The name “Puerto Rico” literally translates to “rich port” in English. This moniker is taking on new meaning for the increasing numbers of American businesspeople flocking to Puerto Rico in order to preserve their prosperity and enjoy everything our “island of enchantment” has to offer. As a Caribbean commonwealth of the United States, Puerto Rico has a unique taxation status—residents are considered American citizens and pay certain types of federal fees, but typically do not have to pay federal personal income tax. In order to further improve these tax incentives, enhance our economy, and bring more businesses to the commonwealth, the Puerto Rican Legislature passed Act 20, or the Export Services Act, in 2012.
This law has motivated hundreds of affluent Americans to relocate their operations, homes, and lives to Puerto Rico. Under Act 20, you can remain a United States citizen, but enjoy the tax benefits and attractive housing market of the island. At Lampón & Associates, Santiago Lampón and our team of attorneys leverage our legal services and in-depth knowledge of the Puerto Rican real estate market to assist with closing, title clearing, and lien releases. Read on to learn more about Act 20 and how we can help you take advantage of it.
What is Act 20?
What exactly does Act 20 provide for American investors? In his Forbes article “Puerto Rico Expands Tax Haven Deal For Americans To Its Own Emigrants,” Deniel Mero explains: “Act 20, the Export Services Act, offers incentives to certain service businesses, including investment and hedge fund managers, to relocate to Puerto Rico and export their services. It does so by taxing their corporate profits at a flat 4 percent [or even as low as 3 percent, depending on the circumstances], while making the dividends paid from profits on exported services 100 percent tax exempt to individual recipients.” Act 20 covers a wide range of industries, from hospital and laboratory services to research and development departments.
The 20/22 Act Society notes that this law also provides “0 percent property tax…for the initial five years of operation for certain export services including corporate headquarters, call centers, shared service centers for accounting, finance, marketing, human resources, and other centralized management services. After the five-year period expires, a 90 percent tax exemption will apply for the remainder of the Tax Exemption Decree,” which could last up to 30 years for qualified residents. This makes real estate purchases particularly appealing under Act 20. Dorado Beach also indicates that Act 20 provides a “municipal taxes exemption” of “60 percent,” making a Puerto Rican move even more affordable.
The eligibility requirements for Act 20 are quite straightforward. The 20/22 Act Society explains: “[it] applies to any entity with a bona fide establishment in Puerto Rico that is engaged in an eligible service for expert.” Highlighting exported services makes it easier for Americans who had previously done business elsewhere to take advantage of this tax incentive, since most will continue to target customers outside of the island. The Puerto Rican legislature penned Act 20 in order to draw successful new residents who can improve the economy and social environment of the commonwealth.
Benefits of This Law
If you own a business outside of Puerto Rico, moving your headquarters to the island could:
- Save you tens or even hundreds of thousands of dollars on taxes. By relocating to the commonwealth, Deniel Mero notes that Americans can avoid “an exit tax of 23.8 percent on unrealized capital gains…[the tax code] exempts Puerto Rico sourced income from federal tax. Thus by moving their…Act 20 eligible investment management companies to Puerto Rico, wealthy investors and money managers can drastically cut their U.S. tax bills.”
- Free up your cash flow and maximize your capital so you can invest it in other ventures and continue to grow your income.
- Take advantage of outstanding real estate costs in beautiful communities such as Dorado, Condado, Vieques, or Palmas Del Mar. Prices in most of these areas have recently plummeted, making this a buyer’s market.
- Allow you to enjoy 183 days (or more) per year of sunshine, delicious food, stunning vistas, historic architecture, culture, and more as a Puerto Rican resident.
How We Can Help
Santiago Lampón and our team can help you make the most of your move to Puerto Rico and your application of Act 20. When you’re ready to purchase a home or business location on the island, we can help you close on a property, clear titles, or handle lien releases. These processes can become especially complex for American investors who don’t speak fluent Spanish, aren’t familiar with Puerto Rican transactions, or don’t yet understand the unique culture of the commonwealth. Our bilingual team often works with American investors, so we understand how to help you through these procedures. We will work closely with you throughout every step of the real estate transaction to ensure that you understand what is going on and what it means for you. We strive to author outstanding agreements for our clients so they can experience the many benefits of Act 20 and enjoy gorgeous Puerto Rican real estate at an affordable cost.
Contact Lampón & Associates Today
Are you ready to move your eligible export business to Puerto Rico and take advantage of Act 20? Contact us today to learn more about our services or schedule a consultation.