Explaining and Interpreting the Practical Implementation of Act 60
Puerto Rico’s Incentives Code (Act 60) no longer hands out tax breaks on faith. Since consolidation of the incentives under Act 60, the government evaluates requests through an evidence-based Return on Investment (ROI) framework: the island only grants long-term tax relief when it can show measurable economic benefit (jobs, payroll, capital investment, local purchases and other spillovers) that outweighs the fiscal cost. If you’re planning to apply for an export-services or other Act 60 decree, you must be ready to build a defensible ROI case, and document every input.
Below we’ll walk through the core inputs the DDEC looks at, how the ROI approach works in practice (and what the manual/guidelines require), how to build your own ROI model, the documentation reviewers expect, and common pitfalls that cost applicants time or approval. I’ll keep this focused and actionable — no fluff.
Why the ROI Test Matters (and what it replaces)
Act 60 replaced the previous patchwork of incentive laws with a single code that explicitly ties benefits to measurable returns. The stated policy goal is simple: grant incentives when the net economic benefit to Puerto Rico (direct + indirect + induced) exceeds the cost of the incentives. That policy shift means applications are judged on economic substance, not on marketing language. Expect the DDEC to use a formal methodology and a manual/guidelines when reviewing and benchmarking applications.
The Core Inputs the DDEC Evaluates
When we prepare ROI packages, these are the quantitative and qualitative inputs that consistently drive approval decisions:
1. Direct jobs and payroll. Number of full-time equivalents (FTEs), job grades/salary levels, and annual payroll paid on the island. Wages are the single most visible economic commitment and are weighted heavily.
2. Capital investment. Local lease commitments, office fit-out, equipment purchases, and any meaningful capex that anchors operations to Puerto Rico.
3. Local purchases & supplier spillovers. Ongoing spend on Puerto Rico vendors, professional services, and supply-chain purchases that create indirect jobs and local GDP impact. The Planning Board multipliers are typically applied to convert direct spend into indirect/induced effects.
4. Tax revenues generated. Projected payroll taxes, income taxes from wages, sales & use taxes and municipal receipts that would flow to the Commonwealth and municipalities. These are compared against the present value of tax foregone under the proposed decree.
5. Intangibles & strategic benefits. Skill transfer, R&D/innovation potential, clustering effects (industry ecosystems), and regional development (e.g., growth outside San Juan). These are qualitative but can tip a marginal decision.
How the Calculation Is Framed (what “ROI” actually measures)
DDEC work measures the Commonwealth’s economic benefit as a function of incremental economic activity and fiscal returns, relative to the total cost of the incentives (tax exemptions, credits, grants, etc.). In practice this means:
- Estimating the incremental direct benefits (jobs, payroll, local purchases),
- Applying official multipliers to convert direct effects into indirect and induced impacts,
- Forecasting fiscal receipts tied to those impacts (payroll withholding, income tax from wages, SUT, municipal license taxes, etc.),
- Discounting those future receipts to present value, and
- Comparing the present-value benefits to the present-value cost of the incentives over the decree term.
Important statutory and regulatory documents make clear the DDEC will apply administrative guidance and a formal manual to compute this result — the amendments to the regulations explicitly replaced a single one-size formula with a formal methodology and supporting manual issued by the DDEC. That manual sets assumptions, multipliers and the reporting format the agency expects.
A Pragmatic, Step-by-Step Way to Build Your ROI Model
When we prepare ROI work for clients, we build a modular model so reviewers can trace each assumption. Here’s the simplest, defensible workflow we use:
- Define the baseline and the incremental case. What would the company do without incentives (baseline), and what changes under the incentive (incremental hires, capex, local spend)? The ROI measures incremental impact.
- Project direct impacts (3–7 years). Forecast annual FTEs, payroll by band, local vendor spend, and capex. Use conservative hiring timelines and realistic ramp assumptions.
