Introduction to Laws › Act 20 / Act 22 of Puerto Rico

Introduction to Laws › Act 20 / Act 22 of Puerto Rico

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Puerto Rico, the smallest isle of the Greater Antilles and with a population of approximately 4 million, boasts one of the most dynamic economies in the Caribbean. With a GNP of approximately $64.84 billion, the island has the highest GNP per capita of Latin America. For the past 50 years, the island has been a manufacturing powerhouse. Many of the top prescription drugs in the U.S. as well as medical devices are manufactured in Puerto Rico. In the financial sphere, Puerto Rico is home to one of the most sophisticated financial markets in the hemisphere. The island has a vibrant mutual funds market of $14 billion and financial firms on the island manage client assets that exceed $34 billion. Yet, as a place for doing business, Puerto Rico is still a well-kept secret.

As a Commonwealth of the U.S., Puerto Rico enjoys fiscal autonomy, which means that it can offer very attractive tax incentives not available on the mainland U.S. Yet, all federal laws apply to Puerto Rico. We share a common currency, common military defense and citizenship with the U.S. No passports are needed to travel to and from the U.S. mainland. This is a formidable combination in which the investor has access to alluring incentives, while the investments are safeguarded by:

  1. The prevailing rule of law.
  2. The lack of currency risk.
  3. Puerto Rico’s political stability.
  4. Low country risk.

The island has been part of the U.S. since 1898 and those born in Puerto Rico have been citizens of the U.S. since 1917. Yet, because Puerto Rico is not a state, federal taxes do not apply generally to income generated by individuals or corporations within the Commonwealth. Puerto Rico corporations are treated for federal tax purposes as foreign corporations and are not generally subject to U.S. corporate taxes. Individual bona-fide residents of Puerto Rico are not subject to federal taxes on income derived from Puerto Rico sources. In addition, Puerto Rico has provided incentives for manufacturing operations for over four decades. Products manufactured in Puerto Rico carry the Made in USA label.

In 2008, a new Economic Incentives Act for the Development of Puerto Rico (hereinafter, Act 73 or Economic Incentives Act) went into effect. Also during the year 2012, two additional laws where enacted: Act 20 and Act 22, promoting the export of services from Puerto Rico and the transfer of wealthy individuals to Puerto Rico. These new laws established a legal framework of incentives designed to stimulate the establishment and development of a wide array of ventures, among them manufacturing, social media, other internet-based operations, commercial businesses, and the export of services. For purposes of seeing how versatile and ample these laws are, we have included many potential examples of how you can benefit from the ample provisions. We have created these examples based on cases we have worked with over the years to illustrate how the incentives can apply to many types of businesses.

Information about Act 20: Here  |  Information about Act 22: Here