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Business Setup
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Act 60 Experts
Export Service Businesses: Your Blueprint to 4% Corporate Tax Under Act 60
If you run a service business that serves clients outside Puerto Rico, Act 60's 4% corporate tax rate could save you hundreds of thousands annually. Here's your complete roadmap to qualifying and maximizing this powerful incentive.
What Qualifies as an Export Service Business?
Under Act 60 Chapter 3, export service businesses that derive at least 80% of revenue from customers outside Puerto Rico can qualify for a 4% fixed corporate income tax rate.
Qualifying Business Types
Software & Technology:
SaaS platforms
Software development
Cloud services
Data analytics
Cybersecurity services
IT consulting
Web/app development
Professional Services:
Management consulting
Business advisory
Financial consulting (non-regulated)
Marketing strategy
HR consulting
Operations consulting
Creative Services:
Advertising agencies
Marketing agencies
Graphic design
Video production
Content creation
Digital marketing
Research & Development:
Product R&D
Scientific research
Technical research
Innovation consulting
Centralized Services:
Shared service centers
Back-office operations (for non-PR entities)
Customer support (for non-PR customers)
Data processing
Other Qualifying Services:
Engineering services
Architecture/design (for non-PR projects)
Legal process outsourcing
Accounting/bookkeeping (for non-PR clients)
Translation services
What DOESN'T Qualify
❌ Retail/e-commerce selling physical products to PR customers
❌ Local services to PR residents/businesses
❌ Real estate services in PR
❌ Financial services requiring PR licensing
❌ Healthcare services to PR patients
❌ Legal services to PR clients (requires separate bar admission)
The 80% Export Revenue Rule
This is the critical threshold. At least 80% of your gross income must come from customers located outside Puerto Rico.
How It's Calculated
Gross revenue from non-PR customers ÷ Total gross revenue ≥ 80%
Example 1: SaaS Company (Qualifies)
Total annual revenue: $2,000,000
PR customer revenue: $300,000 (15%)
Non-PR customer revenue: $1,700,000 (85%)
Result: ✅ Qualifies (85% > 80%)
Example 2: Marketing Agency (Doesn't Qualify)
Total annual revenue: $800,000
PR customer revenue: $200,000 (25%)
Non-PR customer revenue: $600,000 (75%)
Result: ❌ Doesn't qualify (75% < 80%)
Critical Documentation
You must maintain detailed records proving customer locations:
Customer contracts with addresses
Invoices showing customer locations
Shipping/delivery addresses (for any physical deliverables)
IP address logs (for digital services)
Payment processing records showing customer locations
What Counts as "Outside Puerto Rico"
✅ Mainland US (even though same country)
✅ International customers
✅ Remote work for non-PR companies
❌ PR customers even if paying from outside PR
❌ Services performed for PR projects/entities
❌ Pass-through arrangements (non-PR entity contracting but work is for PR)
The Complete Tax Benefits Package
Corporate Income Tax: 4% Fixed Rate
Mainland comparison:
Federal: 21%
State: 0-13.3% (avg 6%)
Combined: 27% average
Puerto Rico Act 60:
Fixed rate: 4%
Savings: 23 percentage points
On $1M taxable income:
Mainland: $270,000 tax
PR Act 60: $40,000 tax
Annual savings: $230,000
Dividend Distribution: 0% Withholding
When you distribute profits to shareholders:
Mainland (for non-resident shareholders):
Qualified dividend rate: 20% federal + 3.8% NIIT
State tax: 0-13.3%
Total: Up to 37.1%
Puerto Rico Act 60:
Withholding to non-PR shareholders: 0%
Puerto Rico dividend tax: 0%
On $500K dividend distribution:
Mainland: $185,500 tax
PR: $0
Savings: $185,500
Property Tax Exemptions
90-100% exemption on:
Office space
Equipment
Computers and technology
Furniture and fixtures
Property used in export services
Municipal License Tax Exemptions
Full exemption from:
Municipal license fees (typically 0.5-1.5% of gross revenue)
Municipal patente fees
On $2M revenue:
Typical municipal tax: $10,000-30,000
PR Act 60: $0
Sales & Use Tax Benefits
Exemptions or credits on:
Equipment purchases
Software/SaaS tools
Office furniture
Technology infrastructure
Business Setup Requirements
1. Establish Puerto Rico Entity
Entity type options:
Corporation (most common)
LLC (can elect corporate tax treatment)
Registration steps:
File with PR Department of State ($150)
Obtain EIN from IRS
Register with PR Treasury Department
Obtain municipal business license
Timeline: 2-4 weeks
2. Physical Presence in Puerto Rico
You need a real, physical office in Puerto Rico.
