Let’s say you are an entrepreneur who has a small software design firm with a hot new e-discovery product that is going to revolutionize the legal world because of its capacity to understand language. Berkshire Hathaway has spotted your product and you have a juicy offer to consider, yet you would like to remain independent. However, selling for an attractive sum could help you start a new business that would design innovative software applications for a number of industries. You are having a hard time deciding on what is the best course to follow. Then you learn of the Economic Incentives Act for the Development of Puerto Rico.

You learn you would pay 4% on capital gains so you decide to sell your business, and self-finance a new venture settling in Puerto Rico’s west coast.

You set up your company near the Rafael Hernández International Airport in Aguadilla, the island’s second international airport, on the island’s hi-tech corridor, where the Las Americas Technology & Research Park is under development. This technology park is geared towards export projects in computer and information technologies with common areas managed by the nonprofit PRTEC, a nonprofit committed to the development of a collaborative environment between private companies, government entities and academia.

You take advantage of the highly touted engineering school at nearby Mayagüez to hire promising young talent. You contract employees and get a tax credit from the government for creating new jobs. Your company starts to crank out innovative new software solutions.

Your new business in Puerto Rico would have the following benefits:

• You could either pay a 4% fixed income tax rate with a 12% withholding tax on royalty payments made to non-residents or you pay 8% fixed income tax rate and a 2% withholding tax on royalty payments made to non-residents.
• Distributions would be 100% tax exempt while a gain on a sale of stock would be 4% during the term of the grant.
• Up to 50% credit for research and development expenses tied to intangible property during the year of the investment
• Up to 10% credit for industrial energy consumption
• 35% of credit for purchase of products manufactured in Puerto Rico that are recycled which can enable you to cut costs on the packaging of your product
• $5,000 for each job creation credit for each job created during the first year and sustained for three years
• 90% exemption on qualifying real and personal property
• 60% exemption on the payment of volume of business tax and other municipal taxes, up to 75% for small and medium-sized businesses.
• 100% tax exemption for five years for headquarters and regular exemption afterward, 100% exemption of property tax during construction period
• 50% credit for investment in renewable energy generation equipment.

On a short vacation trip to the island, one of the principals of a leading law firm in New York finds out that Puerto Rico offers incredible incentives to companies that want to establish a base from which to export services to the region or the world. He realizes that Puerto Rico would be the perfect place to set up the regional offices of the firm as it expands to Latin America. 

The island’s history as a colony of the Spanish empire for four centuries and as part of the U.S. since 1898 has made it one of the few places in the world where both the civil code and common law are practiced side by side in the island’s courts. The full grasp of common law and civil law will provide prospective clients with the assurance that they will be well advised in their ventures if they seek to engage in commerce between the U.S. and Latin America.

The firm’s offices in Puerto Rico would have the following benefits:

• Either pay a 4% fixed income tax rate with a 12% withholding tax on royalty payments made to non-residents or pay 8% fixed income tax rate and a 2% withholding tax on royalty payments made to non-residents.
• Distributions would be 100% tax exempt while a gain on a sale of stock would be 4% during the term of the grant
• $5,000 for each job creation credit for each job created during the first year and sustained for three years
• 90% exemption on qualifying real and personal property
• 60% exemption on the payment of volume of business tax and other municipal taxes, up to 75% for small and medium-sized businesses.
• 100% tax exemption for five years for headquarters and regular exemption afterward, 100% exemption of property tax during construction period

You are a large wind turbine manufacturer seeking to expand your market in the U.S. and make the most of president Obama’s renewable energy policies. You research potential places to manufacture the wind turbines in U.S. territory and come across what Puerto Rico has to offer, you learn that you have:

• Two alternatives for your business to pay income tax and royalty payments:
  • 4% fixed income tax rate and 12% withholding tax on royalty payments made to non-residents;
  • Or, you pay 8% fixed income tax rate and 2% withholding tax on royalty payments made to non-residents.
• Distributions would be 100% tax exempt while a gain on a sale of stock would be 4% during the term of the grant.
• Up to 10% credit for industrial energy consumption.
• 35% of credit for purchase of products manufactured in Puerto Rico that are recycled which can enable you to cut costs on the packaging of your product.
• $5,000 for each job creation credit for each job created during the first year and sustained for three years.
• 90% exemption on qualifying real and personal property.
• 60% exemption on the payment of volume of business tax and other municipal taxes, up to 75% for small and medium-sized businesses.
• 50% credit for investment in renewable energy generation equipment.
• Incentives available to train employees.

You can also make the most of the available foreign trade zones, in which you would not pay duties until the product is ready to enter the U.S. market. If intended for export, it would not pay duties at all in the U.S. You also have available the services of the Port of the Americas, a transshipment port located in the southern city of Ponce.

You have a company that is working on developing new products out of recycling materials. You visit the island and as you discover that the Economic Incentives Act applies its generous incentives to R&D business and to recycling technologies.

Your ongoing business in Puerto Rico would have:

• Two alternatives for your business to pay in terms of income tax rates and royalty payments. You either pay:
  • 4% fixed income tax rate and 12% withholding tax on royalty payments made to non-residents;
  • Or, you pay 8% fixed income tax rate and 2% withholding tax on royalty payments made to non-residents.
• Distributions would be 100% tax exempt while a gain on a sale of stock would be 4% during the term of the grant.
• Up to 50% credit for R&D expenses tied to intangible property during the year of the investment.
• Up to 10% credit for industrial energy consumption.
• 35% of credit for purchase of products manufactured in Puerto Rico that are recycled which can enable you to cut costs on the packaging of your product.
• $5,000 for each job creation credit for each job created during the first year and sustained for three years.
• 90% exemption on qualifying real and personal property.
• 60% exemption on the payment of volume of business tax and other municipal taxes, up to 75% for small and medium-sized businesses.
• 50% credit for investment in renewable energy generation equipment.

Your researchers can also benefit from the Scientific Investigators Incentives Act and not pay income tax.