Puerto Rico
Tax Incentives

Reforms and Incentives

puerto rico


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.


Click here for a downloadable PDF

  • Between the Caribbean Sea and the Atlantic Ocean
  • Midway between North and South America, the perfect bridge of both continents
  • Benefit of operating in U.S. jurisdiction with tax benefits of a foreign tax structure
  • Maximum corporate taxes reduced to 25% in 2014
  • Manufacturing & export services enjoy a 4% fixed income tax rate
  • Pioneer activities receive a preferential tax rate of 0% – 1%
  • Several incentive acts attract Foreign Direct Investment in sectors including: manufacturing, tourism, export services, insurance, financial services, agriculture, hospitality, hotel development and renewable energy
  • Ranked top 15 FTZ’s in U.S. – Nat’l Assoc. of Foreign Trade Zones
  • Puerto Rico’s banking system is regulated under U.S. laws (FDIC)
  • Puerto Rico operates under the U.S. legal framework and intellectual property protection
  • Access to federal programs and funds
  • U.S. Dollar is the official currency & full presence of international banks
  • No passport required & official languages are English and Spanish
  • Mass transit system recognized by U.S. Federal Transit Administration
  • Most technologically advanced convention center in the Caribbean and Latin America
  • Island-wide broadband service, under-sea fiber optic cable and robust satellite systems
  • Competitiveness Report ranked Puerto Rico 35/143 countries in the world
  • San Juan has the lowest cost of doing business among the largest U.S. cities
  • Lowest labor costs of any region under U.S. jurisdiction
  • Hourly earnings in manufacturing average 65% to 80% of U.S. average
  • Highly educated, productive and bilingual workforce
  • University of Puerto Rico at Mayaguez, premier engineering and science institute of the Caribbean and Latin America, ranks first in graduating Hispanic engineers
  • “Most attractive people, best food, drinks and restaurants” “Culebra Island ranked one of the 25 best secret islands on earth.” Travel & Leisure Magazine
  • Over 23 golf courses designed by Robert Trent Jones, Greg Norman and Tom Kite

reforms and incentives

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 income

Download Law 20 PDF.
  • This law applies to businesses in Puerto Rico that export their services outside of Puerto Rico on non-Puerto Rico specific matters
  • The law provides for a corporate tax rate of 4% and 0% rate on dividends (no federal taxes apply up until and if the profits are repatriated to the US)
  • The tax exemption is provided with a Tax Decree that guarantees the benefits for a 20 year period (which can be extended for an additional 10 years) regardless of whether the law is repealed sometime in the future
  • The law is meant to bring all types of service providers to Puerto Rico (law firms, engineering firms, economists, research and development, and many other services) as well as back-office work for some non-service industries (like manufacturing) that can have intra-company support services provided from within Puerto Rico


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 income

Download Law 22 PDF.
  • This law applies to individuals rather than companies
  • To qualify for this law, you must not have been a resident of PR for the 15 year window that preceded approval of the law (January 2012), and you must become a resident of PR after the law was approved (which you can do by living in PR for at least 183 days, same as the IRS establishes for federal residency requirements)
  • The benefits that accrue to such individuals is 0% tax rate on all passive income taxes, including interest, dividends, capital gains (both long term and short term capital gains)
  • Those benefits will be available to such individuals up until 2036
  • The benefits are also guaranteed through a Tax Decree to protect those that move to PR to benefit from our incentives


Tax Reform – Act 1 of 2011

  • Alleviates the tax burden on corporations and individuals, reinforces tax compliance, stimulates economic development and job creation and simplifies the tax system
  • Maximum corporate tax rate has been reduced from 41% to 30% with a further reduction to 25% after 2014
  • Average effective tax rate for individuals will be reduced by year 2016 to a maximum of 30%

International Insurance Center Act 399 Captive Insurance Companies

  • Provides a competitive environment for insurers and reinsurers to develop captive insurance companies in Puerto Rico
  • 4% corporate tax rates after $1.2 million less income exclusion
  • Exemption on dividends and profit distributions
  • Tax decree is effective for 15 years and renewable for two additional 15-year periods

Permits Reform – Act 161 of 2009

  • The permits request and approval process has been dramatically simplified
  • The permits request process can now be completed through one agency (previously 24)
  • Private sector professionals can now approve permits, reducing government bureaucracy
  • 80% of permits and 90% of the total volume of permits requested are now available online

Energy Reform – Acts 82 & 83 of 2011

  • The acts were enacted to help the island meet its target of 15% renewable energy production by 2020 and 20% by 2035
  • $290 MM will be invested in renewable energy projects over the next 10 years

Energy Fund (GEF)

  • A Renewable Portfolio Standard (RPS) requires the Island’s retail energy providers to produce or purchase a specified percentage of their electricity from renewable energy sources
  • Natural gas will make up approximately 72% of fuel mix by 2012 from a current 14%

Reorganization and Modernization of Executive Branch – Act 182 of 2009

  • Positions the government and its different agencies as a facilitator of social and economic development on the Island
  • Reduces government bureaucracy and operational costs while increasing efficiency for services provided to citizens
  • Currently, over 50 basic services, such as payment of electric and water bills and copies of birth certificates are offered online via www.pr.gov


Manufacturing and Export Services

  • 4% income tax on industrial development income
  • 0% to 1% tax rate on income for pioneer or novel products manufactured in PR
  • Up to 50 percent tax credit on purchases of products manufactured or recycled in PR
  • Up to $5,000 for each job created during 1st year

Renewable Energy (Green Energy Fund)

  • Rebates of up to 60% of eligible costs for Tier 1 (0-100 kW) and up to 50% for Tier 2 (101 KW-1MW)
  • 60% refund on acquisition and installation costs incurred during the installation   of renewable energy equipment for residential properties and small businesses  (50% for other businesses)

International Banking Entities (IBEs)

  • 0% income tax
  • 0% on dividends or other distributions of profits on income over $250,000
  • 0% distributions in liquidation

Foreign Trade Zones (FTZ)

  • Largest non-contiguous FTZ system in the U.S.
  • Deferment of federal customs duties
  • Deferment of Puerto Rico excise taxes
  • 100% exemption on exports from the zone

Film and Creative Services

  • 40% tax credit on all payments to PR residents
  • 20% tax credit on all payments to Non-Resident Talent (including stunt doubles)
  • 25% tax credit on development or expansion costs of studios, laboratories, facilities for the international transmission of television images or other media and related infrastructure

Tourism and Hospitality

  • Facilitates the establishment of tourism related projects on the island
  • Tax credit of 10% of the total project cost
  • 100% exemption on municipal construction excise tax, taxes on imported goods and sales tax
  • 100% exemption on municipal licenses
  • 90% exemption on income tax and property tax


  • 100% exemption on taxes for agricultural equipment
  • 100% exemption on property taxes (land, buildings, vehicles, etc.)
  • 100% exemption on municipal taxes
  • 100% exemption on stamp payments

Housing Incentives for New Homes

  • 0 charges for stamps and vouchers to the buyer
  • 0 taxes on property during 5 years
  • 0% taxes on capital gains earned in selling of existing residential and commercial properties
  • 100% exemption on future capital gains tax for sellers who purchased new property during incentives window

Puerto rico facts & faqs

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.


  • Population: 3,726,000
  • Gross Domestic Product (GDP): $96.3 B
  • Gross State Product (GSP): $63.3 B
  • GDP per Capita: $24,229
  • GSP per Capita: $15,930
  • Exports: $68.6 B
  • Imports: $41.4 B
  • Retail Sales: $34.9 B

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


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.