For those of you that don’t know, while Puerto Rico is a US Territory, they are not anything like one of the 50 states. Puerto Rico has its own government independent from the United States.
What makes that important is that they also have their own tax laws.
Now, unless you’ve been living in a cave somewhere, you are probably somewhat aware that Puerto Rico was devastated by not one, but two dead on hurricanes in 2017.
Puerto Rico has always been an impoverished island. Last I heard of the three million residents, something like two million of them live in poverty.
Act 20 was designed as one of the ways to try and change that. One of the fastest ways to try and turn an economy around is to provide incentives to businesses so that they hire more people, and thereby stimulate the economy, and they do it quickly. It doesn’t take a rocket scientist to follow that logic. Matter of fact, when I moved here, the first thing I did was get a place to live, buy a car and began shopping for the thousand things you need when you relocate to a new place. I was spending money, and that’s exactly part and parcel of what Puerto Rico expects to happen. So, exactly what is the crux of Act 20? Simple, it’s designed to attract a certain kind of business to the island in order to provide tax dollars to the Commonwealth, provide jobs for locals, and stimulate the economy from all the trickle down effects moving businesses here creates.
Think about it – what really hurts businesses and business owners? Taxes. Taxes have been one of those things that sometimes will kill a business. When a business dies, employees get laid off, the government loses revenues, and it’s no good for anyone.
In a nutshell, it’s a way to try and attract new businesses to Puerto Rico that do not depend on the people of Puerto Rico to earn money. This is why it’s technically called the Export Services Act.
Not every business is going to fit into what Puerto Rico is looking for with respect to this particular tax grant program. Matter of fact (rabbit hole warning) this tax grant program is available to anyone in Puerto Rico, not just business owners, or wannabe owners, living on the mainland.
But, if you have a business model that fits into the constraints of the program, then you are going to be rewarded with an exceptionally lower tax bill.
To get right to the bottom line, so to speak, your business is only going to pay 4% on its net profits.
So, that’s cool, right?
But, what about the distribution of those profits from the business to the shareholder(s)? Zero tax.
That’s right, zip, nada, nothing.
Just to make sure we are all doing the same math, worth through this with me now – the Act 20 business earns one million dollars in net profit. The business pays 4%, or $40,000 to the government of Puerto Rico (specifically the Hacienda), then the remaining $996,000 get disbursed with ZERO TAXES!
So, are there catches? Well, I guess that depends on what it is you consider a catch.
Probably the biggest, single thing that you must, 100% comply with, is that you have to move yourself to Puerto Rico. That is, you, must be a bona fide resident of Puerto Rico.
Is that a big deal?
Well, I guess that depends on you and your family. Do you, and they, want to live on an island in the Caribbean? Not everyone does.
I found out about this amazing program from friends that had already moved their businesses and family to Puerto Rico and once they saw how well my business would fit into the tax programs, they told me I’d be crazy not to move. I investigated, and almost instantly moved to Puerto Rico. I’ll be writing more articles to go into greater detail about my experiences both with the tax programs, and living in Puerto Rico.
Follow along with us as we explore this amazing program and what it takes to qualify, apply and get accepted.