Have you ever wondered why so many manufacturers are eyeing Puerto Rico as their next big move? The answer lies in Act 60, Puerto Rico’s powerful tax incentive law. Designed to boost the island’s economy, it’s particularly favorable for manufacturing services. Let’s dive deep into how this works and why businesses worldwide are paying attention.
Understanding Puerto Rico’s Act 60
Puerto Rico has long relied on tax incentive programs to attract investors. Before Act 60, two separate laws—Act 20 (Export Services) and Act 22 (Individual Investors)—laid the foundation. In 2019, these programs were unified under Act 60, creating a comprehensive framework of tax incentives.
This shift aimed to streamline the system and make Puerto Rico a magnet for industries like manufacturing, technology, and professional services.
The Importance of Manufacturing in Puerto Rico
Manufacturing is not just another industry on the island—it’s a powerhouse. Puerto Rico has historically thrived in pharmaceuticals, biotechnology, and medical devices, making it one of the leading manufacturing hubs in the U.S. territory.
Manufacturing accounts for a large share of Puerto Rico’s GDP and employment, so enhancing tax benefits under Act 60 was a natural step.
Key Tax Incentives Under Act 60 for Manufacturers
Here’s where things get interesting. Manufacturers under Act 60 can enjoy:
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4% corporate tax rate (vs. much higher U.S. mainland rates).
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100% exemption on dividend distributions from exempt income.
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Up to 90% exemption on property and municipal taxes.
For companies used to heavy tax burdens, these incentives translate into major savings.
Who Qualifies for Act 60 Manufacturing Incentives?
Not every business qualifies. To be eligible, a company must:
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Be engaged in eligible manufacturing or related services.
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Provide services primarily for export (outside Puerto Rico).
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Maintain compliance with employment and operational requirements.
Industries like pharmaceuticals, medical equipment, and clean energy are top candidates.
Types of Manufacturing Services Covered
Puerto Rico doesn’t just offer tax breaks to one type of manufacturer—it casts a wide net. Commonly covered services include:
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Pharmaceuticals – Puerto Rico is a global leader in drug production.
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Medical devices – From surgical tools to diagnostic equipment.
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Electronics and tech – High-value electronics and circuit production.
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Renewable energy products – Solar panels, wind turbines, and more.
Corporate Tax Reductions Explained
Under normal conditions, manufacturers in Puerto Rico could face tax rates above 30%. Act 60 slashes this to 4%, giving companies massive competitive advantages.
For example, a manufacturer with $10 million in taxable income could save millions annually, freeing up capital for expansion, hiring, and innovation.
Export Opportunities for Manufacturers
Why does Act 60 focus on exports? Because Puerto Rico wants to attract businesses that generate income from outside the island, pumping fresh capital into its economy.
Manufacturers gain easy access to the U.S. market (without customs barriers) while also reaching international clients with competitive tax advantages.
Compliance and Legal Requirements
Of course, these benefits don’t come for free. Businesses must:
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Apply for a tax exemption decree from the Puerto Rico Department of Economic Development.
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Meet operational requirements like maintaining local offices.
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Comply with reporting obligations to retain eligibility.
Failing to meet these can result in losing benefits.
Impact on Small and Medium Enterprises (SMEs)
Act 60 isn’t just for big corporations. SMEs can also benefit—especially those offering niche manufacturing services.
However, SMEs may face hurdles like high startup costs, compliance complexities, and limited resources compared to multinationals. Still, the tax savings often outweigh the challenges.
Case Studies of Act 60 in Action
Several pharmaceutical giants already leverage Puerto Rico’s incentives. But smaller players—like boutique medical device manufacturers—have also found success by exporting products globally while keeping costs low thanks to Act 60.
Economic Impact of Manufacturing Incentives
The ripple effects of Act 60 are significant. Incentives have:
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Created thousands of jobs.
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Attracted billions in foreign investment.
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Boosted local service industries that support manufacturers.
In short, Act 60 isn’t just good for businesses—it’s fueling Puerto Rico’s economy.
Challenges and Criticisms of Act 60
Like any incentive program, Act 60 has faced criticism. Some argue it favors foreign corporations over local entrepreneurs. Others worry about long-term sustainability if companies leave once incentives expire.
Balancing short-term gains with long-term development remains a key challenge.
Future Outlook for Manufacturing in Puerto Rico
Looking ahead, Puerto Rico is well-positioned to strengthen its role as a manufacturing hub. With Act 60, businesses enjoy world-class tax advantages, strategic location, and access to the U.S. market.
However, changes in U.S. or Puerto Rican tax policy could reshape the landscape. Companies must stay vigilant and adaptable.
Conclusion
Act 60 has redefined what it means to do business in Puerto Rico—especially for manufacturers. With low tax rates, export opportunities, and strong infrastructure, it offers a unique combination of benefits. While challenges remain, for many manufacturing companies, Puerto Rico represents a golden opportunity.
FAQs
1. What is the corporate tax rate for manufacturers under Act 60?
It’s just 4%, compared to much higher rates in the U.S. mainland.
2. Do all manufacturers qualify for Act 60 benefits?
No. Only eligible industries engaged in export-oriented manufacturing can qualify.
3. Are dividends under Act 60 taxable?
No. Dividend distributions from exempt income are 100% tax-free.
4. Can small businesses apply for Act 60 benefits?
Yes, SMEs can apply, though they may face additional challenges in compliance and startup costs.
5. How long do Act 60 tax benefits last?
Typically, benefits last for 15 years, with the possibility of renewal.