Probably, you know that Puerto Rico needs to boost its economy. Because it comes with a special status within the US, it offers tax incentives similar to offshore tax havens without any risks of location in a foreign country.
Who will qualify for Act 20?
Only service-based companies are eligible to get Act 20 tax rates and credits. In addition, some types of businesses that qualify are:
· Call centers
· Shared service centers
· Voice and data processing centers
· Software development
· Information systems and other technological services
· Scientific or environmental services
· Research and development
· Medical, hospital, and lab services
· Engineering and architectural services
· Economic services
· Legal, tax, and accounting services
· Auditing services
· Advertising, public relations, and marketing
· Managerial and human resource services
· Commercial art and graphic design
Your business should provide services from Puerto Rico to outside markets. If you are planning to do business with residents, businesses, or government entities in Puerto Rico, you might not be eligible. It includes real estate, legal advice on laws, and lobbying the Puerto Rican government.
E-commerce businesses won’t qualify unless they prove that they are working from Puerto Rico. For instance, an Amazon FBA seller won’t qualify because the office is located in Puerto Rico; the delivery service is being provided by warehouses in the United States. The same thing is an application for personal websites, drop-shipping, app sellers, SaaS, online ad arbitrage, niche websites, and affiliate marketing, and so on.
How to Establish a Company?
Your business should be incorporated in Puerto Rico. You can choose to sell your business assets to the new Puerto Rican corporation. The best way is to reorganize the company as a Puerto Rican corporation that is tax-free.
Then, you can hire Puerto Rican workers. The number of workers is five; however, there are exceptions as low as one. The employees should get full social security benefits and other coverage like employment tax. These should be real jobs, not only paper ones to meet the regulations.