Running an Act 20 Company: Where Is Your Tax Home When You Travel for the Business?

Does an Act 20 company decide where your tax home is?

No. The decree belongs to the company. Your tax home is a separate question about you, and it has its own test.

The tax home test asks where your regular or principal place of business is. If you can count enough days in Puerto Rico and still run the business mostly from somewhere else, you can pass one test and fail another. This guide walks through how the tax home test reads for an owner who travels for the business. It covers residency mechanics only: no decree rates, no fees, and nothing about pending changes.

Which three tests decide bona fide residency, and where does tax home fit?

Publication 570 says you are generally a bona fide resident of a territory if you meet three tests in the tax year: the presence test, the tax home test, and the closer connection test. You need all three. The overview of the three tests lays out how they fit together.

The presence test counts days. It has five alternative conditions, including at least 183 days in Puerto Rico and no more than 90 days in the United States. Publication 570 also lets up to 30 days of business or personal travel outside both places count as presence in the territory, but only if your days in the territory exceed your days in the United States.

The tax home test does not count days at all. The tax home test asks whether you had a tax home outside Puerto Rico during any part of the year. Passing the days gives you no answer to that question.

Does the decree say anything about the owner's residency?

It does not. The Government Accountability Office describes the export services incentive as part of chapter 3 of Act 60 and notes it has no residency requirement for business owners. The company can hold a decree while its owner lives and works somewhere else.

The reverse also holds. A decree for the company does not make you a bona fide resident. The federal tests apply to you as an individual, year by year. For the broader picture of what the Act 60 changes left alone, see what did not change about your residency test.

What does the regulation mean by tax home?

The tax home test is in 26 CFR 1.937-1(d). You meet it if you did not have a tax home outside the relevant possession during any part of the taxable year. The words "any part" matter. A tax home outside Puerto Rico for a few months is a problem, even if the rest of the year is clean. A strong second half does not repair a weak first half.

The regulation defines your tax home by pointing to section 911(d)(3), without its second sentence. Section 911(d)(3) ties tax home to your home for purposes of the travel expense rule in section 162(a)(2). Put plainly, the regulation says your tax home is your regular or principal place of business. If you have more than one regular place of business, it is the principal one. If you have no regular place of business, it is your regular place of abode in a real and substantial sense.

Two things follow from that wording. First, the question is about where you work, not where the family sleeps. The GAO report's own footnote describes a tax home as the regular or main place of business, employment, or post of duty, and says the family home does not decide it. Second, the abode only matters when there is no regular place of business.

For the difference between these terms, read tax home, abode and domicile. If you run two operations, where your principal place of business is covers that case.

What if I travel for the business?

Travel does not move your tax home by itself. The regulation gives no day formula for it, and Publication 570 does not either. It asks where your regular or principal place of business is.

Picture an owner with an office and staff in San Juan who spends several weeks a year at client sites on the mainland. On those facts, the San Juan office is a plausible principal place of business, and the trips are travel away from it. Now picture an owner whose San Juan paperwork is in order, but who does most of the real work, signs the contracts, and meets the clients on the mainland. A different place may be the principal place of business there. Same decree, different answer. The decree never entered into it.

That is why the facts decide it. Where the work is done, where decisions are made, where the staff and the lease are, and how much of your time each place gets all point one way or the other. Published guidance does not give a threshold that settles every case. If your year turns on this question, get it in writing from a licensed tax professional before you file.

The test is also not a one-time snapshot. Because it reads "any part of the taxable year," a change midway can matter, which is covered in what breaks a Puerto Rico tax home in the middle of a year. The regulation has a separate rule for the year of a move, in paragraph (f). Check it if you moved during the year.

What should an owner keep to show where the business is based?

Keep records that show where the work happens, not just where you slept. Useful items include the office lease, payroll for staff who work in Puerto Rico, contracts and where they are performed, and a calendar of trips with their business purpose. Keep them alongside your day-by-day record so the two tell the same story.

Whatever tool you use, the record has to be made at the time, not rebuilt after a letter arrives. One83 builds it from your calendar so the record exists before anyone asks for it. It does not decide your tax home, and it does not replace an advisor.

What is the bottom line for an Act 20 owner?

Pass the days, then ask the second question. The presence test counts where you were. The tax home test asks where your business is based. Your decree answers neither one for you.

Frequently Asked Questions

Does my Act 20 decree make me a Puerto Rico resident for federal tax?

No. The export services incentive is a feature of the company, and the GAO notes it has no residency requirement for business owners. Federal bona fide residency is decided by the presence, tax home and closer connection tests.

Can I pass the presence test and still fail the tax home test?

Yes. They are separate tests. Enough days in Puerto Rico answers the presence question only. The tax home test asks whether you had a tax home outside Puerto Rico during any part of the year.

What is a tax home under the regulation?

It is your regular or principal place of business. If you have none, it is your regular place of abode in a real and substantial sense.

Do business trips to the mainland move my tax home?

The regulation does not turn on trips as such. It asks where your regular or principal place of business is. The facts of each situation decide it, so bring them to your advisor.

One83 is a tracking tool, not tax advice. Consult a licensed tax professional about your situation.