What types of businesses qualify for the Act 60 4% tax rate?

Eligible businesses include consulting firms, software development companies, marketing agencies, financial services providers, investment advisory firms, and other service businesses that derive income from clients outside Puerto Rico. The services must be primarily rendered within Puerto Rico but consumed outside the island to qualify as 'export services.'

Does the 4% rate apply to all business income or only export income?

The 4% rate applies only to qualifying export services income — income derived from services rendered to clients or customers outside Puerto Rico. Revenue from Puerto Rico-based clients or activities that do not qualify as export services is taxed at normal Puerto Rico corporate rates. Proper income allocation and documentation is essential.

What is the minimum employee requirement for Act 60 Chapter 3?

Chapter 3 decree holders are required to employ at least one full-time employee in Puerto Rico. The employee must perform substantive work related to the export services business, not merely administrative or support functions. OITE may verify payroll records and employee duties during compliance reviews.

How does Act 60 Export Services compare to a U.S. corporate structure?

A U.S. C-corporation pays a 21% federal corporate tax rate plus applicable state income taxes, which can total 25–30% or more. An Act 60 Export Services company organized in Puerto Rico pays a flat 4% on qualifying export income — a reduction of more than 80% on those earnings. Owners who also obtain Chapter 2 decrees can further reduce personal taxes on dividends from the Puerto Rico entity.

Can I move an existing business to Puerto Rico to get the 4% tax rate?

Yes, but the move must be genuine. You must organize a new Puerto Rico entity (or redomicile an existing one), establish real operations in Puerto Rico with employees and physical presence, and ensure that services are actually performed on the island. Structuring a sham entity in Puerto Rico without real substance is a primary IRS audit target.

Act 60 Export Services: 4% Corporate Tax Rate

What Is the Act 60 Export Services Program?

Chapter 3 of Puerto Rico's Act 60 (formerly Act 20) offers a flat 4% corporate income tax rate on income derived from services exported from Puerto Rico. For businesses that normally pay 21% federal corporate tax plus state taxes, this represents a dramatic reduction in effective tax burden — and it is entirely legal.

What Services Qualify Under Act 60 Chapter 3?

An export service is any service provided by a Puerto Rico-based entity to a client or customer located outside of Puerto Rico. Qualifying service categories include:

Professional services (consulting, management, strategy, coaching)
Technology and software development
Investment advisory and fund management
Legal and accounting services
Marketing, advertising, and creative services
Research and development
Educational services
Healthcare and medical services (to non-Puerto Rico clients)
Call centers and customer support

Note: Services provided within Puerto Rico to Puerto Rico-based clients do not qualify for the export services rate.

What Is the Financial Benefit of the 4% Tax Rate?

Consider a U.S. consulting firm earning $2 million in annual profit:

U.S. mainland tax: 21% federal + 5–9% state = ~$580,000–$600,000
Puerto Rico Act 60 tax: 4% = $80,000
Annual savings: ~$500,000

What Are the Requirements for an Export Services Decree?

To qualify for Chapter 3, your business must:

Be organized and operating in Puerto Rico (Puerto Rico LLC or corporation)
Provide services to clients located outside Puerto Rico
Employ at least one full-time employee based in Puerto Rico (or be a self-employed individual operating in Puerto Rico)
Have a physical office or work location in Puerto Rico
Apply for and receive an Act 60 Export Services Decree

Can You Combine Chapter 2 and Chapter 3 Benefits?

Many Act 60 participants pursue both Chapter 2 (individual investor, 0% capital gains) and Chapter 3 (business, 4% corporate rate) simultaneously. This is particularly powerful for entrepreneur-investors who own a service business and also hold an investment portfolio.

What Ongoing Compliance Does Chapter 3 Require?

Export services decree holders must file annual reports, maintain records of export activities, and pay the required annual fee to maintain their decree. Failing to comply can result in decree revocation and retroactive taxation.

Key requirement: You must genuinely operate your business from Puerto Rico and genuinely export services to non-Puerto Rico clients. A U.S. business with a Puerto Rico address but no real operational presence will not qualify and will face IRS scrutiny.

I-Taxplan helps service businesses structure their Puerto Rico operations, apply for Export Services decrees, and maintain ongoing compliance. Schedule a free consultation →

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Act 60 Export Services: The 4% Corporate Tax Rate for Service Businesses

What Is the Act 60 Export Services Program?

What Services Qualify Under Act 60 Chapter 3?

What Is the Financial Benefit of the 4% Tax Rate?

What Are the Requirements for an Export Services Decree?

Can You Combine Chapter 2 and Chapter 3 Benefits?

What Ongoing Compliance Does Chapter 3 Require?

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