Navigating Act 60: Avoid These Common Mistakes for Smooth Approval

The single most useful takeaway: Meeting the physical presence test, understanding the distinction between individual and business decrees, and ensuring a complete application are crucial steps to avoid delays in Act 60 approval.

Understanding the Physical Presence Test

As a muralist in Santurce, I have seen firsthand how important it is to meet the physical presence requirements for Act 60. If you’re an individual investor planning to relocate, you must spend at least 183 days each year in Puerto Rico. This means establishing a tax home here and showing a closer connection to the island through actions like owning or leasing a home, living with your family, and moving your financial accounts. Failing to meet this test can disqualify you from Act 60’s individual tax benefits.

Separating Individual and Business Decrees

It’s essential to understand that Act 60 combines two former laws: Act 20 for individuals and Act 22 for businesses. Apply under the correct decree based on your situation. If you’re an individual investor, you can benefit from preferential tax treatment on dividends, capital gains, and interest income. For businesses, the export services incentive offers a 4% corporate tax rate. Make sure to apply for the right chapter to avoid delays.

Annual Reports and Compliance

Both individuals and business owners are required to file annual compliance reports with the Department of Economic Development and Commerce (DDEC). This includes financial statements, proof of income, and tax return information. Skipping this step can result in fines and even the loss of your tax decree. Stay compliant to ensure you receive all the benefits Act 60 has to offer.

Don’t Forget the $10,000 Donation

Individual resident investors must donate $10,000 annually to eligible Puerto Rico nonprofits they are not affiliated with. This contribution supports local communities, ensures shared responsibility, and is part of the annual requirements under Act 60. Missing this step could lead to penalties or the risk of losing your decree.

Qualifying Export Service Businesses

If you’re applying under the Export Services Incentive, your business must provide eligible services to clients outside Puerto Rico. Categories include creative and digital services, research and development, and manufacturing-related support. Make sure your business primarily serves international clients to qualify for the 4% corporate tax rate. Failing to meet this requirement can make your application ineligible.

Completing Your Application

A complete application is key to avoiding delays. Missing documentation or incomplete forms can hold up your approval. Ensure you provide all necessary details, including a copy of your lease, proof of funding, nonprofit donation plans, and an organizational chart or business plan. Working with a trusted expert can help you avoid overlooked items and ensure a smooth process.