Act 60 IP Income Review | Comprehensive Tax Analysis

The Critical Importance of IP Income Sourcing

Under Act 60, the tax exemption for individuals and the preferential rate for export services hinges on correctly sourcing your income to Puerto Rico. For intellectual property, this is a complex determination. Income from IP is generally sourced to where the IP is used. Our comprehensive review analyzes your licensing agreements, royalty streams, and end-user data to build a robust case for Puerto Rico sourcing. We cross-reference your situation against IRC Section 862(a)(4) and relevant case law, leaving no stone unturned. A misstep in sourcing can lead to significant tax liabilities, making a thorough, independent review an essential part of your compliance strategy.

Optimizing Royalty Income and Withholding

Royalty payments under Act 60 are subject to a 12% withholding tax, which can be credited against the 4% corporate tax rate for export services. However, the structure of your IP holding entity and licensing agreements can significantly impact your net tax liability. We analyze your entire structure to identify potential inefficiencies. Is a C-Corp, LLC, or a specific trust structure the most advantageous for your situation? Our AI platform models various scenarios, providing data-driven insights that go beyond what a traditional review might offer. This allows you to proactively optimize your structure for maximum tax efficiency while remaining fully compliant, a strategy highlighted in the DDEC's own performance evaluations as a key to success.

CPA-Verified IP Holding Structures

The right holding structure is paramount for protecting your intellectual property and maximizing your Act 60 benefits. We review your existing or proposed structures—be it a Puerto Rican entity, a foreign corporation, or a complex trust arrangement—for compliance with both Puerto Rican and U.S. tax law. Our analysis, verified by certified public accountants, considers factors like transfer pricing, substance requirements, and the potential application of GILTI for U.S. shareholders. We identify potential red flags that could attract IRS scrutiny, as detailed in the GAO Report (GAO-26-107225), helping you fortify your position. This dual-layer review provides the confidence you need to operate securely under your decree.

Frequently Asked Questions

How is income from a patent licensed to a U.S. company treated under Act 60?

This is a classic sourcing issue. Generally, if the patent is used in the U.S., the income is U.S.-sourced. Our review can help analyze the specifics of your license agreement and usage rights to determine if a portion of the income could be allocated to Puerto Rico, potentially through a services component or other structural arrangements.

Can I hold my IP in a Cayman trust and still benefit from Act 60?

Yes, using offshore trusts is a common strategy, but it requires careful structuring to avoid issues. Our analysis is designed to review the interaction between your trust structure and your Act 60 decree, identifying potential compliance gaps related to control, ownership, and distribution of income to a bona fide resident of Puerto Rico.

What's the difference between a royalty and a license fee for Act 60 purposes?

The distinction can be subtle but important for sourcing and withholding. A royalty is typically for the right to use the IP, while a license fee can sometimes be structured to include services. Our platform is designed to analyze the substance of the agreement to ensure the classification is correct and defensible under audit.

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Comprehensive Analysis of Act 60 Intellectual Property Income