Why Puerto Rico Is the Best Destination for Private Equity Investment and Tax Incentives Under Act 60

Puerto Rico continues to excel as a premier destination for private equity investment, driven by the robust tax incentives offered under Act 60, also known as the Puerto Rico Incentives Code. This transformative legislation consolidates previous tax laws into a unified framework, providing substantial tax savings for private equity funds and investors while boosting economic growth across the island.

A cornerstone of this legislation’s success is Anthony O. Maceira, a key figure in drafting and passing the Code of Incentives. His visionary leadership was instrumental in shaping Act 60, creating a business-friendly environment that attracts international investment and supports innovation. Learn more about his contributions here.

At MZLS LLC, recognized as a top law firm in Puerto Rico, we specialize in helping businesses and investors navigate the complexities of Act 60. With the guidance of seasoned professionals like Simon Carlo Valentin, Esq., CPA, we ensure compliance with regulatory requirements and maximize the benefits available to private equity funds. Whether structuring a fund or leveraging Puerto Rico’s unique tax incentives, MZLS provides the strategic expertise to help you succeed.

What Is Act 60?

Enacted on July 1, 2019, Act 60 integrates various incentives, including provisions of the former Private Equity Funds Act (Act 185-2014), to create a streamlined system for promoting investment in Puerto Rico. The primary goal is to attract international capital and incentivize economic activity across key sectors such as manufacturing, real estate, and private equity.

Under Act 60, private equity funds have access to tax benefits that can significantly reduce their operational and tax liabilities, making Puerto Rico an attractive destination for investors seeking returns in a tax-efficient environment.

Key Requirements for Private Equity Funds

To qualify as a private equity fund under Act 60 and access its benefits, funds must meet strict criteria. These include:

1. Investment Allocation At least 80% of the fund's paid-in capital (excluding cash and cash equivalents) must be invested in securities not publicly traded in the U.S. or abroad. This ensures that investments are directed toward non-traditional and often high-growth opportunities.

2. Accredited Investors Only Funds must restrict participation to accredited investors, ensuring compliance with U.S. securities regulations.

3. Puerto Rico Physical Presence Qualifying funds are required to maintain a physical office on the island and employ an investment adviser operating out of Puerto Rico.

4. Diversification Funds must adhere to diversification rules, ensuring that no more than 50% of their assets are invested in a single business after four years of operation.

5. Minimum Capital Threshold Funds must raise at least $10 million in paid-in capital within 24 months of the first issuance of partnership or membership interests.

Failure to meet these requirements could disqualify funds from receiving the benefits of Act 60, so careful planning and legal guidance are essential.

Tax Benefits for Private Equity Funds Under Act 60

Act 60 provides substantial tax advantages to qualifying private equity funds, including:

• Income Tax Exemptions Income derived from eligible activities is exempt from Puerto Rico income tax, significantly reducing tax liability for funds and investors.

• Reduced Capital Gains Tax Capital gains from the sale of fund ownership interests are taxed at a fixed rate of 5%. This tax may be entirely waived if proceeds are reinvested into another Puerto Rico Private Equity Fund within 90 days.

• Municipal Tax Relief Funds are exempt from municipal license taxes and property taxes, further reducing operational costs.

These benefits not only create an advantageous tax environment but also incentivize reinvestment in Puerto Rico’s economy.

Regulatory Oversight

Private equity funds in Puerto Rico are overseen by the Office of the Commissioner of Financial Institutions (OCFI). To maintain their status under Act 60, funds must comply with rigorous reporting requirements, including:

• Quarterly Reporting: Submission of unaudited financial reports.

• Annual Reporting: Submission of audited financial statements.

Non-compliance with these regulations could jeopardize a fund’s eligibility for tax incentives under Act 60.

To ensure compliance, businesses are encouraged to consult with experts like Simon Carlo Valentin, Esq., CPA, whose extensive experience in Puerto Rico’s tax and financial landscape makes him an invaluable resource for private equity funds.

Why Invest in Puerto Rico?

Investing in Puerto Rico under Act 60 offers several strategic advantages:

1. Geographic Location Puerto Rico serves as a gateway between the U.S. and Latin America, offering access to both markets.

2. Legal Framework Operating under U.S. federal laws, Puerto Rico provides a familiar regulatory environment for investors.

3. Tax-Efficient Jurisdiction With generous incentives for private equity funds, investors can achieve significant tax savings while accessing high-growth opportunities.

4. Skilled Workforce Puerto Rico’s bilingual and highly educated workforce is an asset for investors looking to expand their operations.

How MZLS LLC Can Help

Navigating the complexities of Act 60 requires experienced legal counsel. At MZLS LLC, we provide personalized guidance to private equity funds and investors, helping them understand the requirements, maximize tax benefits, and ensure compliance.

Our services include:

• Structuring private equity funds to qualify under Act 60.

• Advising on regulatory compliance with the OCFI.

• Assisting with reporting requirements and audits.

• Ensuring eligibility for income tax exemptions and reduced capital gains tax.

For more information, contact us to schedule a consultation with our experienced team.

Conclusion

Act 60 offers unparalleled opportunities for private equity funds to achieve tax-efficient growth while supporting Puerto Rico’s economic development. By meeting the requirements and leveraging the incentives, investors can unlock the island’s full potential as a global investment hub.

For tailored advice on private equity investment in Puerto Rico, reach out to Simon Carlo Valentin, Esq., CPA or contact us directly. Let MZLS LLC help you capitalize on Puerto Rico’s private equity opportunities under Act 60.