Puerto Rico’s Act 60 export services incentive gives qualifying businesses a fixed 4% corporate income tax rate on income earned from serving clients outside the island, plus a full local exemption on dividend distributions and sharp reductions in municipal and property taxes. The decree runs 15 years and can be renegotiated for another 15. To get it and keep it, you need to perform the right kind of work, run the business from a real Puerto Rico office, hire locally once you grow past a revenue threshold, and file an annual report every year without fail.1Act 60 consolidated the former Act 20 export services law and other incentives into a single code in 2019.
What Services Qualify
The core test is simple. You perform a service from Puerto Rico, and the client who benefits is located somewhere else, whether that is a foreign country or the U.S. mainland. Eligible activities are broad: consulting, software development, data processing, digital marketing, research and development, engineering, accounting, and call center operations all fit. Shared service centers handling back-office functions for a parent or affiliate abroad qualify too.
The nexus rule is where applicants get into trouble. A service cannot have a connection to Puerto Rico beyond the physical location of the person doing the work. Advising on Puerto Rico law or regulations, lobbying the Puerto Rico government, selling property for use or consumption on the island, or supporting business activities that operate within Puerto Rico are all prohibited connections. A San Juan consulting firm advising a mainland company on its U.S. expansion qualifies. The same firm advising that same client on opening a Puerto Rico subsidiary does not. Only income from services without that local nexus gets the 4% rate, so your records need to show each engagement’s client location and the nature of the work.
Office, Entity, and Hiring Requirements
The business must be organized as a legal entity under Puerto Rico law and keep a genuine physical office on the island. A registered agent address is not enough. The DDEC expects to see a real workspace, and applicants typically submit a lease or deed along with utility bills in the entity’s name.
Hiring kicks in at $3,000,000 in annual revenue. Once you cross that line, the decree requires at least one full-time Puerto Rico resident employee working directly on the exempt services. If you cross the threshold after the decree is issued, you get a phased ramp: 25% compliance within six months, 50% by twelve months, 75% by eighteen months, and full compliance after that. Businesses below $3,000,000 in revenue do not face the mandatory hire but still need to show real operational substance on the island.
The Full Set of Tax Benefits
The 4% income tax rate on export service income is locked in for the full term of the decree. On top of that, decree holders receive:
- A 100% local income tax exemption on dividends or profit distributions derived from exempt income, available only to entities organized under Puerto Rico law. A non-domestic corporation distributing profits from non-Puerto Rico sources pays ordinary rates on those distributions.
- A 50% exemption on the municipal license tax (patente municipal) that municipalities impose on gross revenue.
- A 75% exemption on property taxes for assets used in delivering the exempt services during the first 15 years of operations.
Businesses operating in Vieques or Culebra get a 2% income tax rate for their first five years, then step up to 4% for the rest of the decree.
Decree Term and Renewal
A standard export services decree runs 15 years from issuance. Before expiration, the business can petition the DDEC to renegotiate for another 15 years. Renegotiation is not automatic. The DDEC evaluates whether the business has stayed in compliance and continues to deliver economic benefit to the island, so plan the renewal filing well before the decree lapses.
Federal Taxes and Residency for U.S. Citizen Owners
This is the part that catches people. Act 60 is Puerto Rico law and controls Puerto Rico taxes. It does not override your obligations to the IRS.
Under IRC Section 933, a bona fide resident of Puerto Rico who meets the residency tests for the entire tax year can exclude Puerto Rico-source income from federal gross income. Your 4% export service income, taxed locally, drops off your federal return. The exclusion only covers Puerto Rico-source income, though. Investment income from mainland assets, rental income from mainland property, and income from services physically performed on the mainland stay subject to regular federal tax. You also cannot claim federal deductions or credits allocable to the excluded income.
For services, the IRS sources income based on where the work is physically performed. Publication 570 provides the formula: if you work both inside and outside Puerto Rico, you allocate compensation by dividing days worked in the territory by total days worked. Only the Puerto Rico portion qualifies for Section 933. Every day worked from the mainland shifts income back into the federal net.
To be a bona fide resident, owners must satisfy a three-part IRS test: a presence requirement (generally at least 183 days on the island during the tax year), a tax-home test (your principal place of business must be in Puerto Rico), and a closer-connection test. The closer-connection test weighs the full picture of your life: where your permanent home is, where your family lives, where you keep belongings, where you bank, where you hold a driver’s license, where you vote, and where you participate in social or professional organizations. The IRS compares your ties to Puerto Rico against your ties to the mainland and any foreign country combined. Keeping a furnished apartment in Miami, voting in Florida, and banking only through mainland institutions is the kind of profile that draws attention. In any year you change residence to or from Puerto Rico and your worldwide gross income exceeds $75,000, you file IRS Form 8898 to report the position.
How to Apply
Before filing, assemble the documentation package: personal identification for all owners, business incorporation documents, a detailed description of the export services you will perform, financial projections or historical financials, and proof of your physical office such as a lease or utility bills. You also need to identify which eligible activity category your services fall under.
Filing is electronic through Puerto Rico’s Single Business Portal. A non-refundable application fee of $750 is due at submission. The DDEC then reviews the application against the statutory requirements, which typically takes three to six months. Complex structures and incomplete filings run longer.
During review, the DDEC may request a tax compliance certificate (Certificación de Deuda) from the Puerto Rico Department of the Treasury confirming whether the applicant owes back taxes. If debts exist, you will need an approved payment plan before the decree issues. Once review and clearances are complete, the DDEC issues the Tax Decree, a binding contract between the business and the government that sets out the specific benefits, obligations, and duration.
Keeping the Decree in Good Standing
The decree carries annual obligations. Every year, holders must file an Exempt Annual Report through the DDEC’s Office of Incentives portal. For calendar-year filers, the deadline is November 15 of the following year (the 15th day of the 11th month after your tax year closes). The report includes financial statements, employment data, and documentation supporting continued eligibility, and a filing fee accompanies it.
The DDEC uses these reports to confirm you are still performing qualifying export services, keeping your physical presence, meeting employment requirements, and honoring the terms of the decree. Falling behind on reports or misrepresenting operations puts the decree at risk of revocation. Revocation is not only a loss of future benefits. The statute authorizes the government to claw back unpaid taxes for prior years, which can convert years of savings into a serious liability. Meticulous records of client locations, service descriptions, and revenue sourcing are the strongest protection.
One point of confusion worth clearing up: the $10,000 annual charitable donation requirement that circulates in Act 60 conversations applies to Individual Resident Investor decree holders, not to export services businesses. If you hold only an export services decree and have not separately applied for investor benefits, that donation obligation does not apply to you.