Act 20 provides tax incentives for companies that establish and expand their export services businesses in Puerto Rico. Under Act 20, income from eligible services rendered for the benefit of non-resident individuals or foreign entities (Export Services Income, or EIS) is taxed at a reduced tax rate of 4 percent. Moreover, dividends or benefits distributed out of EIS are 100 percent exempt from Puerto Rico taxation.
Some “eligible services” are:
- Research and development
- Advertising and public relations
- Data processing centers
- Call centers
- Scientific, management, information technology and marketing consulting services
- Professional services
- Development of computer programs
- Shared management services
- Educational and training services
- Hospital and laboratory services
- Investment banking and other financial services and
- Any other service that the Secretary of Economic Development and Commerce determines, after consulting with the Secretary of the Treasury, that should qualify as an eligible export service, based on factors such as jobs to be created, payroll generated and proposed investment in Puerto Rico.
The eligible services covered, as well as any other terms and conditions of the exemption, will be included in a grant of tax exemption (Act 20 Decree) issued to the individual, entity or entities that will engage in the eligible services. The entity must have three full-time Puerto Rico-resident employees within six months of commencing operations, and five employees within two years of commencing operations. An application for an Act 20 Decree would have to be filed disclosing, among other things, the eligible services proposed to be rendered in Puerto Rico, including estimated volume of business, number of employees, payroll, etc. The application for an Act 20 Decree must include the payment of a $750 filing fee.