The Act to Promote the Export of Services (formerly known as Act 20) and the Individual Investors Act (formerly known as Act 22) remain in Puerto Rico’s legislative spotlight as amendments to the Act 60 Incentives Code enter a stretch run in conference.
In their current form, incentives under Chapter 2 (formerly Act 22) and Chapter 3 (formerly Act 20) provide a 100% tax exemption to individuals granted decrees. However, amendments have made these more amenable to tax policy wonks observing from Capitol Hill.
It seems like only yesterday that former Gov. Luis Fortuño and Secretary of Economic Development and Commerce (DDEC), José Ramón Pérez Riera, touted the package of tax incentives that were too good to be true. Known in 2012 as the Act to Promote the Export of Services and the Individual Investors Act, respectively, the incentives (namely those in Act 22) were fast to draw the attention of the Internal Revenue Service (IRS) because the individual investors were provided a haven from income taxes.
The Birth of Act 22 and IRS Scrutiny
In its original iteration, the Individual Investors Act granted a 100% tax exemption on passive income and capital gains from Puerto Rico source income to individuals who purchased homes in which they must reside for at least 183 days a year. With a conga line of millionaires jetting for the mambo tropics, it was only a matter of time before Senator Charles “Chuck” Schumer (D-N.Y.) was sounding the alarm over the raiding of his tax base.
“When they promoted Act 22; Act 20 took off. Offering 0% tax on capital gains from Puerto Rico source income was a game changer,” said Roberto Corretjer, president of Omnia Economics Solutions.
Dating back to 2013, the incentives package took off under the administration of former Gov. Alejandro Garcia Padilla and then—DDEC Secretary Alberto Bacó—more than 3,000 of incentives were given across four years. As more millionaires descended upon Puerto Rico, the scrutiny by the IRS grew as a contingent of auditors set up shop in the local Treasury Department where they combed over the 183-day residency compliance.
“That had a chilling effect for a time, but there are other factors as well,” explained Roberto Corretjer, president of Omnia Economic Solutions, a consultancy that specializes in Puerto Rico’s Act 60 tax code. “A person who is truly wealthy and wants to establish a business in Puerto Rico and might want to also benefit from Chapter 3 incentives to export services will think about it twice because the issues with permits and languishing utilities will not make it worth their while.”
The Case for Act 20: Export Services
The tax incentives lawyer went on to explain that nobody has a problem with Act 20. “If you are in Puerto Rico and you are exporting services and generating revenue, why not provide a benefit,” Corretjer asked emphatically. “The only way that Puerto Rico is going to grow is through new investment. And that is what incentives are designed to do—to bring new investment to Puerto Rico through the exporting of goods and services, which has always existed.”
To Corretjer’s point, the former Act 20 benefited when it went on tour with the former Act 22. In 2026, captains of industry and empresarias are using the Export Services and Commerce Incentive under Chapter 3 of Act 60. The incentives include: a 4% corporate tax rate on all eligible net income; 100% dividend exemption; 75% property tax exemption and 50% municipal tax exemption. Nevertheless, at the outset, Act 20 seemed more like a best-kept secret than an incentives package worth touting.
The strategy to present these bills together seemed a move to piggyback on new incentives that were too good to be true—0% tax on capital gains from income sourced in Puerto Rico.
“We understand that Act 20 started to take off when Act 22 was filed and promoted,” recalled Corretjer. “The tax incentives to export services already existed, but there might have been some 20 to 30 companies that had requested those decrees over a period of 15 years. The program was not a success. When they promoted Act 22; Act 20 took off. Offering 0% tax on capital gains from Puerto Rico source income was a game changer.”
Rapid Growth in Decree Issuance
Recent data compiled by DDEC in 2024 supports those claims as decrees under Chapter 3 grew from 1,605 in 2020 to 2,725 in 2022.
Awilda Mercado, who headed the Puerto Rico office in Panama from 2007 to 2017 saw Act 20 step into the limelight “after 2015 when the promotion with Act 22 started to gain traction.” Mercado recalls that companies ran the gamut. The firms offered such services as: consulting; project management; software development; electronic data processing, marketing, advertising, and public relations; investment banking and asset management; call centers; shared services, and centralized management Research & Development (R&D).
Mercado recalls helping those companies understand the prerequisites for qualification. In the early days, she explained—first things first—that services must be performed in Puerto Rico for consumers located outside the island.
