Act 22 & 60 Donation and Charity Information
Act 22 Investors in Puerto Rico (Now Changed to ACT 60 in 2020)
Under the previous rules anyone who holds an Act 22 decree must donate $5,000 to a Puerto Rican nonprofit entity of their choice each year to maintain their tax incentives. The organization must be certified under Section 1101.01 (a) (2) of the code Internal Revenue Code of Puerto Rico, and it cannot be controlled by the investor themselves nor by any of their relatives, their spouse, or their partner.
The organization the investor donates to must operate in Puerto Rico. To ensure the entity is compliant with Section 1101.01 (a) (2), it’s recommended that investors request to see their IRS and Hacienda certification (Certificacion de Vigencia de Exencion Contributiva de Entidad sin Fines de Lucro). Another option to verify that your nonprofit organization of choice is properly certified is to contact Hacienda.
Act 22 investors must make their donation before December 31 of each year and must present proof of their donation in the annual report they are required to submit each May.
*Please note as of January 1st, 2020 ACT 22 no longer exists.
What is Puerto Rico’s tax-friendly strategy?
In 2012, Puerto Rico created two important tax laws: Act 20, the Export Services Act, and Act 22, the Individual Investors Act. The goal of Act 20 and 22 was to attract entrepreneurs to the island with tax incentives for establishing businesses in Puerto Rico. Then, in 2019, the two acts were merged, overhauled and renamed Act 60. Today, ACT 60 contains some of the territory’s most lucrative tax rates for entrepreneurs. Puerto Rico is an incredible place to both visit and live, a Caribbean destination that is also part of the United States. Traveling to Puerto Rico is easy as anyone with an American identification card can travel without needing to have a passport.
With ACT 60 Entrepreneurs can save with a 4% corporate tax rate
Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies outside of the territory. This is ideal for online entrepreneurs and service providers who have U.S. businesses, employees and clients. To receive this rate, an entrepreneur needs to open a Puerto Rican company, establish their business on the island and begin exporting services from Puerto Rico to the U.S. The U.S. does not apply exit taxes to mainland U.S.-based businesses that move to Puerto Rico.
Entrepreneurs also need to meet a few other requirements, including becoming bona fide residents of Puerto Rico. Bona fide residency usually requires moving your permanent home, family and belongings, registering to vote, obtaining a driver’s license and bank account, and creating personal ties to Puerto Rico. Time also needs to be spent in the territory. Business owners who need to go to the U.S. frequently for business or who travel internationally have some flexibility for time spent in Puerto Rico as long as they have bona fide residency.
Businesses that have $3 million or more in revenue also need to hire one local employee to claim the 4% corporate tax rate. Smaller businesses do not have any employment requirements.
Any industry is eligible as long as the service is performed in Puerto Rico and exported. Research and development businesses, advertising companies, consulting and advisory services, architecture firms, call centers, shared service centers, software development companies, educational/training services, marketing companies, international traders and more can take advantage of Act 60.
What is Act 60? What Investors in Puerto Rico should know.
The above instructions apply to people who have already applied for Puerto Rico tax incentives under Act 22. Going forward, all applicants will be subject to the new Act 60 rules, which are similar but introduce a few important changes.
Act 60 investors are required to donate double the amount that Act 22 decree holders donate, but the donation is split into two parts—a donation of $5,000 to two different organizations is required under Act 60. Like with Act 22 donations, the nonprofit entities must operate in Puerto Rico and not be run by the investor or their family, spouse, or partner. Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May.
The first $5,000 must go to a nonprofit organization listed by Comisión Especial Conjunta de Fondos Legislativos para Impacto Comunitario (CECFL), which publishes an annual list with approved organizations. The list for 2020 has not been published as of February 19, 2020, but when it is, we will email it to all our Individual Resident Investor clients.
The second $5,000 can go to any Puerto Rican nonprofit entity of the investor’s choice, as long as it falls under Section 1101.01 of the Puerto Rico Internal Revenue Code. This allows for a broader pool than Act 22’s restriction of donations to Section 1101.01 (a) (2)–certified nonprofits. One point to bear in mind, however, is that the organization cannot be on CECFL’s list.
Tax Incentives Overview in Puerto Rico
Nonprofits Certified Under Section 1101.01 (a) (2)
Both Act 22 and 60 investors need to make a mandatory yearly donation in order to be eligible to keep their tax status. While this is an extremely lucrative way to save money on taxes you are also truly helping the local economy with your charitable donation.
Learn more about ACT 22 & ACT 60 Donations
Link to Hacienda 1011.01 Verification Letter
Puerto Rico Corporation Filing Information (click then refresh page)