Puerto Rico Export Services Decree (Former Act 20): A Guide

Puerto Rico's Export Services decree rewards businesses that sell services from the island to clients elsewhere. It is the successor to Act 20-2012 and is found in Sections 2031.01 through 2033.01 of Act 60-2019, the Puerto Rico Incentives Code. Its central benefit, a 4% income tax rate, was not changed by the 2025 and 2026 amendments to Act 60.

This guide is written for consultants, agencies, software companies, back-office centers and similar firms thinking about setting up in Puerto Rico. It summarizes the official consolidated text of the Code as revised July 16, 2026.

The benefits in one place

For the life of the decree, usually 15 years, an exempt business gets:

• A 4% fixed income tax rate on net income from export services or promoter services, in place of any other Puerto Rico income tax (Section 2032.01(a)).
• Tax-free distributions. Shareholders, partners or members pay no Puerto Rico income tax on dividends or distributions from that export income. The distributions are also left out of the individual alternative basic tax and the corporate alternative minimum tax (Section 2032.01(e)).
• A 75% exemption from state and municipal property taxes on property used in the covered activity (Section 2032.03).
• A 50% exemption from municipal license tax (patente) on the volume of business tied to the covered activity (Section 2032.04).
• A 12% rate on certain royalties paid to foreign companies not doing business in Puerto Rico for intangible property used in the exempt operation, collected by withholding (Section 2032.01(b)).

Losses from the exempt activity can only offset income from that same activity while the decree is in force.

Which services can qualify

The business needs a bona fide office or establishment in Puerto Rico. Section 2031.01(a) then lists eligible services, including:

• research and development;
• advertising and public relations;
• economic, environmental, technological, scientific, management, marketing, human resources, IT and audit consulting;
• legal, tax and accounting services;
• engineering, architecture and project management;
• software development and distribution, including cloud and blockchain delivery;
• call centers and shared services centers;
• education and training;
• hospital, laboratory, medical tourism and telemedicine services;
• investment banking and asset or fund management;
• corporate headquarters and centralized management services;
• creative industries serving audiences outside Puerto Rico.

DDEC, in consultation with Hacienda, can add other services. One firm limit: work you do as someone's employee is not an eligible business.

The no-nexus rule

Being on the list is not enough. The service has to be an "export service," which under Section 2031.01(b) and (c) generally means:

It is performed for someone outside Puerto Rico, such as a foreign person, a trust or estate with no Puerto Rico residents involved, or a Puerto Rico business when the work is really for that business's clients outside Puerto Rico.

It has no nexus with Puerto Rico. The Code says a service has nexus when it relates, among other things, to:

• business or income-producing activities carried on, or to be carried on, in Puerto Rico;
• advice on Puerto Rico laws, regulations, administrative procedures or court decisions;
• lobbying the Puerto Rico government;
• the sale of property for use, consumption or disposal in Puerto Rico.

A practical way to think about it. A Puerto Rico CPA preparing U.S. federal returns for clients in Ohio may fit the definition. The same CPA advising a San Juan restaurant on Hacienda filings does not: that work has nexus. Promoter services, a separate category in the Code, can be treated as export services even when they have nexus.

Mixed businesses are allowed. A decree holder may also serve local clients, but it must keep books, records and invoices that clearly separate export income, costs and expenses. Local income is taxed at regular rates.

The job requirement

Section 1030.01 says an exempt export business with actual or projected annual volume above $3,000,000 must keep at least one direct full-time employee. DDEC can require more in a particular decree.

• Counting. Add up the hours worked during the year by direct employees who are Puerto Rico residents and divide by 2,080, ignoring fractions. Vacation and authorized leave count; overtime above 40 hours a week does not.
• Who counts. An owner who works full time for a salary counts, and so do workers from another employer, such as a staffing company, assigned to the covered activity.
• Ramp-up. When the requirement is triggered by actual volume, you need 25% of it in the first six months after the decree, 50% by 12 months, 75% by 18 months and 100% after that.
• Some slack. Reaching at least 80% of the requirement in a year counts as compliance, up to three times during the decree.

Already doing the work?

If your business was already providing the services when you applied, or at any time in the three prior tax years, the 4% rate applies only to the increase in net income over the average of that "base period." The base-period income is taxed at regular rates, but the base shrinks by 25% a year until it reaches zero by the fourth year of the decree (Section 2032.01(d)).

Applying and staying compliant

Applying. File in DDEC's Incentives Portal. DDEC reviews the application, asks Hacienda for its endorsement and, if approved, issues the decree, which you accept and then notify when operations start. Our Act 60 guide walks through the steps.

Every year:

• File the business's Puerto Rico income tax return with Hacienda, separate from any other return.
• File the annual report in the Incentives Portal and pay its fee. For tax year 2025, DDEC's guidance is that the deadline is whatever your decree says: 30 days after the return due date, including extensions, for Act 20 and other older decrees, or November 16, 2026 for calendar-year Act 60 decrees.
• If your annual volume is $3,000,000 or more and you do not have audited financial statements or an agreed-upon procedures report from a Puerto Rico CPA, get a compliance certificate every two years from a licensed CPA or attorney acting as compliance professional.
• Keep your merchant registration and municipal license tax filings current. See doing business in Puerto Rico.

Federal tax still applies in some ways

If you are a U.S. citizen and a bona fide resident of Puerto Rico, pay for services you physically perform in Puerto Rico is generally Puerto Rico-source income, which IRC Section 933 excludes from federal income tax. That is what makes the decree attractive to individuals.

But the decree does not touch federal self-employment tax. If you operate as a sole proprietor or through a pass-through entity, you may owe it on Form 1040-SS. The IRS lists an active compliance campaign on self-employment tax for residents of U.S. territories with $400 or more of net self-employment income. Our guide to Social Security for the self-employed covers the details.

787TAX is an independent guide. It is not Puerto Rico's Departamento de Hacienda, the CRIM or the IRS. This page is general information, not tax or legal advice. Example figures are hypothetical. Found an error? Tell us.