Rico incentives are generally available to U.S. and non-U.S. individuals and entities, but eligibility, sourcing, and reporting rules differ by residency and structure—professional tax counsel is essential.
What income is typically treated as “export services” for Act 60 purposes?
In general, it’s income from services performed in Puerto Rico for clients located outside Puerto Rico; revenue tied to Puerto Rico customers or on-island activities may be excluded or partially taxable depending on the facts.
How long does it usually take to obtain an Act 60 decree, and when do benefits start?
Timelines vary with application quality and agency workload, but many applicants plan for several months; benefits generally apply after the decree is granted and the business is operationally compliant.
Can I keep a mainland home and still qualify if I travel frequently?
Possibly, but frequent travel and maintaining significant stateside ties can jeopardize the “closer connection” and “tax home” tests; most applicants reduce U.S. connections and keep clear evidence that Puerto Rico is their primary base.
What happens if I miss a filing deadline or fall short on compliance?
Late or incomplete compliance can trigger penalties, increased scrutiny, or loss of benefits; many companies use a local CPA/payroll provider and a compliance calendar to keep annual reports, payroll, and decree conditions on track.