What qualifies:
✅ Dedicated office space (owned or leased)
✅ Coworking space with dedicated desk
✅ Home office (if properly documented and exclusive use)
What doesn't qualify:
❌ Virtual office/mailbox service only
❌ P.O. Box
❌ No physical presence
Minimum requirements:
Address where business operations occur
Location for maintaining books and records
Place where business decisions are made
3. Employment Requirements
Minimum: At least 1 full-time employee who is a bona fide Puerto Rico resident within 6 months of decree issuance.
Who counts:
✅ You (the owner, if you're a PR resident)
✅ PR-resident employees
✅ Full-time contractors (sometimes, if structured properly)
Who doesn't count:
❌ Mainland-based employees
❌ Part-time workers
❌ Independent contractors (in most cases)
Pro tip: Many businesses hire local administrative, customer support, or technical staff to meet this requirement while building genuine PR operations.
4. Operations Substance
You must conduct genuine business operations from Puerto Rico, not just incorporate there.
What this means:
Business decisions made in PR
Client communications from PR
Work product created in PR
Intellectual property developed in PR
Bank accounts in PR
Red flags:
Owner still lives on mainland
All employees work remotely from mainland
No genuine PR business activity
Decisions made via calls from mainland office
The Application Process
Timeline: 4-8 Months
Month 1-2: Planning & Setup
Consult with Act 60 advisors
Establish PR entity
Secure office space
Open PR bank account
Begin employee recruitment
Month 2-3: Operations Launch
Begin conducting business from PR
Establish genuine operations
Create paper trail of PR-based activity
Month 3-4: Application Submission
Prepare application package
Submit to PRIDCO
Pay $5,000 application fee
Month 4-7: Government Review
PRIDCO reviews application
Requests additional information
Evaluates business viability
Confirms export nature of services
Month 7-8: Decree Issuance
Final decree drafted
Both parties sign
Decree becomes effective
Required Application Documents
Business plan including:
Financial projections:
Corporate documents:
Operations documentation:
Export revenue evidence:
Ongoing Compliance Requirements
Annual Reports
Due: Within 4 months after fiscal year end
Must include:
Revenue breakdown (PR vs. non-PR customers)
Employment information
Operations summary
Financial statements
Certification of continued compliance
Cost: $300 annual fee to DDEC
Separate Accounting
Required: Maintain separate books for:
Decree income (qualifying export services)
Non-decree income (if any)
Allocated expenses
Why: Only decree income gets 4% rate. Non-qualifying income taxed at standard PR rates (typically 37.5%).
