How to Set Up a Legal Entity in Puerto Rico for Tax Optimization (Act 60)
Puerto Rico has become a tax haven for entrepreneurs, investors, and U.S. businesses looking for legal ways to reduce their federal tax obligations.
Under Act 60 (formerly Act 20 and 22), eligible individuals and entities can enjoy generous tax incentives such as 4% corporate tax rates and 0% capital gains taxes.
This blog post explains how to set up a compliant legal entity in Puerto Rico to take advantage of Act 60, while staying within U.S. IRS rules.
🔗 Table of Contents
- What Is Act 60?
- Best Entity Types for Tax Optimization
- Eligibility Requirements & IRS Considerations
- How to Set Up Your Puerto Rico Entity
- Ongoing Compliance Tips
- Final Thoughts
🇵🇷 What Is Puerto Rico’s Act 60?
Act 60 of 2019 consolidates previous tax incentive programs (Acts 20 and 22) under one framework, offering special tax treatment to resident investors and businesses exporting services from Puerto Rico.
U.S. citizens who become bona fide residents of Puerto Rico can benefit from 0% capital gains tax and corporations operating in specific industries can reduce their corporate tax to as low as 4%.
🏢 Best Entity Types for Tax Optimization
Most tax advisors recommend setting up a Puerto Rican LLC or a Puerto Rico-based C Corporation that exports services such as consulting, software development, or financial services.
These entities must have a local presence, including an office, employees, and payroll compliance under Puerto Rican law.
An LLC taxed as a corporation can qualify for the Export Services Act (previously Act 20) to benefit from the 4% tax rate.
✅ Eligibility Requirements & IRS Considerations
To qualify for the Act 60 benefits, you must:
Become a bona fide resident of Puerto Rico (minimum 183 days/year).
Derive eligible income from services exported outside Puerto Rico.
Operate a business in a qualified field (e.g., tech, finance, design, legal, etc.).
The IRS still considers Puerto Rico residents as U.S. taxpayers, but under Section 933, Puerto Rico-source income is excluded from U.S. federal tax if the individual qualifies.
⚙️ How to Set Up Your Puerto Rico Entity
Step 1: Register your business with the Puerto Rico Department of State.
Step 2: Apply for an Act 60 decree via the Puerto Rico DDEC portal.
Step 3: Open a local bank account and establish physical office space.
Step 4: Hire local employees and register with the Puerto Rico Treasury (Hacienda).
Step 5: Maintain detailed financial records and prepare annual filings in both Puerto Rico and the U.S.
📋 Ongoing Compliance Tips
Even after incorporation, compliance is key to preserving your tax benefits.
Submit annual reports and audited financial statements to DDEC.
Ensure you meet local payroll and employee headcount requirements.
Maintain records proving bona fide residency.
Coordinate with U.S. tax professionals familiar with IRS Form 8898 and Section 933.
💡 Final Thoughts
Puerto Rico’s Act 60 provides one of the most powerful tax optimization tools available to U.S. citizens without renouncing citizenship.
But the process is not plug-and-play—careful legal setup, residency compliance, and local operations are critical.
If executed properly, this strategy can preserve more of your earnings and open up new business opportunities in the Caribbean and beyond.
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Keywords: Puerto Rico tax optimization, Act 60 setup, legal entity formation PR, U.S. tax haven strategy, export service decree
