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Act 60: How a financial consultant can help private equity funds turn tax incentives into investment

By Jesús Daniel Mattei

Founder, Rockelis Partners

One can safely assume that savvy investors are well-versed in the benefits that the Puerto Rico Incentives Code, or Act 60 (formerly Acts 20 and 22). Created by law to encourage economic growth and investment on the island, the Act was passed in 2019 as part of a broader effort by the Puerto Rican government to attract businesses and high-net-worth individuals. However, Act 60 also offers attractive benefits to private equity funds (PEFs) that establish operations on the island. Private equity funds are a form of alternative investment that pools capital from high-net-worth individuals, institutional investors, and other sources to invest in privately held companies.

In a nutshell, Act 60 provides PEFs with several tax incentives, including a 4% fixed income tax rate and a 100% tax exemption on interest, dividends, and capital gains. Additionally, PEFs with operations in Puerto Rico may be eligible for a 90% tax exemption on all income derived from sources within Puerto Rico. The 4% fixed income tax rate is particularly attractive to PEFs, as it represents a significant reduction from the average corporate income tax rate in the United States, which is around 21%. The 100% tax exemption on interest, dividends, and capital gains means that PEFs can reinvest their earnings in Puerto Rico without being subject to additional taxes.

However, setting up a PEF in Puerto Rico can be a complex process, and it is important to work with a financial consultant who is familiar with the nuances of the Act and can help navigate the regulatory requirements. In addition to regulatory compliance, a financial consultant can also help PEFs develop investment strategies that leverage the unique advantages of operating in Puerto Rico. For example, PEFs may want to focus on investing in industries that are growing on the island, such as technology, healthcare, and renewable energy. A financial consultant can also help PEFs identify investment opportunities that may qualify for tax exemptions under Act 60, such as investments in Puerto Rican businesses or infrastructure projects.

Another key area where a financial consultant can provide value is in tax planning. While Act 60 provides significant tax benefits to PEFs operating in Puerto Rico, it is important to have a comprehensive tax strategy that takes into account the PEF's overall financial goals and objectives. A financial consultant can help PEFs optimize their tax planning by identifying deductions, credits, and other tax-saving strategies.

The combination of these incentives and benefits are significant, particularly for PEFs that are looking for ways to diversify their portfolio and reduce their tax liabilities. With the right support and expertise, PEFs can navigate the complex regulatory landscape in Puerto Rico and establish successful operations that generate long-term value for their investors.

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