known as “The International Financial Center Regulatory Act”, The International Financial Center Regulatory Act (Act 273) seeks to expand the potential market of the International Financial Center of Puerto Rico, by granting tax incentives for new banking and financial activity in Puerto Rico that is provided for clients outside of the island.

The economic union with the United States, its political stability, the soundness of its banking system, and the unified market and monetary system gives Puerto Rico a significant advantage in multiple conditions to perform international financial transactions. The law provides for the organization of International Financial Entities (IFE). An IFE is a Puerto Rico entity engaged in traditional banking or financial services for non-Puerto Rican clients. IFEs are under the direction of the Office of the Commissioner of Financial Institutions.

Under Puerto Rico law, Act 273 delivers money-saving tax incentives to new banking and financial businesses that become International Financial Entities (IFE). IFEs are entities whose facilities are located on the island but offer traditional banking or financial services to non-Puerto Rican clients. Eligable Banking activities under Act 273 include:

• Accepting deposits
• Borrowing money
• Lending
• Letters of credit
• Refinancing
• Foreign currency exchange
• Underwriting
• Trade financing
• Trust services
• Securities brokerage
• Clearinghouse services
• Asset management
• Other financial service

Except for specific circumstances, IFEs may not conduct business within Puerto Rico with business and individuals.

IFEs receive tax benefits including:

• IFEs will enjoy a 4% flat income tax rate on their income
• Distributions from earnings and profits derived from IFEs:
  • Taxed at 6% for shareholders that are Puerto Rico residents
  • 100% exemption from Puerto Rico taxes on such dividends
• Municipalities in Puerto Rico may levy a gross receipts tax of up to 1.5% for financial services
• IFEs will be 100% exempt from all property taxes
• A 15-year tax decree, renewable for two (2) additional 15-year periods

To become an IFE, your business applies for a permit with the Office of the Commissioner of Financial Institutions and pays a one-time fee of $5,000. You must also meet certain requirements:

• Authorized capital stock of at least $5,000,000 ($250,000 must be paid)
• At least four employees working at offices within Puerto Rico (this can sometimes be waived)

Criterion Advisors Group will provide guidance on how your business can become an IFE and how to qualify for the highest tax savings possible under this decree. We’ll help you through the process of becoming an IFE so your financial services business is ready to receive all the tax breaks possible from Puerto Rico.

For additional information call 939-391-1680,  email peter@criterionadvisorsgroup.com or complete our Contact Form.