Puerto Rico has been in economic crisis along the last 10 years and more than 10% of the inhabitants have left the island in this period because of unemployment rate and unemployment rate has been still in the 13-15% range in the last year. In an attempt to re-launch the economy, the previous Government led by Fortuño has promulgated Act 20 and Act 22 at the beginning of 2012 and the current Government led by Padilla is actively promoting these two Acts with the goal of re-launching the local economythrough fiscal incentives to companies and individuals.

While Act 22 is mainly of interest for private equity and hedge fund managers and requires to be resident of the island to take advantage of the fiscal benefit on capital gains, dividend distribution and passive interests, Act 20 does not have any requirement for the owner of the company to reside in Puerto Rico. Act 20 allows a 4% tax rate on income (instead of an up to 39.6% federal income tax rate in the US plus the state tax) through the request of a Exemption Decree (a contract not subject to subsequent legislative changes) to the Secretary of Economic Development that may take 4-6 months to get and last for 20 years, renewable for other 10 years.

The key requirement is that the services must be performed for individuals and entities located outside of Puerto Rico and have no nexus with Puerto Rico. The eligible services are: research and development, advertising and public relations, consulting, advise on trade and business, engineering services and project management, professional services (legal, tax, accounting), centralized management services, electronic data processing, software development, telecom voice and data, call centers, shared service centers, storage and distribution centers, educational and training, hospital and laboratories, investment and financial services.