Puerto Rico Tax Incentives for Technology Firms

Financial Planning and Review of Year End ReportsMuch has been written by large news companies about Investment Advisors, Hedge Funds and Private Equity funds relocating their operations to Puerto Rico. Yet, there’s another side to Puerto Rico tax incentives: technology firms are a perfect fit for Puerto Rico tax incentives.

Puerto Rico’s Act 20 tax incentives legislation provides for a 4% tax rate on corporate income and 0% tax rate on dividend distribution. When compared to jurisdictions like California, this seems like a no brainer for anyone looking to relocate out of the US to lower their tax liabilities. California corporate income taxes is 8.84% and the Federal Income Tax can go up to 35% plus! When you add dividend distributions, you end up giving away almost half of your profits.

Right now, dozens and dozens of technology companies have incorporate in Puerto Rico. Many of these companies are exporting their software engineering / development services or selling the SaaS (software-as-a-service) online and reaping tremendous benefits. Imagine paying 4% total tax on your net income all while operating under the United States legal framework, banking system and rule of law.

Puerto Rico Tax Incentives

Export Service providers operating under a Tax Exemption Decree will enjoy the following tax incentives during the term of such decree:

  • 4% flat income tax rate on Export Services Income.
  • 100% tax-exempt distributions from earnings and profits derived from the Export Services Income.
  • 100% exemption from property taxes during the first five years of operations

When you add Act 20 tax incentives to the Act 22, Puerto Rico is definitely the best jurisdiction in terms of taxes. Act 22 provides for total tax exemption on dividend income, rental income, capital gains and interest income.

Under the Individual Investors Act, Resident Individual Investors will enjoy:

  • 100% tax exemption on interest income
  • 100% tax exemption on dividend income
  • 100% tax exemption on rental income
  • 100% tax exemption on capital gains
  • Resident with Puerto Rico source income will not be subject to federal income taxation
  • Retain their US Citizenship while paying lower taxes, if any

We learned about these incentives through Porto Capital’s website. Get more information on Puerto Rico tax incentive here:

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