Puerto Rico, a Caribbean island which is a U.S. territory and is part of the United States, recently enacted two powerful laws to promote economic development and attract new businesses and residents: the Export Services Act and the Individual Investors Act. These new laws, combined with the Island’s beautiful natural resources, proximity to America, the Caribbean, Central America and Latin America, highly skilled bilingual workforce, low operational costs and world-class infrastructure, have made Puerto Rico an ideal place to do business and live.
Friedman & Feiger offers general legal advice to current Puerto Rico residents as well as to individuals and companies that are looking to Puerto Rico as an option for starting business operations or relocating on a personal basis to Puerto Rico. We will guide our clients through the usual issues that come up during the course of conducting business in Puerto Rico to provide them with the necessary legal and business advice that’s required to succeed in Puerto Rico. Friedman & Feiger provides expert legal advice on the numerous and extraordinary tax incentives that Puerto Rico offers to new and existing businesses in the areas of Services, Manufacturing, Tourism, Gaming, Film, and many others. Our approach is to work with our clients not only to execute on the legal work that’s required to best serve our clients, but to help our clients structure their businesses from the beginning to find the way to augment and maximize the benefits of doing business in Puerto Rico.
MOVE YOUR OFFICE TO THE BEACH, PUERTO RICO IS OPEN FOR BUSINESS
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IMPORTANT REFORMS Two laws that provide for incredible incentives:
EXPORT SERVICES ACT (LAW 20): The Export Services Act (Act 20 of 2012) provides for 4% maximum tax rate on income related to services for exportation provided by new domicile Puerto Rico businesses
It also sets a 0% tax rate on newly domiciled dividends or profit distributions from such businesses to Puerto Rico residents
Qualifying companies will get a decree for 20 years, renewable for an additional 10 years, guaranteeing these rates
Puerto Rico corporations pay no Federal Income Taxes on Puerto Rico source incomeDownload Law 20 PDF.
INDIVIDUAL INVESTORS ACT (LAW 22):
The Individual Investors Act (Act 22 of 2012) provides incredible passive income tax benefits for new Puerto Rico residents
0% tax rate on interest and dividend income and short and long-term capital gains
Rates are guaranteed until 2036 through tax incentives decree
Puerto Rico residents pay no U.S. federal taxes on Puerto Rico source incomeDownload Law 22 PDF.
Tax Reform – Act 1 of 2011
International Insurance Center Act 399 Captive Insurance Companies
Permits Reform – Act 161 of 2009
Energy Reform – Acts 82 & 83 of 2011
Energy Fund (GEF)
Reorganization and Modernization of Executive Branch – Act 182 of 2009
Manufacturing and Export Services
Renewable Energy (Green Energy Fund)
International Banking Entities (IBEs)
Foreign Trade Zones (FTZ)
Film and Creative Services
Tourism and Hospitality
Housing Incentives for New Homes
Puerto Rico has long been known as an island paradise full of world-class beaches, natural wonders, golf, arts, shopping, dining and nightlife.
And many also know of its reputation as a serious place committed to business, growth, development and low taxes; and the passage of this law highlights this commitment.
The time to invest, work, live and play in Puerto Rico is now. Make the comparison to your current situation. Move to Puerto Rico and bring your family and friends with you!
With offices in Dallas and San Juan, Friedman & Feiger Attorneys at Law can help you set-up your new office on the beach so you can enjoy sun, sand and zero to 4% tax rates.
PUERTO RICO AT A GLANCE
11 of the top 20 prescription drugs sold in the U.S. are manufactured in Puerto Rico
Note: Figures provided are as of 12/31/2010
Source: Puerto Rico Planning Board, U.S. Census Bureau
PUERTO RICO TAX ADVANTAGES FAQS
Q: Is Puerto Rico a foreign country?
A: No. Puerto Rico is a part of the United States and residents on the island are U.S. citizens.
Q: Do businesses and residents in Puerto Rico pay federal taxes?
A: No. The federal laws that establish the relationship between the United States and Puerto Rico exempt Puerto Rico from federal taxes.
Q: What are the local tax rates in Puerto Rico?
A: Puerto Rico has extraordinary incentives laws that establish tax rates at 4% or lower for business activities that the island seeks to incentivize, such as services, manufacturing, tourism, gaming, film, and many others areas.
Q: Are there tax incentives for individual residents in Puerto Rico?
A: Yes. For qualifying new residents of Puerto Rico, an incentives law provides for a 0% tax rate on passive income tax, including interests, dividends, and capital gains.
Q: Can any company qualify for tax incentive law?
A: Basically, yes. Puerto Rico has tax incentives for Manufacturing, for Tourism (hotels, etc), for Cruise Ship Industry, for Gaming (major casinos), for the Film Industry, and of course, for Exportation of Services and for New Individual Residents (among others), so our incentives cover the gamut. We have it all.
Q: What do you have to do to qualify to take advantage of the tax incentive law?
A: Depends which incentives law. For Laws 20 and 22, please see above and or attached documents.
Q: Do I have to start a PR company to qualify to take advantage of the tax incentive law?
A: But for individual benefits such as those under Law 22, the other benefits require that you form a PR company, but that is not an issue at all as our corporate system is very sophisticated and is very similar to what you will find in Delaware.
Q: Do I have to move all, or can I move part, of my company to qualify to take advantage of the tax incentive law?
A: Assuming we’re talking Law 20, you can move part of the company’s activities to benefit from the law. For example, if you’re a manufacturer in Dallas, you can move the legal department, human resources, and IT departments to PR and provide intra-company services from PR to Dallas.
Q: Same questions for individuals.
A: To benefit from Law 22, you have to become a bonafide resident of Puerto Rico. We are not looking for people that want to game the system – we are looking for people that want to make PR their home and take advantage of all that we have to offer. That said, they need not be here 365 days a year. (Larry, we want to emphasize this point, as we do not want to have press come out where we suggest that PR is a tax haven or that we are looking to cheat the US of its rightful tax base)
Q: What areas/industries are the best to qualify to take advantage of the tax incentive law?
A: We have incentives for all industries, but if you’re talking Law 20, the law applies to basically any service that world occur, as it is meant to be very broad in its application.
Q: If I move to PR or move my company to PR, what if the laws change?
A: That’s why we established the Tax Decrees as part of the incentive – so that your benefit is contractually guaranteed by PR regardless of what happens to the laws under which the Tax Decrees were granted.
Q: How do I repatriate my money?
A: You bring your funds home as you would from another state.
Q: Is there a way to repatriate my money tax-free?
A: Yes, if you are a PR resident, inasmuch as you would earn your money and once it is yours you can take it wherever without paying additional taxes. However, if you are not a PR resident, then the answer is No. But in that case, you can use the funds outside of the US by investing in your company, or otherwise spending the money outside of the US, and never pay taxes on those funds. And if you should ever move to PR in the future, then you could claim your funds without triggering US taxes.
Q: What are the expiration dates on the tax incentives?
A: For Law 20 your Tax Decree lasts 20 years with a 10 year extension available. For Law 22, until 2036.