What Was Act 20? Puerto Rico’s Export Services Legacy

In the aftermath of the 2008 global recession, Puerto Rico sought to reinvent its economy by exporting high-value professional and creative services. The Export Services Act (Act 20-2012) offered global competitiveness through low taxation and stability, encouraging both local firms and new investors to establish operations on the island.

Act 20 targeted companies providing services from Puerto Rico to clients outside its territory, including:

Accounting, legal, and financial consulting
Advertising, design, and public relations
Software development and IT support
Architecture, engineering, and research
Shared-services centers and corporate headquarters

The legislation became a key driver of Puerto Rico’s modern knowledge economy and the basis for later export-focused provisions under Act 60-2019.

Core Benefits Under Act 20

Companies granted a decree under Act 20 enjoyed:

4% fixed income tax rate on eligible export-service income
100% exemption on dividends distributed from those earnings
75% exemption on property tax and 50% exemption on municipal license tax (for qualifying activities)
15-year decree term, renewable for another 15 years under consistent conditions

These benefits were administered through individual tax exemption decrees issued by Puerto Rico’s DDEC Incentives Office (formerly the Office of Industrial Tax Exemption). Each decree acted as a binding contract between the government and the beneficiary, providing long-term certainty for investors.

How Act 20 Worked in Practice

To qualify, a company had to:

Establish a physical presence in Puerto Rico (office, employees, or leased space).
Provide services from Puerto Rico to non-resident clients or customers.
Apply for and receive an exemption decree from DDEC.

Successful applicants often engaged professional advisors or legal counsel such as MZLS — Tax Incentives & Decrees to ensure compliance and correct structuring.

Once approved, the company reported income and complied with annual filing obligations to maintain the decree.

Integration Into Act 60

When the government enacted Act 60 – Puerto Rico Incentives Code, it consolidated all economic-development statutes, including Acts 20 and 22, into a single framework.

Under Act 60, the Export Services Program retained Act 20’s 4% rate and decree mechanism, but added stronger compliance and reporting provisions. Businesses now apply directly through the DDEC Incentives Portal under Chapter 3 of Act 60, rather than through separate Act 20 decrees.

Existing Act 20 decrees remain valid until expiration, ensuring continuity for earlier participants.

Continuing Impact

Even after its consolidation, Act 20 remains a defining chapter in Puerto Rico’s economic transformation. It helped create a service-export ecosystem spanning finance, technology, creative industries, and professional services.

Today, Act 60 builds on that foundation, aligning incentives with broader goals such as renewable energy, manufacturing, and local entrepreneurship.

For detailed compliance or renewal strategies, refer to MZLS’s guide on Export of Services under Act 60, which outlines decree maintenance, substance requirements, and reporting obligations.

Key Takeaways

Act 20 (2012) offered a 4% fixed tax rate and full dividend exemption for Puerto Rico-based service exporters.
It was absorbed into Act 60 (2019) as the Export Services Incentives Program (Chapter 3).
All new applicants must apply under Act 60’s decree system.
Legacy Act 20 decrees remain valid until expiration.
The program’s legacy continues to shape Puerto Rico’s competitiveness in global service industries.