Puerto Rico runs its own separate tax code, distinct from the mainland IRS, and Puerto Rico-source income generally isn't subject to US federal income tax at all. Layer in Act 60's export-services incentive, a 4% corporate rate with 100% of dividends exempt, and Puerto Rico becomes one of the more genuinely compelling tax stories anywhere under the US flag, provided you actually move there and qualify. Here's what it takes to start a business in Puerto Rico in 2026.
1. Which business structure fits you?
Before you register anything, it helps to know what you're actually choosing between.
- LLC. Pass-through taxation at individual rates (0% to 33%). Simple to run, but doesn't optimize Act 60's 4% corporate rate the way a corporation does.
- Corporation (C-corp). The standard choice for anyone pursuing an Act 60 Chapter 3 export-services decree: the 4% rate applies directly at the corporate level, and distributions to bona fide resident shareholders are 100% exempt from further Puerto Rico tax.
2. Register your business
File with the Puerto Rico Department of State ($150 to 350, processing 5 to 10 business days), get a free same-day federal EIN, register with Hacienda (Puerto Rico's tax department, $50 to 100, 1 to 2 weeks), and register with CRIM for property tax purposes ($25 to 50, 1 to 2 weeks), a step with no mainland equivalent that's commonly overlooked and can trigger penalties if skipped. You'll also need a municipal license (patente municipal), which varies by municipality; operating without one can trigger fines. Total setup, including legal fees, typically runs $2,000 to 6,000 over 2 to 4 weeks. Your registered agent must have a physical Puerto Rico address, a mainland registered agent won't satisfy this requirement. Puerto Rico is also a community property jurisdiction, worth knowing if you're married, since your spouse may have an automatic interest in business assets.
3. Consider Act 60 if you're serving clients outside Puerto Rico
Act 60's Chapter 3 (the successor to the old Act 20) is built for businesses that sell services to clients outside Puerto Rico. Qualifying companies get a flat 4% Puerto Rico income tax rate on eligible export-services income, dropping to 2% for the first 5 years if annual business volume is under $3 million, plus a 100% exemption on dividends paid to bona fide resident owners. Smaller qualifying businesses also get a 100% property tax exemption for 5 years (75% after) and a 100% municipal tax exemption for 5 years (50% after). This isn't a mailbox decree: it requires genuine operating substance in Puerto Rico, a formal application, and ongoing compliance filings. A separate Chapter 2 decree exists for individual investors, exempting capital gains earned after establishing residency.
4. Pass the bona fide residency test if you want the personal-side benefits
The individual tax benefits only apply if you qualify as a bona fide Puerto Rico resident under IRC ยง937, which requires passing three tests every year: a presence test (generally at least 183 days physically in Puerto Rico), a tax home test (no tax home outside Puerto Rico), and a closer connection test (no closer connection to the mainland or a foreign country than to Puerto Rico). Failing any one test for a year generally breaks residency for that year, and gains that accrued before your move typically remain subject to US federal tax when eventually realized. This is unforgiving territory to get wrong, work with a Puerto Rico-qualified tax attorney or CPA before assuming you qualify.
5. Check licenses and permits
Puerto Rico doesn't issue a single territory-wide business license covering everything. Beyond the municipal patente, certain regulated industries carry their own permits.
6. Stay compliant
Outside of Act 60, standard Puerto Rico corporate tax rates can reach as high as 37.5%, a real contrast worth knowing if you're not pursuing (or don't qualify for) the export-services decree. Decree holders file Puerto Rico's corporate return (Forma 480.20) plus an annual decree compliance report, and owners still file a federal Form 1040 with the relevant exclusion for Puerto Rico-source income. Note that Puerto Rico's incentive code was amended by Act 38-2026, recent enough that it's worth confirming the current rules with a professional rather than relying on older summaries.
Puerto Rico business costs at a glance
| Item | Cost |
|---|---|
| Department of State filing | $150 to $350 |
| Hacienda + CRIM registration | $75 to $150 |
| Total setup, all-in | $2,000 to $6,000 |
| Standard PR corporate tax (no decree) | Up to 37.5% |
| Act 60 Chapter 3 rate (export services) | 4% (2% first 5 yrs, under $3M volume) |
| Act 60 dividend exemption (bona fide residents) | 100% |
Frequently asked questions
Is Puerto Rico-source income subject to US federal income tax?
Generally no. Puerto Rico runs its own separate tax code, and Puerto Rico-source income isn't subject to US federal income tax for bona fide residents.
What's Act 60's tax rate for export services businesses?
A flat 4% Puerto Rico income tax rate on eligible export-services income, dropping to 2% for the first 5 years if annual business volume is under $3 million.
What does the bona fide residency test require in Puerto Rico?
Passing three tests every year under IRC ยง937: a presence test (generally 183+ days physically in Puerto Rico), a tax home test, and a closer connection test.
What's the standard corporate tax rate in Puerto Rico without Act 60?
Up to 37.5%, a real contrast worth knowing if you don't qualify for the export-services decree.
How much does it cost to register a business in Puerto Rico?
Total setup, including legal fees, typically runs $2,000 to 6,000 over 2 to 4 weeks.
Fees and rates above come from the Puerto Rico Department of State and Departamento de Hacienda as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to a Puerto Rico-qualified accountant or tax attorney about your specific situation.