Over the years, the 401(k) has grown to be quite popular among employees. A US national survey reports that in the past two years, over 50% of private sector workers actively contribute to a 401 (k) plan.
In Puerto Rico, this employer-sponsored program for private sector workers has enjoyed steady growth. As per recent surveys, 87.4% of employees eligible have contributed to their 401 (k) plan.
However, this is for private sector corporate employees who have their employers to rely on. What about all the business owners who serve and sustain the island?
401(k) plans do serve as a key retirement savings tool under the local Puerto Rico Code rules for corporate employees. However, beyond this, there are plans made specifically for business owners, often suggested by investment advisors.
Read Also: Life Insurance in Puerto Rico: How Much Coverage Is Enough?
Investment Strategies For Business Owners
Businesses in Puerto Rico have access to a range of approaches for creating wealth that are optimized for taxes through local 401(k)s. Puerto Rico Incentives Code (Act 60), industry and economic trends, and different sectors. These methods that focus on tax-efficient investing in Puerto Rico take advantage of lower taxation rates, as well as the benefits of residing on the island. They address growing industries that can provide better returns on investment than traditional 401(k)s.
Act 60 Incentives
This is the Puerto Rico Incentives Code that provides tax exemptions to investors and businesses that are either established in Puerto Rico or that relocate here. Incentives ike these are more beneficial for US citizens who relocate to this island, because:
- No need for residency permits
- Puerto Rico is free of federal and state income taxes
- You are still allowed to have additional benefits like Social Security and Medicare
- Puerto Rico’s tax code reflects the US’s Internal Revenue Code. This makes transitions much simpler for anyone who wishes to become a permanent resident.
Eligibility
- 6 years as a non-resident
- More than 183 days a year as a resident of Puerto Rico
- Up to $10K charitable donations in a year
- A purchased home within the two years of relocating, which must be your principal residence
- A business with jobs and a headquarters in Puerto Rico
Benefits
- Liquidity of M&A, that is, sales of your assets tax-free
- Estate planning, that is, avoiding probate
- Compounding: all are ideal for individuals between the ages of 35 and 55 who own life insurance for the benefit of their family.
Risks
The IRS will be reviewing your application to ensure that you satisfy the “bona fide” requirements (three tests by the IRS – presence, home base, and establishment of closer relationships). If your application is denied and you continue in the program, you may lose your application and face federal taxes on all of your gains before your move-out date.
Procedures
Obtain an application through the Incentives Portal and retain a local attorney. Complete your relocation to the new country by the end of the calendar year for the best rates. Eg: the tax on a $1M gain would be $40K in Puerto Rico ($237K in taxes in the U.S.).
Energy and Infrastructure Plays
Puerto Rico has a massive grid crisis or frequent blackouts that drive more than $3B in renewable investments through public-private partnerships (PPPs). This offers business owners a stable cash flow and incentives amid 1.8% GNP growth.
Mechanics
- Solar farms investments
- Invest in battery storage or waste-to-energy plants (3,000 MW target within the next two years)
- Qualify for Act 60 energy decrees or federal ITC
- Tie to business ops for 20-30% utility savings
Eligibility
- Companies located within Puerto Rico
- These companies should have at least $500,000 in capital investment
- Alignment with PREPA Tenders
Advantages
- Long-term contracts (15-25 years)
- Revenues inflation-protected
- Boosts tourism/manufacturing
- Created synergy with Life Insurance for a better asset allocation strategy in Puerto Rico
Disadvantages
- Delays from Government Agency Regulations
- Exposure to hurricane damage (can be mitigated through insurance)
- Capital-intensive business
Processes
- Partner with developers (e.g., through InvestPR)
- Bid on RFPs and finance through Act 60 Exempt Loans.
- Examples:1 MW solar installation producing an estimated annual net income of over $100K.
Real Estate Diversified
Puerto Rico’s tourism is recovering strongly, with many reasons responsible for this trend through 2026.
Over the next few years, more than ten million additional people will visit Puerto Rico. With this tourism growth comes plenty of new opportunities for short-term rental properties and commercial properties that are benefiting from Government property tax incentives.
The income generated from short-term rentals and commercial investments will produce returns greater than traditional investing through a 401(k).
Buying a Property
- Buy a Condo/Hotel Property in either San Juan or Rincon
- Receive a 75% Property Tax Exemption and a 50% Reduction in Your Municipal License Fee as a Result of Act 60
- Gather the Financing for This Investment With an Interest Rate Between 5% and 7%
Qualification for Act 60 Incentives
To qualify for Act 60 Incentives, You Must Be a Local Person or Business Owner, and the property must be designed for Tourism and or Exporting.
Benefits
Once You Have Purchased a Property and are Using It as an Airbnb, Your Monthly Passive Income Could Be From $3,000 to $4,000 on Average Per Unit.
The Value of The Property Could Appreciate at a Rate of 10-15% Each Year in Areas With More People Submitting. This Asset Further Provides Protection Against Inflation and Will Provide Financial Support for Your Family if You Were to Pass Away (Insured Policy).
Private Equity and M&A
If you target undervalued sectors like tech or healthcare through either funds or direct buys, you can get Act 60 for 0-4% gains on exit. This accelerates scaling beyond 401(k) horizons.
Mechanics
- Invest in private equity funds, typically the ones managing over $10M
- Or, you can also buy companies directly with special tax breaks kicking in after you have established your residence on the island.
Eligibility
- Accredited investors
- Act 60 decree for tax shield
Benefits
- 20-30% IRR targets
- Diversification
- Job creation credits
- Supports business succession with life insurance
Risks
- Illiquidity (5-10)
- Due diligence failures
Steps
- Join Invest PR networks
- Diligence through McConnell Valdés
- Exit via IPO/M&A
Debt Refinancing
Stabilization of Federal Reserve interest rates (4%–5% projected in 2026) provides businesses the ability to refinance their debt, allowing for expansion and freeing up cash instead of paying penalties on 401(k) plans.
Mechanics
Refinancing commercial and SBA loans at lower interest rates and reinvesting the interest saved into these strategies.
Eligibility
Strong credit and property collateral.
Benefits
Averaging 1% to 2% lower interest rates is equal to a $50,000-a-year savings on a $1 million loan, supporting growth.
Risks
Rising interest rates and excessive debt.
Steps
Shop with Banco Popular, a Federal Reserve family of banks; review Act 60 cash flows as collateral for loans.
When considered in connection with life insurance (i.e., $750,000 life insurance or greater), these strategies create an integrated approach to achieve maximum U.S. access for Puerto Rico and minimize costs. Contact your financial investment advisor in Puerto Rico for a personalized approach.
Read Also: The Financial Risks Puerto Rico Families Ignore (Until It’s Too Late)
Conclusion
These investment strategies, like the Act 60 incentives, real estate diversification, and much more, are strategic financial investment plans tailored for business owners. These plans leverage the island’s unique economic incentives, tax codes, and sector growth to help entrepreneurs scale operations, have a better asset allocation strategy, and establish themselves on this island.
At JLA Financial Planning, we offer a bunch of investment strategies customized for professionals who arrive or reside on the island, hoping to establish their own business. Contact us for a more tailored approach.