- 1 (787) 597-2829
- info@izquierdolawllc.com
- Our Offices
- Book a FREE Consultation
Thousands of Puerto Rican companies are quietly paying 4% income tax instead of 37.5%, collecting cash grants, and stacking incentives. Here is what is actually available to you.
If your news feed is your only source of information about Puerto Rico, you would think the island is closed for business. Meanwhile, thousands of Puerto Rican companies are quietly paying 4% income tax instead of 37.5%, collecting cash grants from the government, and stacking three or four incentive programs on top of each other.
This is the part of the story that does not trend. Puerto Rico offers one of the most comprehensive business incentive frameworks in the United States, and the majority of these benefits are held by local companies and Puerto Rican residents. If you own a business here or you are thinking about starting one, the tools available to you are real, they are legally binding, and they can meaningfully change what your business looks like five years from now.
Here is what is actually available.
The headline benefit of Act 60 is a preferential income tax rate that ranges from 1% to 10%, with an average of 4%, compared to a standard corporate rate that can climb to 37.5%. But the tax savings do not stop there. A decree holder can also receive up to 75% exemption on CRIM (property tax), up to 100% exemption on municipal license tax (patente), 100% exemption on dividends, and IVU exemption on qualifying equipment and raw materials.
The rate you pay depends on the chapter you qualify under. Manufacturing and Exportation of Services generally land at 4%. Pioneer Industry designation drops that to 1%. PYME status (for businesses under $3 million in revenue) can bring you to 2% for the first five years with 0% patente and 0% CRIM during that window. Young Entrepreneurs between 16 and 35 pay 0% on the first $500,000 of net income for three years. Agriculture pays 10% on income tax but 0% on other municipal and sales taxes.
A decree is not a promise from a political administration. It is a contract with the Government of Puerto Rico, protected by the Constitution, that survives changes in government. Most decrees run for 15 years and are renewable for another 15.
Tax credits are one of the most misunderstood parts of the incentive system. If your business generates a credit and does not have enough tax liability to use it (because your rate is already 4%), you can sell that credit to another taxpayer on the secondary market, typically for 88 to 92 cents on the dollar. That is real cash back into your business without giving up equity.
The Research and Development Tax Credit (RDTC) is a 50% credit on qualified R&D spending in Puerto Rico. Qualifying costs include salaries of R&D personnel, materials, laboratory equipment, and contracted research services. Credits accumulate for up to 10 years if unused, and in some cases can be redeemed by Hacienda at 90%. Manufacturing, tourism, film, and Opportunity Zone credits also exist and follow similar mechanics.
The Economic Incentives Fund (Fondo de Incentivos Económicos) is the part of the system that most business owners have never heard of. It is not a tax credit. It is cash back on qualified spending, funded by up to 10% of federal contributory income or $125 million annually.
EIF reimbursements include 10% to 50% back on new machinery and equipment purchases, $400 to $1,000 per new job created and maintained (varying by salary, region, and industry), and variable reimbursements for infrastructure, training, and marketing. For a manufacturer investing $250,000 in equipment, that can mean $25,000 to $75,000 back in cash, plus additional dollars for every employee hired.
Conexión Laboral, administered by DDEC through its Programa de Desarrollo Laboral under Title I of the federal Workforce Innovation and Opportunity Act, reimburses employers for hiring and training local workers. On-the-Job Training (OJT) can cover up to 75% of a new hire’s salary while they are being trained on the job. General training and skills-development reimbursements can reach 50%.
The eligibility bar is low: hire local residents into full-time positions at a minimum of $10.50 per hour and register with the local area office. WIOA stacks with essentially every other program on this list.
If your business is too small or too new for Act 60, or if you operate in a sector Act 60 does not cover, Capital Semilla is the program to look at. There are two tracks:
Reimburses 100% of qualified startup costs up to $15,000 for businesses with less than 36 months of operation. Eligible spending includes equipment, leasehold improvements, initial inventory, marketing, professional advice, and point-of-sale systems.
