Puerto Rico Act 20: What It Is and What You Should Know

Posted by Diane Smith on July 13th, 2021

Puerto Rico Act 20 has been a hot topic in the news for the last few months. It is a new tax incentive created by Puerto Rican Governor Ricardo RosselloNevares. It is designed to help those looking to start businesses or relocate their business to the island. However, many people are not aware of what all this means and how it could benefit them. In this post, we will go over some of the key points about Puerto Rico Act 20 so that you can make an educated decision on whether or not you should take advantage of it!

It will offer incentives for investors, and it offers significant benefits in terms of corporate income taxes and individual income taxes when compared with mainland US rates. These lower tax rates can be applied whether you live on the island full time or not!

The biggest benefit of this act is that if your company produces services outside of Puerto Rico but does business inside, your profits from these operations may qualify for the Territorial Tax Exemption, which means they would only pay around 12% corporate income tax than 35%. This exemption also applies to individual income.

Puerto Rico Act 20 also offers benefits in terms of high unemployment rates and poverty levels. Puerto Rico has one of the highest corporate tax rates in the world at 39% which makes it very difficult for businesses on the island, especially small ones, to compete with those off shore corporations who have lower taxes and are not subject to a territorial exemption like they would be under this act. This new law is set up so that companies will no longer need as many employees because their profits will go much further than before - meaning more jobs created!

The Territorial Tax Exemption does NOT apply if your company only conducts business outside of PR yet still pays its operational expenses inside; however, some may argue that this is not really bad because it will force businesses to invest in PR of their business model.

This law does NOT exempt from any taxes those companies operating under Act 20; they just have the territorial exemption, which means they are only taxed on what occurs inside Puerto Rico. That said, if you conduct your operations outside of PR and don't pay tax liabilities inside, then you'll still be subject to US federal income tax (and other applicable taxes) for all profits generated or gained while conducting activities abroad.