Unlocking Wealth: How Act 60 Makes Puerto Rico a Private Equity Paradise
Puerto Rico's Act 60, known as the Puerto Rico Incentives Code, offers substantial tax benefits to private equity funds and their investors, positioning the island as a premier destination for private equity investments. By meeting specific criteria, funds can capitalize on these incentives to enhance returns and foster economic growth.
Puerto Rico's Act 60, known as the Puerto Rico Incentives Code, offers substantial tax benefits to private equity funds and their investors, positioning the island as a premier destination for private equity investments. By meeting specific criteria, funds can capitalize on these incentives to enhance returns and foster economic growth.
Key Benefits Under Act 60:
Tax-Exempt Status for Funds: Qualifying private equity funds are treated as partnerships for Puerto Rico income tax purposes and are exempt from income tax on earnings derived from eligible activities. Additionally, these funds enjoy a 100% exemption from municipal license taxes and a 75% exemption from property taxes on real and personal property, with certain securities being 100% exempt
Investor Tax Advantages: Resident investors in qualifying funds can deduct up to 30% of their investment's adjusted basis over a ten-year period, with the deduction capped at 15% of their net income prior to the deduction. For Puerto Rico Private Equity Funds (PRPEFs), the deduction increases to 60% over fifteen years, capped at 30% of net income. Furthermore, an investor's share of capital gains realized by the qualifying fund is exempt from Puerto Rico income tax.
Favorable Treatment for Investment Professionals: Investment advisers and fund managers operating in Puerto Rico can benefit from a preferential 4% income tax rate on fees earned from services provided to clients outside Puerto Rico. Dividends distributed from these earnings to Puerto Rico resident owners are tax-exempt..
Eligibility Criteria for Funds:
To access these benefits, funds must:
Investment Allocation: Allocate at least 80% of paid-in capital to securities not publicly traded in the U.S. or abroad.
Accredited Investors: Restrict participation to accredited investors.
Puerto Rico Presence: Maintain a physical office on the island and employ an investment adviser based in Puerto Rico.
Diversification: Ensure that no more than 50% of the fund's capital is invested in a single business after four years of operation.
Capital Threshold: Raise a minimum of $10 million in paid-in capital within 24 months of the first issuance of partnership or membership interests.