Reimburses 50% to 75% of qualified spending up to $35,000 for businesses with three or more years of operation, sales at or below $3 million, and at least one full-time employee. It is designed for growth: new equipment, expansion, inventory for growth, and technology upgrades.
Covers 50% of marketing spend up to $10,000 for businesses under $3 million in sales and 25 employees. Contracts run up to 18 months and cover digital campaigns, branding, websites, professional photography and video, and advertising. It is fully compatible with Capital Semilla.
Municipal incentives are the layer most easily missed. In San Juan, Ordinance 28 offers 5 years of patente exemption, 5 years of personal property exemption, and 10 years of real property exemption in designated zones (Santurce, Río Piedras, Condado, Old San Juan, and others). The eligibility triggers are straightforward: create 5 or more new regular jobs, or make capital improvements of $50,000 or more, and operate within the designated zone.
San Juan CDBG offers grants up to $10,000 for new businesses and up to $5,000 for existing businesses in the municipality, funded by federal Community Development Block Grant dollars. It is designed for very small operators: under $250,000 in annual sales and 10 or fewer employees.
Other municipalities offer their own programs. San Juan is the most developed, but if you operate elsewhere, ask what your municipality is running.
Individually, each of these programs delivers meaningful savings. Combined, they change the math of running a business in Puerto Rico entirely.
Consider a centralized kitchen in Santurce producing prepared food for 12 food trucks in the metro area and selling directly to distributors and restaurants. Two Puerto Rican owners, $250,000 initial equipment investment, $800,000 projected first-year sales, six employees. They also perform research and development on shelf-stable food prepping. Here is what stacking looks like in practice: Manufacturing decree under Chapter 6 (2% income tax under PYME for 5 years, 0% patente, 0% CRIM), 100% IVU exemption on the equipment saving roughly $29,000, RDTC for $100,000, EIF reimbursement of $25,000 to $75,000 on the equipment plus $600 to $1,000 per job created, WIOA OJT reimbursement, and a municipal decree eliminating all personal property tax for 5 years. All stackable, all compatible.
Or consider a Caguas-based business exporting call center services with $1.5 million in first-year sales, resident owner. Exportation of Services decree gets you to 2% income tax under PYME, 100% dividend exemption, 0% patente and 0% CRIM for 5 years, and roughly $50,000+ in first-year savings compared to standard rates. Add WIOA OJT reimbursement for all the employees hired and trained with up to 90% reimbursement of salaries for up to 6 months, and municipal incentives on top.
None of this is free of obligation. A decree is a two-way commitment. You are expected to create jobs, buy local when justified, use Puerto Rico-based professional services, bank in Puerto Rico with substantial deposits (10% is considered substantial), and file annual reports on time (late reports carry $1,000 fines that escalate to $5,000 and can result in revocation). You must remain in good standing with SURI, CRIM, ASUME, and every other applicable agency.
For most businesses, initial application costs run around $10,000, and annual compliance runs $8,000 to $15,000 plus a $5,000 DDEC annual filing charge. Set against 4% versus 37.5% tax rates and the cash grants layered on top, the math is not close.
Puerto Rico’s incentive framework is not a marketing pitch. It is a working system that has been building local businesses for decades and continues to expand. Yes, the political noise is real. Yes, compliance takes discipline. But the businesses paying attention to this system are keeping 30% to 40% more of their capital than the ones that are not, and reinvesting it into growth, jobs, and market share.
If you own a business in Puerto Rico or you are planning to start one, the question is not whether these incentives are worth exploring. The question is which combination fits your specific operation.
Keep more money in your pocket.
See how Puerto Rico’s incentives can work for your business.
Book a Free ConsultationLegal Notice: This publication provides general information and does not constitute legal advice. Decrees are subject to negotiation and results are not guaranteed. Consult with an attorney before making decisions based on this information. Accessing or using this publication does not establish an attorney-client relationship between us.