- Apply official multipliers. Use Planning Board / DDEC multipliers to estimate indirect/induced job and income effects. If official multipliers aren’t published for your sector, use documented legacy multipliers and flag them plainly.
- Estimate fiscal receipts. Convert projected wages and local demand into payroll withholdings, personal income taxes, SUT and municipal receipts over the projection period.
- Calculate the cost of incentives. Model the tax exemptions, credits and fiscal incentives as the present-value cost during the requested decree term. Include any fee schedules or acceptance payments.
- Run NPV/ratio outputs and sensitivity tests. Show the base-case ROI ratio, and 2–3 downside scenarios (slower hiring, lower local spend, higher discount rates). DDEC values conservative, well-documented scenarios.
Documentation DDEC Expects
Numbers without verifiable evidence lose credibility. Build a dossier that contains:
- Signed client contracts showing majority non-PR revenue (if applying for export-services);
- Detailed hiring plan, job descriptions and salary scales;
- Leases, commercial invoices and bank statements showing local spend;
- Capital expenditure invoices and procurement plans;
- Pro forma financial statements with assumptions clearly footnoted; and
- A short economic narrative that ties the numbers to real island benefits (where hires will live, vendor names, training programs, local supplier lists).
If your projected financials are audited-level (revenue > $3M), expect DDEC to ask that financials be certified by a Puerto Rico CPA — so engage local accounting early.
Common Pitfalls That Erode ROI Credibility
- No credible local payroll. A commitment to hire 20 FTEs but no payroll records, job postings or lease will fail. DDEC wants proof.
- Inflated multipliers or optimistic revenue. Don’t stretch multipliers or growth rates without defensible comparables; DDEC will stress-test assumptions.
- Weak evidence of non-PR revenue for export applications. Contracts, wire receipts and client addresses matter.
- Poorly documented capex. Commit to specific capex items and vendor quotes — not vague future intentions.
Amendments to the regulations increased oversight and replaced a single ROI formula with guidelines tied to administrative manuals, in practice that means stricter documentation and less room for optimistic modeling. Treat the ROI as an audit-grade deliverable.
Practical Recommendations — And How We Help Our Clients
- Start early. Build the ROI model during your planning phase, not after you’ve decided to submit. DDEC treats the ROI as central to the decision.
- Conservatively model outcomes. Present a base case and conservative downside case; the DDEC rewards realism.
- Document every link in the chain. Contracts, invoices, leases, payroll, vendor emails — compile them in a single package.
- Engage local advisors. DDEC procedures and local tax/filing requirements make Puerto Rico-specific counsel necessary; many filings must be certified by PR CPAs. Our team at Delerme CPA is certified both in the US and Puerto Rico to facilitate all filings required for your Act 60 application as well as ongoing compliance on the island.
The takeaway — What “Act 60 ROI” Really Means For You
The ROI framework flips the old incentives conversation from “what can we get” to “what will we give back.” Approvals favor applicants who demonstrate realistic hiring, real payroll and verifiable local spend tied to incremental economic activity. The technical work —building defensible forecasts, applying official multipliers, documenting evidence, and preparing conservative sensitivity tests — is the heart of a successful submission. The DDEC’s manual and performance evaluations make clear: incentives are an investment the Commonwealth expects to be paid back through jobs and economic activity.
Ready To Turn Your Proposal Into an Approval?
If you want to pursue Act 60’s tax incentives, the ROI package is the first and most important deliverable. At Delerme CPA we build ROI models that stand up to DDEC scrutiny: we quantify direct, indirect and induced benefits using official multipliers, prepare the supporting evidence packet (contracts, payroll plans, vendor invoices, leases) and run conservative sensitivity scenarios that DDEC reviewers respect.
We coordinate with local counsel and as Puerto Rico certified CPAs, we ensure the technical and filing requirements are met. We’ve helped dozens of export services and tech companies convert planning into decrees and sustainable Puerto Rico operations.