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Software Development & Distribution (Exports)
Tax incentive for software development and distribution businesses serving clients or markets outside Puerto Rico, offering a 4% corporate tax rate.
11 min
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Section Code:
2031.01(A)-1 (a)-11
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Purpose:
Exports — 2031.01(A)-1 (a)-10
Overview
The Software Development and Distribution export incentive under Section 2031.01(A)-1(a)-11 of Act 60-2019, as amended, provides preferential tax treatment for software companies that develop, publish, or distribute software for clients or markets outside Puerto Rico. This designation supports Puerto Rico's software and technology sector.
Qualifying businesses pay a fixed four percent (4%) corporate income tax rate on income derived from software development and distribution to non-Puerto Rico clients or markets. The program attracts software developers, SaaS companies, software publishers, mobile app developers, and technology companies that can operate from Puerto Rico while serving external markets.
The key distinction of this designation is its comprehensive coverage of software activities including custom development, product development, SaaS operations, and software distribution. The designation accommodates both service-based software development and product-based software businesses.
Puerto Rico's technology talent, connectivity, and business environment support software companies. The incentive enhances competitiveness for Puerto Rico-based software businesses serving U.S. and global markets.
Key Benefits
Corporate Income Tax Rate
Software businesses approved under this designation pay a fixed four percent (4%) tax rate on income from qualifying software development and distribution to clients or markets outside Puerto Rico. This rate applies for the decree term of fifteen (15) to twenty (20) years.
Compared to standard Puerto Rico rates of thirty-seven and a half percent (37.5%), savings exceed ninety percent (90%).
Dividend Tax Treatment
Dividends distributed from decree income to shareholders outside Puerto Rico face zero percent (0%) withholding.
Property Tax Exemptions
Software businesses receive exemptions from property taxes on development facilities, servers, equipment, and technology infrastructure.
Municipal Tax Exemptions
Decree holders are exempt from municipal license taxes on qualifying software revenues.
Technology Ecosystem
Software companies benefit from Puerto Rico's growing technology community, access to development talent, and connectivity supporting distributed software operations.
Requirements & Obligations
Business Structure and Registration
Applicants must establish a Puerto Rico legal entity to conduct software operations and hold the decree. The entity must register with Puerto Rico authorities and obtain necessary licenses.
Export Revenue Threshold
At least eighty percent (80%) of gross income must derive from software development or distribution to clients or markets outside Puerto Rico. Software sold or licensed to Puerto Rico customers does not qualify. Detailed customer and revenue records are required.
Software Activities Definition
Activities must constitute qualifying software development or distribution including custom software development, software product development, SaaS operations, mobile app development, software publishing, or software licensing. The development work must be substantially performed from Puerto Rico.
Development from Puerto Rico
Software development, including design, coding, testing, and maintenance, must be substantially performed in Puerto Rico by Puerto Rico-based developers. Development teams must be based in Puerto Rico even if serving global customers.
Employment Requirements
Software businesses must hire at least one (1) full-time Puerto Rico resident employee within six (6) months of decree issuance. Software developers, engineers, and technical staff count toward requirements.
Physical Presence
The business must maintain facilities in Puerto Rico where software development occurs. Business records and intellectual property development must be based in Puerto Rico.
Compliance and Reporting
Annual compliance reports must document employment, revenue sources, customer locations, and software products or services. Records must demonstrate that qualifying software development is performed from Puerto Rico for non-Puerto Rico markets.
How to Apply
The application process for the Software Development and Distribution export incentive typically requires four (4) to six (6) months from planning to decree issuance.
The process begins with assessing whether the software business model qualifies. Companies should confirm that activities constitute software development or distribution, that at least eighty percent (80%) of revenue comes from non-Puerto Rico customers, and that development can be effectively conducted from Puerto Rico. Consultation with Puerto Rico advisors helps confirm eligibility.
During planning, companies establish a Puerto Rico legal entity and begin operations setup. This includes entity formation, banking, securing development space, and establishing technical infrastructure. Some founders and developers relocate while others hire local development talent.
The formal application is submitted to PRIDCO and includes descriptions of software products or services, technology stack, customer base analysis, development processes, financial projections, and employment plans. Product demos or technical documentation may help demonstrate capabilities.
PRIDCO reviews the application over approximately sixty (60) to ninety (90) days. Staff may request additional information about software products, customer relationships, or development operations. Applications demonstrating genuine software capabilities and Puerto Rico commitment receive favorable consideration.
Upon approval, the decree is issued specifying terms and obligations. After issuance, the company must meet employment and operational milestones within specified timeframes.
This information is educational and should not be considered legal or tax advice. Applicants should consult with qualified legal and tax professionals familiar with Puerto Rico incentive programs before making any business decisions or submitting applications.
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