Puerto Rico · Business & founder
Act 60 Export Services Decree
Open. Formerly Act 20-2012. It carries a 4% corporate rate on net income from the exempt operation.
This pairs with the Chapter 2 decree. The operating company pays 4%, and distributions to a bona fide resident owner come out exempt. For a consultant, fund manager or software business that has genuinely relocated and serves clients outside Puerto Rico, the combined effective rate lands close to 4%. That is the real Act 60 proposition, and it matters far more than the 0% headline on passive income.
Qualifying routes
There is no minimum investment. The corporate rate on exempt-operation net income is 4%, and distributions to the owner are 100% exempt. Services must be rendered to people outside Puerto Rico, with no Puerto Rico nexus. At least 80% of gross income must come from the export activity. The decree runs for 15 years, and can be renewed for another 15.
The facts
- Total landed cost
- Filing and annual compliance fees, plus professional costs, typically run USD 15,000–40,000 in year one, and materially more if the structure is examined. There is no minimum capital requirement.
- Route type
- Business & founder
- Timeline
- 2–6 months (Processed by DDEC.)
- Physical presence
- The company must operate from Puerto Rico, and its services must be physically performed there. The owner's own bona fide residence is judged separately, under the Chapter 2 / §937 tests.
- Family
- Not applicable. This is a business decree, not a personal status
- Permanent residency
- Not applicable
- Citizenship
- Not applicable
- Language test
- Not applicable
- Dual citizenship
- Permitted
- Requirements
- Services rendered to persons outside Puerto Rico, with no Puerto Rico nexusAt least 80% of gross income from the export activityOne full-time Puerto Rico-resident employee if business volume exceeds USD 3m, and this may be the owner. None required below that threshold.Bona fide Puerto Rico establishment and performance of servicesAnnual reporting to DDEC
- The employee requirement is the most misreported detail here. Once business volume exceeds USD 3m, the rule requires one full-time Puerto Rico-resident employee, and that employee can be the owner. At or below USD 3m, there is no employee requirement at all. That is far softer than commonly advertised, and it is exactly why it draws scrutiny. A one-person export services company invoicing US clients from a laptop is the archetypal audit target.
- The no Puerto Rico nexus test is what both the IRS and DDEC attack. Holland & Knight confirms that the IRS demands documentation showing services were actually performed in Puerto Rico, not conducted remotely from US financial centres.
- Related-party transactions and transfer pricing require arm's-length documentation. Routing US-sourced service revenue through a Puerto Rico entity without real substance is exactly the pattern under examination.
- A Puerto Rico corporation counts as a foreign corporation for US federal purposes. That triggers Form 5471, and potentially Subpart F or GILTI, for the US-person owner.
- The reported 2% rate for the first five years, where business volume is under USD 3m, comes from a single unverified source. The property tax exemption is variously reported at 60% and 75%. Confirm both figures with Puerto Rico counsel.
- The decree is worthless unless the owner independently satisfies the three bona fide residence tests. See the Chapter 2 entry.