Key takeaways
- In Puerto Rico, businesses and self-employed individuals deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business, under the Puerto Rico Internal Revenue Code of 2011 – similar to, but not identical with, US federal rules.
- Some expenses are limited: for example meals and entertainment (generally 50%), vehicles and certain related-party payments. Expenses must be backed by documents and, for many payments, by informative returns (Forms 480).
- Businesses with an Act 60 export services decree pay a 4% fixed income tax rate on eligible income, so deductions have less impact. What matters more is correctly allocating income and expenses to the decree activity.
Last reviewed: October 2026
Whether you run a local company or an Act 60 export services business, knowing what you can deduct in Puerto Rico shapes your effective tax rate. This guide covers the main rules in 2026.
Puerto Rico business expenses – key rules (2026)
| Item | Rule |
|---|---|
| General test | Ordinary and necessary expenses of the trade or business |
| Meals and entertainment | Generally 50% deductible |
| Vehicles | Deductions limited; business use must be documented |
| Depreciation | Mainly straight-line over useful life (accelerated methods only in specific cases) |
| Payments to service providers | 10% withholding on payments for services above USD 1,500 per provider and year (with exceptions) and Form 480.6A/480.6SP reporting |
| Act 60 export services | 4% fixed rate on eligible income; 100% dividend exemption for residents |
| Municipal license tax | Volume-of-business tax (patente municipal) on gross receipts |
Commonly deductible expenses
- Salaries and wages, including employer contributions.
- Rent of business premises.
- Professional services (legal, accounting) – subject to withholding at source.
- Travel for business purposes, properly documented.
- Insurance, utilities, software and telecommunications.
- Depreciation of business assets.
- Interest on business loans, within limits.
- Municipal license and property taxes related to the business.
Limits and non-deductible items
- Personal and family expenses are not deductible.
- Fines and penalties are not deductible.
- Related-party charges (for example from a US parent or affiliate) may be limited or subject to specific rules and withholding.
- Expenses without adequate documentation or required informative returns may be disallowed.
Expenses under an Act 60 decree
An Act 60 export services company pays a 4% fixed income tax on eligible income. Expenses still reduce the taxable base, but the main points are to:
- separate decree income from non-decree income and allocate expenses consistently;
- meet the decree's employment and annual report requirements;
- pay a reasonable salary to owner-employees, which is taxed at ordinary progressive rates.
Example: A consulting LLC with an export services decree earns USD 1 million from US clients and spends USD 300,000 on salaries, rent and software. It pays 4% on USD 700,000 – USD 28,000. The owner's USD 120,000 salary is taxed at regular Puerto Rico rates, and the distributed profits are exempt for the resident individual investor.
Frequently asked questions
What business expenses are deductible in Puerto Rico?
Ordinary and necessary expenses of running the business, such as salaries, rent, professional services, travel and depreciation, with limits for meals, vehicles and related-party charges.
Are meals deductible in Puerto Rico?
Generally only 50% of business meal and entertainment expenses is deductible, with documentation.
Do Act 60 companies deduct expenses?
Yes, but their eligible income is taxed at a 4% fixed rate. Correct allocation of expenses to decree income matters more than maximising deductions.
Related guides
- Tax incentives for expats in Puerto Rico
- Legal forms of business in Puerto Rico
- Capital gains tax in Puerto Rico
Sources
- Puerto Rico Internal Revenue Code of 2011, as amended; Departamento de Hacienda (hacienda.pr.gov)
- Act 60-2019 (Incentives Code), as amended by Act 52-2022; DDEC
This guide is general information, not personalised tax advice.
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