Puerto Rico is a US possession which has a unique status relative to the US.  It operates under US laws, operates within the US banking system, uses the US dollar as its currency, speaks English, and has a large skilled labor force.  However, for tax purposes, it is considered foreign and sets its own tax rates.  Thus, Puerto Rico is the best of both worlds.

Using the combination of long-standing federal legislation contained within the Internal Revenue Code (“IRC”) including IRC §§ 933, 7701(a)(4), 7701(a)(5), 7701(a)(30), 881(b)(2), 882, 1442(c)(2), and various pieces of tax incentive legislation that began in 2008 that were ultimately consolidated into and replaced with Act No. 60-2019 known as the Tax Incentive Code (‘‘Act 60”), Puerto Rico has sought to establish itself as a business service and manufacturing center.  In general, the United States does not tax foreign source income that is retained in a foreign corporation (IRC §§881 and 882) such as a Puerto Rico corporation operating under Act 60.  Therefore, the applicable corporate tax rate of 4% would apply.

In addition to a 4% tax rate at the corporate level, under Act 60, there is a 100% tax exemption on dividend distributions by that corporation of its Puerto Rico earnings.  As such, for a Puerto Rico resident, there is no tax on the distribution at the shareholder level, and, at most, a 4% tax at the corporate level (see Act 60 §2032.01(a)).  Thus, corporations may operate on an extremely low tax basis (4%) while resident shareholders may withdraw dividends income tax-free.

Puerto Rican residency is NOT necessarily required to receive the benefits of Act 60!


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TLS expertise in business strategies and tax law has allowed us to create more than 6,000 planning strategies tailored to our client’s business and personal situation.  TLS designs and implements unique proprietary Puerto Rico strategies that allow clients to take as much advantage of the tax incentives as they desire.  The wide variety of Puerto Rico Tax strategies that can be applied to your business provide flexibility for your business operations, personal circumstances, and current tax situation.

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