The Legal Side of Puerto Rico Tax Incentives: Compliance and Strategic Opportunities for Businesses

Puerto Rico has emerged as a prime destination for high-net-worth individuals, entrepreneurs, and businesses looking to capitalize on its unique tax incentives. As more entities explore the island’s benefits, forward-thinking firms are taking on a new role as legal advisors and strategic partners in helping clients navigate tax planning and achieve broader financial goals.

At Mavacy, we believe in strategic and comprehensive legal counsel. By collaborating with tax professionals and co-counsels, we help clients understand the nuances of tax strategies available in Puerto Rico to achieve long-term compliance and maximize profitability.

The Puerto Rico Advantage

Under Act 60, known as the Puerto Rico Incentives Code, the island consolidates some of the most advantageous tax incentives available globally. Designed to attract investment, talent, and innovation, these programs provide significant benefits for individuals and businesses. Here’s a closer look:

Business Export Services Incentives

Businesses providing eligible services from Puerto Rico to clients outside the island can benefit from:

• 4% Corporate Tax Rate: A flat, reduced rate on eligible income.
• 100% Dividend Exemption: No tax on dividends from export service earnings.
• Property Tax and Municipal Tax Exemptions: Up to 75% and 50% reductions for the first 15 years of operation, respectively.

These benefits are ideal for consulting, financial services, technology, and other industries. Puerto Rico offers a compelling case for relocation or expansion for businesses transitioning to remote or hybrid models.

Individual Capital Gains and Residency Incentives

For high-net-worth individuals and investors, Puerto Rico offers:

• 100% Exemption on Capital Gains: Gains realized after establishing residency are entirely tax-free.
• 0% Tax on Dividend and Interest Income: Providing significant savings for income derived from investments.
• Residency Requirement: To qualify, individuals must spend at least 183 days in Puerto Rico annually and demonstrate that the island is their primary residence under IRS guidelines.

This makes Puerto Rico an attractive destination for digital entrepreneurs, investors, and retirees seeking tax-efficient solutions.

Why This Matters to Legal Professionals

The legal implications of these tax incentives go beyond simply relocating. As attorneys, we understand compliance with Act 60 requires meticulous attention to detail. The IRS has increased its scrutiny of Act 60 participants, making establishing and documenting bona fide residency and income sourcing critical to avoid disputes and ensure compliance.

Our role as legal counsel is to ensure that every move—whether it’s business restructuring, contract negotiation, or estate planning—is aligned with Act 60 requirements and designed to withstand scrutiny.

Navigating Challenges and Compliance

While the benefits of Puerto Rico’s tax incentives are substantial, navigating them requires specialized expertise:

• Residency Compliance: To qualify for these incentives, you must establish closer ties to Puerto Rico than any other jurisdiction. This includes shifting your tax home, personal connections, and physical presence to the island.
• Income Sourcing Rules: Businesses and individuals must ensure that eligible income is sourced correctly to qualify for reduced tax rates or exemptions.
• Long-Term Planning: Tax strategies in Puerto Rico should be part of a broader financial and legal plan, considering potential changes in U.S. tax laws or Puerto Rico’s economic policies.

Leveraging Strategic Partnerships

At Mavacy, our innovative approach includes partnering with co-counsel and tax professionals specializingin Act 60 strategies. Together, we provide a holistic framework for clients to take advantage of these incentives and integrate them seamlessly into their business or personal financial goals.

Is Puerto Rico Right for You? 

Puerto Rico’s tax incentives are a game-changer for those seeking to reduce tax burdens and increase global competitiveness. However, they’re not a one-size-fits-all solution. By working with an innovative legal team that collaborates with tax experts, you can ensure your strategy is tailored to your unique circumstances and objectives.

Let’s connect if you’re considering Puerto Rico as part of your tax strategy. Together, we’ll explore optimizing your business, protecting your assets, and aligning your goals with innovative legal and financial strategies.