In order to qualify for Act 20 and the accompanying flat 4% corporate tax treatment, some straightforward requirements must be met. Although these mandates may seem prohibitive, the Puerto Rican government has been helping companies creatively implement Act 20 since the start of the decree in 2012. These guidelines deal with the types of services provided, client characteristics and local business requirements.
The first step under Act 20 is to ensure that the new entity is offering a true export service. This means that the company will be based in Puerto Rico and will sell goods and services to clients abroad. Currently all CASPR clients are exporting services to the US but Act 20’s application is global. Examples of export services include a widget manufacturer distributing goods to Europe, an e-commerce company moving its back-office support to the island, or a management consultant who works with companies in the US.
The Department of Economic Development and Commerce (DEDC) has explicitly outlined more than 20+ services that are pre-approved for an Act 20.
- Financial Services
- Investment Banking
- Public Relations
Puerto Rico understands that there are more industries than those listed above that can make a positive impact on the economy, therefore the DEDC has been authorized to approve any type of business after considering various business factors such as revenue, job creation and investment level. Since the beginning of the incentive program, Act 20 businesses have exported over +$1B of good and services from the island.
Once the regulators process and approve the Act 20 application, the company must hire two full-time employees within the first six months of operation; increasing to five within the first two years. Fortunately, Puerto Rico’s well-educated and bilingual workforce can provide quality administrative and operational assistance for new businesses. CASPR’s consulting division has partnered with the top staffing and concierge service firms on the island to streamline every step of the process.
With CASPR’s extensive experience with Act 20, we are able to work with your team of financial professionals to develop the right game plan for your business. If you would like to learn more about Act 20, you can download the CASPR Act 20 Overview, or a full translation of the Act from the DEDC.