With Puerto Rico’s Act 20 and 22, growth and opportunity for businesses and investors is on the rise. Though the island’s economy has experienced some setbacks in the recent history, new provisions, such as Act 20 and 22, have begun to return Puerto Rico into a thriving area for commerce. Continue reading to see how these acts can affect you.
What Are Act 20 and 22?
These recently implemented acts are tax incentives, aimed at attracting American investors and prior island residents to bring their business to Puerto Rico. While Puerto Ricans are considered United States citizens, their tax laws differ. As such, Acts 20 and 22 were implemented.
Originally, Act 20, also called the “Export Services Act,” incentivized certain service businesses and investment managers to export their services from Puerto Rico. By doing so, they are only required to pay a 4% tax on corporate profits. Additionally, individual recipients of dividends enjoy a 100% tax-free status.
A recent expansion of Act 20 extends the tax benefits to additional types of businesses, such as those that are goods based, and also widens the scope of “service-based” businesses. Now, everything from assembly and bottling businesses, to marketing and logistics companies can qualify for tax exemptions under Act 20. An additional benefit of Act 20 is that the company only needs to employ 3 people to qualify. As such, smaller businesses can gain the benefits and continue to grow in Puerto Rico.
Act 22, also call the “Individual Investors Act,” attracts investors to Puerto Rico by promising tax exemptions on capital gains, dividends, and interest. One qualifier is that the individual must be present on the island for half of the year (183 days). Originally, this benefit was only extended to those who had not been a Puerto Rican resident for 15 years. Recently, this time frame was decreased to 6 years, in an effort to attract more investors to the island.
The Bottom Line
According to Puerto Rico’s Department of Economic Development and Commerce, the number of investors taking advantage of this tax break is on the rise. The number of qualifying investors increased from 151 in 2013, to 250 in 2014. These promising figures prove that Puerto Rico is on its way to becoming a center for economic growth.
By taking advantage of these tax exemptions, investors can markedly decrease their tax obligations, as compared to what they would pay on the Mainland United States. No matter the size of your business, this can lead to a great savings in both the short term and long term.
At SLG Law, we are committed to providing our clients with the best, most effective legal services. If you have any further questions about Acts 20 and 22, feel free to contact us today. When you decide to move your investments to Puerto Rico, trust our team to help you get started.