“Naturally, companies that were looking to export their services, something that was intangible, had different characteristics than those that exported goods. We offered them an overview of the market—how the market was behaving,” Mercado explained. “You have to understand how your service is perceived and then compare that with how other similar services perform in that market. We would look at the company’s objectives: whether they wanted to establish a joint venture or just establish an office. Or, whether they just wanted to export the service. Obviously, we also helped them to understand the laws in the particular jurisdiction. We helped conduct market studies; that is key in any strategy to export. You have to put together a plan for the objectives to meet in that market and whether it can be done.”
“DDEC was instrumental in helping us scale our business. Initially, we thought that our market was Latin America, but we wound up scaling through the U.S. market,” then-Wovenware CEO Carlos Melendez told Caribbean Business. “They were very helpful; a key benefit came in a 50% credit for marketing costs offered by the Trade and Export Office.”
Processing and Administrative Challenges
DDEC data from that study conducted while Sebastian Negron Reichard was still at the helm shows a steady growth rate of total decrees from 3,162 in 2020 to 5,385 in 2022. In the time since Negron Reichard’s resignation in May 2026, the pace of decree issuance wound down significantly.
“Now we are starting to get approvals. Patricia Cañellas came into that office to run the process, and we are beginning to see that it’s picking up again, which is great, because the application process is done online,” explained Corretjer.
Time will tell what lingering effect the former Secretary’s resignation will have on swiftness in issuing tax decrees under Act 60. The former Panama post director Mercado and Corretjer agree that it can take anywhere from a couple of months up to a year to obtain a tax decree. The devil is in the details.
Investors and their advisors know that the pursuit of happiness through tax incentives is an exercise fraught with scrutiny, with many fits and starts, and magnifying glasses taking microscopic looks into every nook and cranny. Sometimes, the magnification is of Hubble proportions because policy wonks at US Treasury and the IRS have a particular disdain for incentives and what they perceive as tax loopholes.
Federal Perspective and Policy Concerns
The institutional view of Treasury is that “economic incentives are inefficient and do not produce much societal benefit as they do to the individual beneficiaries of the tax incentives,” a source with ties to US Treasury, who contributed to the drafting of Promesa told this journal on the condition of anonymity in 2022.
That message resonates to this day; amendments to incentives in Chapter 2 and Chapter 3 of the Act 60 tax code now include. “Basically, the incentives have the same benefits. Puerto Rico Source’s Capital Gains are going to have 0% tax,” explained the Omnia Economics president. “You have to pay $5,000 a year to the Department of Economic Development, and donate $10,000 or more for non-profits. I can tell you that the vast majority end up donating more. I have clients who donate $50, $100, $135,000 a year, and they don’t want any kind of recognition or anything. It’s non profit.”
Philanthropy and Community Impact
Some of the non-profit organizations benefiting from the Chapter 2 and Chapter 3 stipulation include the Boys and Girls Club in Puerto Rico, which makes more than a million dollars a year, and La Perla de Gran Precio, which is managed by the Joshua Home. The impact is estimated at more than $20 million a year that these non-profits in Puerto Rico receive from donors.
Puerto Rico’s incentive program for resident investors under Act 22 of 2012, now consolidated into Act 60 of 2019, continued to expand between 2020 and 2022, according to government data. The number of decrees granted rose from 1,557 in 2020 to 2,660 in 2022, reflecting sustained interest among investors relocating to the island. Businesses tied to the incentives also increased, with 793 operating under Act 20 by 2022, representing nearly 80 percent of all decree-related enterprises.
The Numbers Tell the Story
Employment linked to decree holders grew sharply, from 16,825 jobs in 2020 to 27,570 in 2022. Direct employment rose to 8,266 positions, while indirect jobs reached 19,304, suggesting a broader economic ripple effect. The data also show a rise in philanthropic activity: total donations to nonprofit organizations climbed from $6.8 million to $10.7 million over the same period, with average contributions per individual exceeding $14,000.
Tax contributions from decree holders followed a similar upward trend. Total taxes paid increased from $144 million in 2020 to more than $201 million in 2022, driven largely by higher individual income and capital gains taxes. Capital gains taxes alone surged from $2.3 million to $32.9 million, while sales tax payments (IVU) rose to $24.5 million.
Overall, the figures point to growing economic participation by resident investors, with more businesses, jobs, and fiscal contributions feeding into Puerto Rico’s economy under the Act 60 framework.
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