On July 11, 2017, major changes to Puerto Rico’s Act 20 and 22 were approved. These changes make it much easier to qualify for Puerto Rico’s Act 20 tax holidays. Here’s everything you need to know about the changes to Puerto Rico’s Act 20 and Act 22.
As of July 2017, Puerto Rico has a tax deal that can’t be matched by any offshore jurisdiction. All the other tax havens might as well just close down…. Puerto Rico just hit it out of the park… did the best set ever and dropped the mic. Offshore tax havens are done.
The US territory of Puerto Rico is working hard to bring new business and high net worth persons to the island. As a territory, Puerto Rico can offer tax deals to US citizens that can’t be matched by any foreign country.
This is because US Tax Code Section 933 excludes Puerto Rico sourced income from US tax. When a US citizen moves to a foreign country, we pay US Federal tax on our business profits (less the FEIE) and US capital gains tax on our investment profits.
Residents of Puerto Rico don’t pay US Federal tax on their Puerto Rico sourced income. They pay only Puerto Rico tax on these profits and capital gains. And Puerto Rico is free to charge whatever tax rate they want, which is why Act 20 and Act 22 are possible.
To qualify for Puerto Rico’s Act 20 and 22 tax holidays, you must be a resident of Puerto Rico and spend a minimum of 183 days a year on the island.
Puerto Rico’s Act 22 gives you a zero percent tax rate on capital gains on assets acquired after you move to Puerto Rico.
Puerto Rico’s Act 20 gives you a 4% corporate tax rate on any Puerto Rico sourced business income earned inside an Act 20 company. Puerto Rico sourced business income is earnings and profits from work performed in the territory.
This post will focus on changes to the law which were approved on July 11, 2017. You might also take a read through my article comparing Puerto Rico’s Act 20 with Panama (or any offshore jurisdiction). Just remember that this article does not include the changes described below.
For more on Act 20, see: Puerto Rico Eliminates 5 Employee Requirement
The primary changes to Puerto Rico’s Act 20 and Act 22 are:
- Adding eligible services of
- Hospital services and laboratories including medical tourism and telemedicine services
- Trading companies with no less than 80% of business in PR exporting business.This means Act 20 is no longer limited to online and service businesses.
- No minimum number of employees required for most Act 20 businesses. Some exceptions will apply based on regulations yet to be written by the Secretary of DDEC. It seems these regs will focus on call centers and telemedicine. We believe all service and tech businesses can operate with only one employee (the business owner).
- 30% of doctors at medical tourism and telemedicine facilities should be Puerto Rican residents.
- Annual filings and reports shall be required….