Export Services Act of 2011 (Act 20)
The main objectives of the Export Services Act of 2011 are to turn Puerto Rico into an international hub of export services, retain local talent, attract foreign talent and foreign capital and create a special fund for promoting the establishment of new businesses to export services from Puerto Rico.
The act includes, but is not limited to, the following designated services: research and development; advertising and public relations; economic, environmental, technologies, scientific, managerial, marketing, human resources, information systems, engineering, auditing, and other consulting services; advising and consulting on matters related to any industry or business; commercial art and graphic services; production of engineering and architectural blueprints and designs; advanced professional services such as legal, tax and auditing services; centralized managerial services including, but not limited to, strategic direction, planning and budgeting performed for affiliated entities and by a regional headquarters; and electronic data processing centers.
Tax rate and incentive period:
• 4% income tax. It can be reduced to 3% when: - more than 90% of all gross income of the company and its affiliates that conduct a designated business derive from exporting services. - rendered export services are considered strategic services, as described under the incentives act.
• 0% income tax rate on dividends or profit distributions.
• 100% exemption of real and property taxes on call centers, corporate headquarters and distribution centers, on the first five years of operations. After said 5-year period, a 90% exemption will apply during the term remaining under the Tax Exemption Grant.
• 20-year grant, which can be extended by a period of 10 years, when: designated businesses fulfil the requirements of employment, income, investment and other factors mentioned in the grant that prove the DDEC Secretary that the extension of the grant will benefit the economic and social interests of Puerto Rico.
Act to Promote the Relocation of Individual Investors (Act 22)
This law seeks to attract new residents to the island by providing a total exemption from Puerto Rico’s income tax on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico. The Individual Investors Act applies to any individual investor that becomes a Puerto Rico resident on or before the taxable year ending on December 31, 2035, provided that such individual was not a resident of Puerto Rico at any time during the 15-year period preceding the effective date of the Individual Investors Act.
• 100% tax exemption from Puerto Rico income taxes on interest and dividend income derived during the Tax Exemption Period to Resident Individual Investors. “Section 933 Exclusion”, interests and dividends received by Resident Individual Investors that qualify as Puerto Rico source income will not be subject to federal income taxation under the US Code.
• 100% exempted from Puerto Rico income taxes for Long-term capital gains (“LTCG”) derived by Resident Investors for investment appreciation accruing after becoming a Puerto Rico resident, if such gain is recognized prior to January 1, 2036.
• On the other hand, LTCG derived by Resident Individual Investors will be subject to preferential income tax rates in certain circumstances.
The tax exemption granted under the Individuals Investors Act will expire on December 31, 2035 (the “Tax Exemption Period”).