Puerto Rico's export services incentive — Chapter 3 of the Puerto Rico Incentives Code (Act 60-2019), successor to the old Act 20 — is the reason so many consulting firms, software shops, agencies, and other service businesses have set up operations on the island. A business that operates from Puerto Rico and serves clients outside Puerto Rico can apply for a tax exemption decree that generally locks in a flat 4% Puerto Rico income tax rate for 15 years. Here is how the program actually works, current as of July 2026.
The headline benefits
- 4% Puerto Rico income tax on net income from eligible export services — compared with regular Puerto Rico rates that can reach 37.5%.
- 100% exemption on dividends or profit distributions paid out of that decree income to Puerto Rico resident owners.
- 75% exemption from property taxes on property used in the exempt operation, and a 50% exemption from municipal license taxes.
- A 15-year decree term, renewable for another 15 years if the business stays in compliance.
Practitioner guidance also describes a reduced 2% rate for the first five years for smaller operations — generally those with annual business volume of $3 million or less (the threshold is gross volume, not net income).
The 2026 amendment to Act 60 — Act 38-2026, signed March 10, 2026 — did not change the export services program. It rewrote the individual investor chapter for future applicants; the 4% business rate and the dividend exemption were left fully intact. Details in our companion piece on what Act 38-2026 changed.
What qualifies as an export service
The eligible list is broad. It commonly includes management consulting, software development and technology services, advertising and marketing, financial and investment services, research and development, legal and accounting services, engineering and architecture, call centers, telemedicine, education and training, and creative services — plus other services the Department of Economic Development and Commerce (DDEC) approves.
Two conditions carry the weight:
- The services are performed in Puerto Rico — the people doing the work are on the island.
- The services are performed for clients located outside Puerto Rico, and the work has no nexus with a Puerto Rico trade or business of that client.
Substance requirements — this is not a mailbox play
A decree describes a real operation. The business generally needs a bona fide office in Puerto Rico and genuine activity there, and once annual business volume exceeds $3 million, the law requires at least one full-time employee who is a Puerto Rico resident. Below that threshold there is no statutory headcount, but the operation itself still has to be real.
Owners who want the 100% dividend exemption to translate into personal tax savings generally relocate and become bona fide Puerto Rico residents under the IRS three-part test — presence (generally 183 days), tax home, and closer connection. That federal layer is covered in our Act 60 overview.
How the decree process works
- Form or register the entity. A decree is issued to an operating business, so the corporate layer comes first — organizing a Puerto Rico entity with the Department of State, or registering an existing mainland entity to do business on the island. Every registered entity needs a resident agent with a physical Puerto Rico address.
- Apply through the Single Business Portal. Decree applications go to the DDEC online. Approval timelines of roughly three to six months are commonly reported. Government fees apply at application and annually.
- Receive the decree — a contract. Once granted, the decree operates as a contract between the business and the Government of Puerto Rico. It cannot be modified unilaterally, and later amendments to Act 60 generally do not reach decrees already issued.
- Stay in compliance. Decree holders file an annual report with the DDEC's Office of Incentives, keep the required substance in place, and maintain the entity's own standing — including the Department of State annual obligations that every Puerto Rico entity carries.
Where InCorp fits
InCorp handles the corporate infrastructure underneath a decree: we form Puerto Rico LLCs and corporations, register mainland entities to do business on the island, and provide registered agent service in Puerto Rico from a local office. We do not prepare decree applications or provide tax advice — eligibility, structuring, and decree strategy belong with a qualified Puerto Rico tax attorney or CPA.
This article is general educational information, current as of July 2026, and is not legal or tax advice. Puerto Rico incentive law changes; verify current terms with a qualified Puerto Rico tax professional before acting.