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Investing in Puerto Rico: Low tax jurisdiction for investors

March 7, 2024

Investing in Puerto Rico has proven lucrative, experiencing an 11% growth in its economy since 2019, despite the challenges felt globally from COVID-19, a global recession and increasing supply chain challenges. So far in 2024, the International Monetary Fund records the island as having the highest GDP per capita in the Caribbean.

Puerto Rico (PR) can claim several advantages that can be attributed to this growth. It is a strategic Caribbean geographic location, offering political stability, modern infrastructure, and a highly skilled bilingual workforce (Official languages are Spanish and English). It is the main air and sea access hub in the Caribbean, with multiple flight options to and from the major cities of the United States, Latin America, and Europe.

Unincorporated United States territory

Secondly, Puerto Rico enjoys the United States constitutional, legal, financial, and regulatory protection, including among others, intellectual property, Homeland Security matters, and banking system. The U.S. dollar is also the official currency, and no passport is required for U.S. citizens.

Recent tax incentives

Thirdly, Puerto Rico enjoys fiscal autonomy and has a number of tax incentives to attract investment. Puerto Rico recently published legislation designed to boost remote PR workers. The governor, Pedro Pierluisi, signed the new act into law on January 17, 2024. This legislation builds on Act 52-2022, targeting the enhancement of the foreign private sector’s remote work force in PR.

Tax incentives for local and foreign companies and individuals

During 2019 PR enacted legislation to compile all previous PR tax exemption laws into Act 60, that has attracted foreign and local businesses, and non-resident high net worth individuals who relocate to PR, contributing to the overall economic health of the island. The benefits cover a number of industries attractive to investors, most notably:

  1. Export of Goods and/ or Services–Act 60- 2019 (Formerly Act 20)–Available to businesses established in Puerto Rico that offer services or sell goods to customers or clients outside Puerto Rico.
  2. Manufacturing, Research and Development – Act 60-2019 (Formerly Act 73) – Available for manufacturing, R&D and high-tech industries that invest in the island. Manufacturing, Research and Development – Act 60-2019 (Formerly Act 73) – Available for manufacturing, R&D and high-tech industries that invest in the island.
  3. Creative Industries – Act 60-2019 (Formerly Act 27) – Available for entities engaged in film production, postproduction, and similar creative projects.
  4. Green Energy – Act 60-2019 (Formerly Act 83-325) – Incentive is available for entities engaged in the production/sale of green energy, sale of equipment, assembly, or installation of green energy equipment.
  5. Visiting Economy (Tourism – Formerly Act 74) – Available for businesses engaged in tourism activities.

Income Tax rate

Among its benefits, Act 60 grants a reduced income tax rate from 37.5% to 4% on eligible activities as well as 100% exemption on distributions from earnings and profits on those activities, designed to stimulate growth in key industries and attract investors to the country. The tax decree also provides exemptions on indirect taxes (municipal license, property taxes, excise tax, among others) that ranges from 50% to 100% of exemption, making investment even more appealing to local and foreign businesses.

Individual resident investor and other tax incentives

Non-resident high net worth individuals who relocate to Puerto Rico also benefit from additional tax grant benefits under Act 60. Also, there are other tax incentives for those engaged in providing highly skilled medical professional services (physicians), professional researchers or scientists, small and medium enterprises (PYMES), young entrepreneurs, public porters of air transportation, maritime transport services, infrastructure investment and agriculture.

Low tax jurisdiction

This legislative update is a key component of Puerto Rico’s strategy to stimulate economic growth, attract global talent, and encourage the development of a diverse and resilient economy, emphasising the significance of investing in Puerto Rico.

If you would like to speak to someone about doing business in Puerto Rico, please get in touch.