Because Puerto Rico administers its own tax code separately from the mainland IRS, Puerto Rico-source income falls outside US federal income tax for anyone who qualifies as a bona fide resident. Add Act 60's export-services incentive on top, a 4% corporate rate paired with a full exemption on dividends, and few places under the American flag can match the numbers, assuming you actually relocate and meet the requirements. This guide walks through what starting a business here actually involves in 2026.
1. Which business structure fits you?
Two structures dominate here, and the right one depends heavily on whether Act 60 is part of your plan.
- LLC. Income passes through to owners and gets taxed at individual rates ranging from 0% to 33%. Straightforward to operate, but it doesn't take advantage of Act 60's 4% corporate rate the way a corporation does.
- Corporation (C-corp). The go-to entity for anyone pursuing an Act 60 Chapter 3 export-services decree, since the 4% rate applies right at the corporate level, and distributions to bona fide resident shareholders come through completely exempt from further Puerto Rico tax.
2. Register your business
Registration starts with the Puerto Rico Department of State ($150 to $350, 5 to 10 business days), followed by a federal EIN, which the IRS issues free the same day. From there you'll register with Hacienda, the island's tax department ($50 to $100, 1 to 2 weeks), and separately with CRIM for property tax purposes ($25 to $50, 1 to 2 weeks). That CRIM step has no real mainland counterpart, gets skipped more often than it should, and can bring penalties when it is. You'll also need a municipal license, a patente municipal, with requirements that vary by municipality; running without one risks fines. Add it all up, including legal fees, and total setup typically lands between $2,000 and $6,000 across 2 to 4 weeks. Your registered agent needs an actual Puerto Rico address; an agent based on the mainland doesn't satisfy the requirement. One more thing if you're married: Puerto Rico is a community property jurisdiction, so your spouse may hold an automatic interest in business assets.
3. Consider Act 60 if you're serving clients outside Puerto Rico
Chapter 3 of Act 60, which succeeded the old Act 20, targets businesses selling services to clients located outside Puerto Rico. Businesses that qualify lock in a flat 4% Puerto Rico income tax rate on eligible export-services income, or 2% for the first 5 years if annual business volume stays under $3 million, along with a full exemption on dividends paid to bona fide resident owners. Smaller qualifying businesses also pick up a 100% property tax exemption for 5 years (75% afterward) and a 100% municipal tax exemption for 5 years (50% afterward). None of this comes from simply setting up a mailbox: the decree demands genuine operating substance on the island, a formal application, and compliance filings that continue for as long as you hold it. Individual investors have a separate path, a Chapter 2 decree that exempts capital gains earned after residency is established.
4. Pass the bona fide residency test if you want the personal-side benefits
None of the individual tax advantages apply unless you qualify as a bona fide Puerto Rico resident under IRC section 937, and that means clearing three separate tests every single year. The presence test generally requires at least 183 days physically on the island. The tax home test requires having no tax home outside Puerto Rico. The closer connection test requires that your ties to Puerto Rico outweigh your ties to the mainland or any foreign country. Fail even one of these in a given year and residency for that year is typically gone, and gains that built up before your move usually still owe US federal tax whenever they're eventually realized. This is not an area to guess your way through; get a Puerto Rico-qualified tax attorney or CPA involved before assuming you qualify.
5. Check licenses and permits
No single territory-wide business license covers every business in Puerto Rico. Beyond the municipal patente mentioned above, certain regulated industries layer on their own specific permits.
6. Stay compliant
Without Act 60, Puerto Rico's standard corporate tax rate can climb as high as 37.5%, a figure that matters a great deal if you're not pursuing, or don't qualify for, the export-services decree. Businesses holding a decree file Puerto Rico's corporate return (Forma 480.20) alongside an annual decree compliance report, and owners still need to file a federal Form 1040 that applies the relevant exclusion for Puerto Rico-source income. One caveat: Act 38-2026 amended the island's incentive code recently enough that confirming current rules with a professional beats relying on any older summary, including this one.
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.