Act 135-2014, formally referred to as the “Act for Incentives and Financing for Young Entrepreneurs,” represents a significant amendment to section 1031-02 of the Puerto Rico Internal Revenue Code. This legislation was specifically designed to provide an income tax exemption for young residents of Puerto Rico, targeting individuals between the ages of 16 and 26. By focusing on this age group, the act aims to encourage entrepreneurship among the youth, thereby fostering economic growth and innovation within the island. The initiative recognizes the unique challenges faced by young individuals in starting their own businesses and seeks to alleviate some of the financial burdens associated with entrepreneurship. As such, it serves as a catalyst for the next generation of business leaders in Puerto Rico.

A young entrepreneur is defined as an individual who meets specific criteria outlined in the act. These criteria stipulate that the individual must be a resident of Puerto Rico and fall within the age range of 16 to 35 years. Additionally, the individual must have graduated from high school, demonstrating a level of educational commitment that underpins their entrepreneurial aspirations. Most importantly, the young entrepreneur must create and actively operate a new business within Puerto Rico. This definition emphasizes not only the age and residency requirements but also the necessity for entrepreneurial initiative, which is crucial for the economic development of the region.

• a resident of Puerto Rico
• between the ages of 16 and 35
• a high school graduate, and
• creates and operates a new business in Puerto Rico.

It is important to clarify that a new business, as defined by the act, does not include any enterprise that has been operating through affiliates or is formed as a result of business reorganization, as specified in the Puerto Rico Internal Revenue Code of 2011, as amended. This distinction is essential to ensure that the incentives are directed toward genuinely new ventures that contribute fresh ideas and services to the market. Furthermore, the tax incentives available under Act 60 can only be applied to one new business per young entrepreneur. Additionally, it is mandatory that this new business is operated solely by the young entrepreneur, ensuring that the benefits are directly tied to their efforts and initiatives.

The tax benefits provided for young entrepreneurs and their new businesses under Act 60 are designed to significantly reduce the financial obstacles that these individuals face when starting a business. These benefits include a complete income tax exemption on the first $40,000 earned by a young entrepreneur between the ages of 16 and 26, which applies to wages and other forms of compensation for services rendered. Additionally, there is a 100% income tax exemption on the first $500,000 of net income generated by the young entrepreneur’s new business during its initial three years of operation. This substantial exemption is intended to encourage young individuals to invest their time and resources into their new ventures without the immediate pressure of taxation. Moreover, the act provides a 100% exemption from personal property taxes and municipal taxes for the same three-year period, further alleviating the financial burden on these budding entrepreneurs.

• A 100% income tax exemption for the first $40,000 earned by the young entrepreneur between the ages of sixteen (16) and twenty-six (26) years old, from wages and other compensation for personal services rendered.
• A 100% income tax exemption on the first $500,000 of net income generated by the young entrepreneur’s new business during the first three (3) years of operations.
• A 100% exemption on the young entrepreneur’s new business’s personal property taxes during the first three (3) years of operations.
• A 100% exemption on municipal taxes during the first three (3) years of operations of the young entrepreneur’s new business.

It is crucial to note that any net income exceeding $500,000, along with any dividend distributions from the new business to its owners, will be subject to the regular tax rates that are applicable under the Code. This provision ensures that while young entrepreneurs receive significant initial tax relief, they will still contribute to the tax system as their businesses grow and become more profitable. The legislative framework aims to strike a balance between incentivizing new business formation and ensuring a fair tax contribution from successful enterprises.

Criterion Advisors Group is committed to supporting young entrepreneurs who wish to take advantage of the incentives provided by Act 60. Our team is equipped with the necessary expertise and understanding of the intricacies involved in navigating these tax incentives. We offer guidance and assistance tailored to the unique needs of young business owners, helping them maximize the benefits available to them under the law. By partnering with us, young entrepreneurs can focus on their core business activities while we help them manage the regulatory and financial aspects of their new ventures.

For additional information or inquiries, we encourage you to reach out to us at 939-391-1680, send an email to peter@criterionadvisorsgroup.com, or complete our Contact Form. Our team is eager to assist you and provide the information you need to successfully navigate the opportunities available through Act 135.