Executive Summary

Puerto Rico’s international banking regime has evolved significantly since its inception under Act 52-1989, which created International Banking Entities (IBEs) with tax-free operations for non-Puerto Rico clients. In 2012, Act 273 replaced IBEs with International Financial Entities (IFEs), offering a fixed 4% corporate tax rate and access to U.S. financial infrastructure, while maintaining restrictions on doing business with local residents. In 2024, Acts 44 and 45 introduced major reforms, raising capital requirements, governance standards, compliance expectations, and supervisory powers. In 2025, OCIF proposed comprehensive regulations to operationalize these reforms, further tightening reporting, substance, and examination requirements. Today, Puerto Rico offers a unique blend of offshore benefits with U.S.-aligned oversight, positioning IFEs as a premier structure for cross-border banking.

1) The IBE Era (Act 52-1989)

The International Banking Center Regulatory Act (Act 52 of 1989) created International Banking Entities (IBEs), designed to conduct business exclusively with non-Puerto Rico clients. IBEs were exempt from most Puerto Rico taxes, including a zero percent corporate tax rate, and were prohibited from taking deposits or extending credit for domestic use. The model provided a pure offshore banking platform under U.S. territorial jurisdiction.

2) The IFE Reset (Act 273-2012)

In 2012, Act 273 replaced IBEs with International Financial Entities (IFEs), modernizing the framework. IFEs operate under a fixed 4% corporate tax rate through tax exemption decrees, with dividends to foreign shareholders exempt from Puerto Rico taxation. The law aligned the regime with U.S. regulatory expectations while maintaining its international-only scope, preventing IFEs from serving Puerto Rico residents or businesses except in limited cases.

3) 2024 Reforms (Acts 44-2024 & 45-2024)

In February 2024, Puerto Rico enacted major reforms through Acts 44 and 45. These raised minimum paid-in capital for IFEs to $10 million, mandated staged unencumbered asset requirements at local banks, required a minimum of eight Puerto Rico-based employees (including compliance staff), and introduced independent director requirements. Licensing fees increased ($50,000 original license; $25,000 annual renewal), and prior approval was mandated for control changes exceeding 10%. Digital asset custodianship was allowed under OCIF oversight, but exchanges were prohibited.

4) 2025 Proposed Regulations

In 2025, OCIF issued draft comprehensive regulations for IFEs and IBEs. These operationalize the 2024 reforms, detailing the staged unencumbered asset ladder (reaching $1.5 million by 2027–28), imposing reporting and certification requirements, and allowing OCIF to phase in authorized activities as entities demonstrate compliance. The rules reflect a shift toward deeper substance, tighter supervision, and stronger compliance culture.

Conclusion

Puerto Rico’s international banking framework has progressed from the zero-tax IBE model to the 4% IFE regime with U.S.-grade oversight. The 2024 reforms and 2025 draft regulations elevate the sector’s standards in capital, governance, and compliance, ensuring the regime remains credible and sustainable while preserving its core advantage: offering cross-border banking services from within a U.S. jurisdiction.