Puerto Rico International Financial Entity

The Puerto Rico International Financial Entity

Puerto Rico International Financial Entities (“IFE”) are licensed and regulated by the Office of the Commission of Financial Institutions (the “OCIF”) pursuant to Act no. 273. (the “Act”). The Act offers certain tax incentives to IFEs including a four (4%) percent fixed income tax rate on net income derived by an IFE. Dividend or profit distributions made to shareholders or partners who are residents of Puerto Rico are subject to a six (6%) percent tax rate while dividend and profit distributions are tax free if received by a shareholder or partner who has obtained a tax exemption grant for relocating to Puerto Rico under Act no. 22.

Under the Act, only an entity organized under the laws of Puerto Rico may seek licensure as an IFE. For such reason, the overwhelming majority of licensed IFEs employ of bank holding company structure with the holding company being located in another tax neutral jurisdiction. IFEs are authorized to conduct a wide variety of banking, fiduciary and advisory activities, including, but not limited to:

  • accept deposits from foreign persons in checking accounts as well as demand or fixed term deposits and interbank deposit of funds, or otherwise borrow money from international banking entities and from any foreign person;
  • Make, procure, place, guarantee, or service loans;
  • Invest in securities, stocks, notes, and bonds of the Government of Puerto Rico that are exempted from Puerto Rico income taxes;
  • Carry out any banking transactions permitted by the Act in foreign currencies, or in gold or silver, and participate in foreign currency trade;
  • Underwrite, distribute, and otherwise trade in securities, notes, debt instruments, drafts and bills of exchange issued by a foreign person for final purchase outside of Puerto Rico;
  • Engage in any activity of a financial nature outside of Puerto Rico which would be allowed to be realized, directly or indirectly, by a bank holding company or by a foreign office or subsidiary of a United States bank under applicable United States law;
  • Buy and sell securities outside Puerto Rico, on the order of, or at its discretion, for foreign persons and provide investment advice in relation to such transactions or separate therefrom, to such persons; and
  • Organize, manage and provide management services to international financial entities and other financial entities locates outside Puerto Rico, such as investment companies and mutual funds, provided that the stock or participation in the capital of such companies is not distributed directly by the international banking entity to domestic persons.

Notwithstanding the foregoing, an IFE is specifically prohibited from offering banking or financial services products to residents of Puerto Rico.

As stated above, an IFE must be organized under the laws of Puerto Rico as either a corporation,  partnership, or limited liability company. The application process requires that customer corporate formalities be followed, including, for instance, the drafting of organizational documents such as bylaws or limited liability company operating agreements. The rules regarding nomenclature are such that the IFE name must include the words “International,” “Foreign,” or “Offshore,” or other related words sufficient to identify the IFE as a non-domestic financial entity.

The application process is bifurcated in such a manner that the formation of the above-referenced proposed IFE entity first requires OCIF approval. The “Application for Permit to Organize” is a “check the box” exercise in with the IFE applicant must submit the proposed organizational documents for the IFE together with the remaining elements of the final IFE application. This includes, but is not limited to: (i) drafts of the proposed organizational document establishing the IFE; (ii) a business plan drafted in accordance with New York Federal Reserve Guidelines; (iii) a nonrefundable application fee of US$5,000; (vi) historical and financial information of the persons who directly or indirectly propose to own or control ten percent or more of the capital of the IFE and the proposed directors and officers of the IFE; and (v) the number of proposed employees of the IFE. Once the Application for Permit to Organize is submitted and approved by the OCIF, the applicant IFE will have six (6) months to complete the application process.

From there, the IFE applicant is charged with submitting the final IFE application with the OCIF. Among the myriad of requirements, the IFE applicant will be required to disclose, among other matters:

  • An office space in Puerto Rico (typically obtained at $750-$1,250 per month with the ability to co-locate with other IFEs);
  • The identity of up to four (4) Puerto Rican employees, subject to relief by the OCIF which is freely granted (many IFEs exist with two (2) ministerial employees at prevailing hourly wages in Puerto Rico);
  • Authorized capital stock of no less than US$5,000,000 with at least US $250,000 of paid-in-capital at the time the license is issued –e. does not need to be disclosed at the time of application; and
  • US$300,000 in cash or marketable securities, or a lesser amount allowed by the OCIF, (note this is not “blocked” capital).

After the entity has been organized, offices leased or acquired, and capital contributed to the entity, the applicant may file for the issuance of the IFE license. The OCIF may grant, conditionally grant (on the basis of the applicant depositing the required capital), or deny the final license application. The licensure process typically takes about three months. After the IFE license is issued by the OCIF, the applicant must further file a copy of the same with the Puerto Rico Department of State. The newly licensed IFE must further formally request the customary tax exemption with the Puerto Rico Department of Economic Development and Commerce, i.e., the Puerto Rican taxing authority.

The application to the Department of Economic Development is freely granted and retroactive to the date of application. The tax exemption is made subject to a contract with the government, not be legislative action. For such reason, the prospect of Puerto Rico obtaining statehood and IFEs subsequently losing the tax advantages is both illegal under both US and Puerto Rican law and remote at best. The tax exemption is initially granted for a period of 15 years, with the prospect of renewal for two (2) subsequent 15 year terms – for a total of 45 years.  There are currently fifty-one licensed International Financial Entities.


A former professional rugby player, Adam S. Tracy brings over twenty years’ experience as an attorney, consultant and dealmaker with a particular focus on cryptocurrency, digital products, payments and immersive corporate structures. As an accomplished executive and advisor to high risk merchants and stakeholders, Adam has proven himself as a results oriented, decisive leader with proven success advising early market entrants, technology adapters, as well as established participants across a wide range of verticals. Adam Tracy’s attack-first personality allows him to excel in dynamic, demanding environments including complex corporate negotiations, distressed environments and regulatory investigations.

In addition, Adam S. Tracy also has a successful track record co-founding high risk industry ventures, building & leading cross-functional teams, and spearheading diverse corporate transactions. A serial entrepreneur, Adam has successfully started and created exits across a wide swath of markets, including various mobile SaaS ventures, nutraceuticals, peer-to-peer payment systems, and several telemarketing-based ventures. Moreover, as a recognized expert in the payments field, Adam Tracy has been a blockchain and digital currency evangelist and influencer since the early days of Bitcoin.

Utilizing his proprietary “Pre-Event Driven™” strategy for decision making, Adam S. Tracy further leverages his over twenty years’ experience to create cost-effective, value-add solutions for each client. A data-driven acolyte, Adam continually refines his strategies based on field studies and data collection. Moreover, Adam Tracy further augments his range of solutions by actively networking with regulators, liquidity providers, legal and compliance experts, deal-flow brokers, investors and management of leading high risk industry ventures.

Adam S. Tracy earned his Bachelor of Science in Computer Applications and Bachelor of Science in Finance from the University of Notre Dame. He subsequently earned his Masters in Business Administration from the DePaul Kellstadt Graduate School of Business, while concurrently earning his Juris Doctorate from the DePaul College of Law. Adam lives outside Chicago with his with his wife, son, four dogs, and two cats.

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