“Along with the use of the US dollar, and general allowance of free flow of funds abroad, this regulatory
structure guarantees sound credit and investment practices. Legal protection is provided under both US
federal and state constitutions, with legal redress venues in US federal or Commonwealth courts. This
arrangement allows for fiscal and tax autonomy with special US tax distinctions. Additionally, Puerto Rico
offers a particular licence classification which allows for administration of protected cells, among other
captives management options. The flexibility of a regulatory-driven protected cell regime presents a very
powerful planning opportunity for many of our clients.”
Kenneth Kotch, Principal, Ryan LLC
Tax exemptions conferred under the International Insurers and
Reinsurers Act of Puerto Rico include:
• $1.2 million tax exemption on net income. The exemption is applicable
at the individual cell level for protected cell company arrangements
and at the company level. Preferred 4 percent tax rate on net income,
guaranteed by a decree effective over a renewable period of 15 years.
• Exemption from premium taxes.
• Exemption on dividends and other profit distributions made by the
international insurer and international insurer holding company.
Exemption on municipal franchise, real and personal property taxes.
• Exemption to the international insurer and qualifying international
insurance company from withholding taxes on payments of
dividends and other profit distributions made to third parties, and
from filing tax returns with the Puerto Rico Internal Revenue Service.
• Isolation of the proceeds and benefits paid by international insurers
from state and donation taxation procedures.
OTHER TAX INCENTIVES
The Act to Promote the Exportation of Services (No. 20 of 2012) will
without a doubt turn Puerto Rico into an international services centre.
Highlights of the law include: (i) a 4 percent income tax rate that can
be reduced to 3 percent; (ii) 0 percent income tax rate on distributions;
(iii) 90 percent exemption of real and property taxes; (iv) 60 percent
exemption on municipal licence taxes; and (v) a 20-year exemption
period that may be extended by an additional 10 years.
Among the qualifying export services are: research and
development; advertisement and public relations; consulting;
investment banking; asset management and other financial services;
and professional services such as legal, accounting, architectural and
International financial entities
The International Financial Center Regulatory Act (No. 273 of 2012)
provides tax exemptions to businesses engaged in eligible financial
activities in Puerto Rico.
Highlights of the law include: (i) a 4 percent income tax rate; (ii) 100
percent exclusion of interest, financing charges or participation in
partnerships benefits; (iii) 100 percent tax exemption on all real and
personal property belonging to an international financial entity; and
(iv) 100 percent tax exemption on the payment of municipal licence
taxes. The decree will be effective during a period of 15 years. Two
extensions of 15 years each may be available.
Individual resident investors
The Act to Promote the Relocation of Individual Investors (No. 22 of
2012) offers attractive tax benefits to individual investors who relocate
to Puerto Rico (they must be present in Puerto Rico at least 183 days
per year, among other residency requirements).
In order to qualify, the new resident investor must not have been a
resident of Puerto Rico during the past 15 years.
Highlights of this Act include: (i) 100 percent exemption of income
taxes (including alternative minimum tax) on interest and dividends
received; and (ii) 100 percent tax exemption on capital gains that
occurred while a resident of Puerto Rico and which are realised after 10
years of becoming a resident of Puerto Rico.
S P E C I A L R E P O R T