about act 20 and act 22
“We’ve vaguely looked into filing for Act 20 and/or 22, but haven’t taken action yet. Did you file through an attorney? Is it costly? If you have any advice or contacts, we’d be grateful”.
As I’ve mentioned before, Act 22 is what initially put this beautiful and quirky island on our radar more than three years ago. Because of this, we occasionally receive questions like the one above and have been answering them individually. Even though I don’t have any earth-shattering insights, I figured I should go ahead and share what I know for everyone here on the blog in-case others are curious and will find the information useful.
Before I dive in, let me first provide a little background for those of you that are not familiar with these tax incentives. In 2012, Act 20 and Act 22 were enacted by the Puerto Rican government in an effort to generate economic activity on the island by attracting residents and service businesses from the United States. These two Acts receive most of the media attention, but they are actually just two of a comprehensive suite of tax incentives the government of Puerto Rico has put together. Obviously, Acts 20/22 alone cannot single-handedly solve Puerto Rico’s government debt crisis, but an initial study of their economic impact has been undeniably positive. With that, let’s take a closer look at the particulars of each of these incentives.
The” Export Services Act” or Act 20 limits the corporate tax rate to just 4% for businesses who are performing services (not manufacturing a product) in Puerto Rico for clients outside of Puerto Rico. This tax incentive is available to ANY export service business whose application is approved. I have no first hand experience with Act 20, but the people I have talked to who do, were using or going to use a firm called BDO to walk them through the application and setup process. If you have a qualified business and are considering applying for Act 20, keep in mind that you will have to hire 5 full time local employees or equivalents. As an owner, you can be one of those employees, provided you are paid a market salary and reside in Puerto Rico.
UPDATE: in July 2017, the explicit 5 employee requirement was removed.
The “Individual Investors Act” or Act 22 completely exempts new residents from taxes on dividends, interest, and capital gains that accrue AFTER becoming a bona fide resident of Puerto Rico. I understand BDO can help with this process as well, but personally, I just filled out and mailed in all the forms myself and had no issues. They have since added an online platform at http://www.oeci.pr.gov/ which streamlines the process further. For me, it only took about 4 months from the time I applied to the time I received the grant. If you are interested in pursuing this, keep in mind that there is a $750 application fee and a $5,000 acceptance fee. You will also have to purchase a residential property and file an annual report that includes a $300 fee.
UPDATE: in July 2017 the requirement to purchase a residential property was removed and a requirement for a $5,000 annual contribution to a Puerto Rican charity was added.
Hope this information is helpful and don’t hesitate to ask if you have any other questions!