Puerto Rico Tax Filings
Corporate return: Annual PR corporate tax return (Form 480.2)
Estimated payments: Quarterly estimated tax payments
Withholding: If you have employees, withhold PR income tax
Books & Records in Puerto Rico
Must maintain in PR:
Corporate books and records
Financial statements
Tax records
Customer contracts and invoices
Employee records
Can be digital but must be accessible in PR for inspection
Real Business Examples
Example 1: SaaS Company
Profile:
Software subscription platform
500 customers (95% mainland US, 5% PR)
Annual recurring revenue: $3,000,000
Expenses: $1,200,000
Taxable income: $1,800,000
Tax Comparison:
Delaware C-Corp:
Federal tax (21%): $378,000
State tax (estimated): $108,000
Total: $486,000
PR Act 60:
PR tax (4%): $72,000
Total: $72,000
Annual savings: $414,000
15-year savings: $6,210,000
Example 2: Management Consulting Firm
Profile:
Business strategy consulting
25 clients (mainland F500 companies)
Annual revenue: $2,500,000
Expenses: $800,000
Taxable income: $1,700,000
Tax Comparison:
New York S-Corp + owner's taxes:
Corporate: $110,500
Owner distributions taxed at personal rates: $510,000
Total: $620,500
PR Act 60:
PR corporate (4%): $68,000
Dividend distribution: $0 withholding
Total: $68,000*
*Shareholder may owe personal taxes depending on residency
Annual savings: $552,500
Example 3: Digital Marketing Agency
Profile:
Full-service digital marketing
40 clients (all mainland)
Annual revenue: $1,200,000
Expenses: $500,000
Taxable income: $700,000
Tax Comparison:
California LLC (taxed as corp):
Federal (21%): $147,000
California (8.84%): $61,880
Total: $208,880
PR Act 60:
PR tax (4%): $28,000
Total: $28,000
Annual savings: $180,880
Common Structuring Strategies
Strategy 1: Hybrid Model
Structure:
Maintain mainland entity for PR customers
Puerto Rico entity for export services
Transfer export contracts to PR entity
Benefits:
Clean separation of qualifying vs. non-qualifying revenue
No risk of failing 80% test
Maximum tax savings
Complexity: Higher (two entities, transfer pricing considerations)
Strategy 2: Single Entity Approach
Structure:
Move entire business to PR
Accept that some PR revenue doesn't get 4% rate
Ensure 80%+ remains export revenue
Benefits:
Simpler structure
Single entity compliance
Most revenue still gets 4% rate
Risk: Must carefully manage customer mix to maintain 80%
Strategy 3: Owner Relocation + Business
Structure:
Owner establishes bona fide PR residency (individual investor decree)
Business qualifies for export services (4% corporate)
Dividends distributed at 0% to owner
Benefits:
Double tax savings (corporate + individual)
Owner's capital gains also at 0%
Comprehensive tax optimization
Requirements: Owner must genuinely relocate (183+ days, closer connection)
Is It Worth It for Your Business?
Strong Candidates
✅ High-margin service businesses (software, consulting, professional services)
✅ 80%+ revenue from outside PR (or can shift customer base)
✅ $500K+ annual taxable income (break-even point)
✅ Owner willing to relocate or establish real PR operations
✅ Scalable business not requiring owner's mainland presence
✅ Remote-friendly operations (can be run from anywhere)
Weak Candidates
❌ Low-margin businesses (costs may exceed benefits)
❌ Heavy PR customer base (can't meet 80% rule)
❌ Requires mainland presence for licensing/operations
❌ Under $250K taxable income (costs likely exceed savings)
❌ Owner cannot relocate and business needs owner present
Bottom Line: The Numbers
Break-even calculation:
Minimum taxable income to justify Act 60 Export Services:
Annual costs:
Application fee (amortized): $333/year
Annual DDEC fee: $300
PR corporate tax prep: $5,000
Compliance/legal: $5,000
PR operations overhead: $20,000-50,000
Total annual cost: ~$30,000-60,000
At what income does this make sense?
$500K taxable income:
Tax savings: ~$120,000
Costs: $45,000
Net benefit: $75,000/year
$1M taxable income:
Tax savings: ~$230,000
Costs: $45,000
Net benefit: $185,000/year
$2M+ taxable income:
Tax savings: ~$460,000+
Costs: $50,000
Net benefit: $410,000+/year
Sweet spot: $750K+ in annual taxable income for maximum ROI
Next Steps
Analyze your customer base - Can you prove 80%+ export revenue?
Model the numbers - Calculate your specific tax savings vs. costs
Consult Act 60 specialists - Tax attorney + CPA familiar with PR
Plan the transition - Timeline for entity setup and operations move
Execute the strategy - Apply for decree and launch PR operations
For service businesses with the right profile, Act 60's 4% rate is one of the most powerful tax strategies available anywhere in the US tax system.
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