Anybody here on BP actually running an ACT 20 Business in PR now?

[Michael H.]

So I was watching a presentation by Kevane Grant Thornton last night on Act 20. My understanding is that Act 20 has recently been amended by the law makers to eliminate the 5 employee requirement to attract more small businesses, as opposed to just these big hedge funds lol. This seems very very attractive... considering you don't have to be a bona-fide resident of PR (like you do with Act 22).

My question is - is there anybody here on BP right now that owns real estate rental properties in the US mainland, that has been approved by the Commonwealth of PR to operate as an Act 20 business on the island?

Act 20 requires that you "export" a service to the mainland, so let's say you own rental properties in the states, and you're "exporting" rental space to the US.

There's a laundry list of services that are "eligible" under Act 20, however, there's nothing explicitly written regarding real estate investment properties.

******Here's the most interesting point I've read: "Any other service that the Secretary of Economic Development and Commerce determines, after consulting with the Secretary of the Treasury, that should qualify as an eligible export service, based on factors such as jobs to be created, payroll generated and proposed investment in Puerto Rico."

Seems like you'd likely have to have a large real estate operation going on to get approved, as opposed to a little guy starting from the ground up (me).

It sort of seems to good to be true for any/every real estate investor from the mainland to set up an LLC in PR, and get taxed 4% on rental income, while eliminating US federal personal income taxes for your real estate business.

Anybody on BP actually living in PR right now that may have some advice?

Thanks,

Michael

[Doug R.]

I've lived in PR for about a year now and have act 22 and have almost received act 20 (was waiting for updated employee requirement legislation).  

My Act 20 business is ecommerce.  

You aren't going to be getting taxes 4% on rental income - that's not an exportable service.  That's considered passive income.  What you could do is manage the US properties from Puerto Rico and claim some kind of management service fee (but it should be market based).  So the majority of your income would be rental income (non-eligible) and taxed at US rates, and the work that's done in PR (management) would be taxed at the preferential rate.  

Most of the companies helping with act 20 (accounting firms / lawyers) will give free consultations, but watch out, most want to charge lots of money to actually do the application (I paid $7000 for advice and 12500 for setting up the corp / doing the application) which most of it was a waste).