Puerto Rico presents a compelling environment for financial services ventures, particularly for Money Services Businesses (MSBs), thanks to its distinct regulatory framework and attractive tax incentives. However, the path you choose depends on whether you aim to serve the local Puerto Rican market or target clients outside the island. This article outlines the two primary options: the MSB license under Act 136 and the tax-advantaged Act 60/IFE structures.
The MSB License Under Act 136 of 2010
The MSB license, governed by Act 136, is tailored for businesses operating within Puerto Rico’s local economy.
- Purpose: Designed to serve Puerto Rican residents and businesses.
- Allowed Activities: Includes money transfers, currency exchange, check cashing, and prepaid card services.
- Licensing Requirements: Applicants must submit detailed ownership information, Anti-Money Laundering (AML) policies, compliance frameworks, financial projections, and audited financial statements.
- Financial Obligations: Minimum net worth and surety bonds are required, scaled to the business’s size and risk profile.
- Oversight: The Office of the Commissioner of Financial Institutions (OCIF) regulates MSBs, conducting regular audits and compliance reviews.
This license is ideal for companies focused on providing financial services within Puerto Rico.
Tax-Advantaged Structures: Act 60 and IFE
For businesses targeting clients outside Puerto Rico, the island offers tax-efficient options under Act 60 and International Financial Entity (IFE) frameworks, both featuring a fixed 4% corporate tax rate.
- Act 60 Export Services:
- Targets businesses providing financial or other services to non-Puerto Rican clients.
- Prohibits transactions with Puerto Rico residents or entities.
- International Financial Entities (IFEs):
- A comprehensive banking license allowing services like payments, custody, and lending, exclusively for non-Puerto Rican clients.
- Benefits from the same 4% tax rate as Act 60.
Key Distinction
- MSB License (Act 136): Focuses on Puerto Rico’s local market but does not qualify for the 4% tax rate.
- Act 60/IFE: Offers tax advantages but restricts operations to clients outside Puerto Rico, prohibiting local business.
These structures are mutually exclusive based on your target market.
Comparison: MSB License vs. Act 60/IFE
| Feature | MSB License (Act 136) | Act 60 / IFE Structure |
| Target Market | Puerto Rico residents and businesses | U.S. mainland and international clients |
| Tax Rate | Standard U.S. tax rules; no incentives | 4% fixed corporate tax rate |
| Permitted Activities | Money transfers, check cashing, prepaid | Banking, custody, payments, lending (IFE) |
| Regulator | OCIF | OCIF (IFE); PR Department of Economic Development (Act 60) |
| Local Business | Yes | No |
| Substance Requirements | Standard compliance | Local office, staff, and operations |
Compliance and Operational Requirements
Both paths require stringent compliance:
- AML/BSA Obligations: Robust AML programs are mandatory for MSBs, Act 60 entities, and IFEs, aligned with federal Bank Secrecy Act (BSA) standards.
- Reporting: Regular submissions to OCIF, FinCEN, and the IRS are required.
- Operational Presence: Act 60 and IFE structures mandate a physical office, local employees, and governance in Puerto Rico to qualify for tax benefits.
Conclusion
Puerto Rico offers two distinct pathways for financial services businesses:
- Act 136 MSB License: Suited for serving Puerto Rico’s local market, ideal for businesses focused on domestic financial services.
- Act 60/IFE Structures: Designed for international operations with a 4% tax rate, perfect for businesses targeting U.S. or global clients.
Your choice hinges on your business objectives—local engagement or tax-advantaged international operations. Understanding these options ensures you can strategically position your MSB for success in Puerto Rico’s unique financial landscape.