IFE Permitted Activities Under Act 273: What Business Owners Need to Know
A Puerto Rico International Financial Entity, or IFE, is a licensed financial institution organized under the International Financial Center Regulatory Act, Act 273 of 2012, as amended by Act 44 of 2024. The Office of the Commissioner of Financial Institutions (OCIF) licenses and supervises every IFE. What an IFE may do is defined by three things: the activities Act 273 authorizes, the prohibitions Act 273 imposes, and the business plan OCIF approved when it issued the license. Operating outside any of the three puts both the license and the tax decree at risk.
This article explains the activities an IFE may conduct, the clients it may serve, the activities it may not conduct, and how those limits connect to its Act 60 tax decree. For the licensing process, capital, and timeline, see our guide to the Puerto Rico International Financial Entity.
Financial Activities an IFE May Conduct
The IFE license permits a broad range of banking and financial activities for clients who are not residents of Puerto Rico. The core activities include:
- Deposit taking and United States dollar accounts for non-resident clients.
- Lending, including loans secured by financial assets or digital assets, within the lending powers of the Act and the approved business plan.
- Trade finance, such as letters of credit and related services.
- Treasury and payment services for non-resident clients.
- Asset management and investment services.
- Trust services.
- Custody of digital assets, with a no-objection letter from the Commissioner under Section 10(10) of Act 273.
Each IFE operates under the business plan OCIF reviewed during licensing. A new line of business, a new client segment, or a new product that changes the risk profile of the entity should be reviewed with OCIF before launch. Digital asset custody in particular requires the no-objection letter before the service is offered.
Who an IFE May Serve
An IFE may serve any person who is not a resident of Puerto Rico. That includes individuals and companies located in the fifty states as well as foreign clients, which is why an IFE can operate in United States dollars and inside the United States legal system while its clients are spread across many countries. The restriction runs the other way: an IFE may not offer its services to residents of Puerto Rico, except in the narrow situations the Act allows.
This client rule is the line that most often separates a viable IFE business plan from one OCIF will not approve. A business whose customers are mainly in Puerto Rico needs a different license, such as a local bank charter or a money transmitter license, depending on the activity.
Activities an IFE May Not Conduct
Act 273 also sets limits that apply to every IFE regardless of its business plan. The most important are:
- Operating a virtual currency exchange, which Section 11(8) of Act 273 prohibits. Companies that run exchanges in Puerto Rico do so under a money transmitter license, sometimes alongside an IFE that holds the custody and banking functions.
- Serving residents of Puerto Rico, outside the narrow exceptions in the Act.
- Counting digital assets or other speculative securities toward the $10,000,000 paid-in capital requirement.
- Transferring the license or control of the entity without prior OCIF authorization. A transfer without that authorization is void.
Substance Requirements That Support the Activities
The permitted activities come with substance requirements, raised by Act 44 of 2024, effective May 16, 2024. A newly licensed IFE needs paid-in capital of $10,000,000, an additional $1,000,000 in unencumbered assets pledged to the Commissioner, at least eight full-time employees in Puerto Rico with at least two assigned to compliance, a designated compliance officer, a physical office in Puerto Rico, and a board with at least one independent director. Capital cannot be reduced without the approval of the Commissioner.
These requirements make the IFE a regulated financial institution with real operations on the island. They also explain why the IFE is not a general business or investment vehicle: an operating company, a professional practice, or a personal investment fund has no use for a banking license and cannot obtain one simply to access a tax rate.
How Permitted Activities Connect to the Act 60 Decree
The IFE license and the tax decree are separate approvals. OCIF issues the license, and the Department of Economic Development and Commerce (DDEC) issues a decree under Act 60 that fixes the income tax rate on IFE income at 4 percent, exempts distributions to owners who are not residents of Puerto Rico, taxes distributions to resident owners at 6 percent, and grants a 75 percent property tax exemption and a 50 percent municipal license tax exemption, for a 15 year term renewable once.
The decree covers income from the activities the IFE is licensed to conduct. Income from activities outside the license and the decree is taxed under the general rules of the Puerto Rico Internal Revenue Code, and an activity that violates Act 273 can also lead to fines, loss of the license, or revocation of the decree. Our article on IFE tax rates under Act 60 covers the tax side in more detail.
Structuring a Business Around the IFE Limits
Digital asset and fintech groups often need activities that no single license allows. The structure that works is a group: an exchange entity licensed as a money transmitter, an IFE that holds the custody and banking functions for non-resident clients, and an export services entity for technology and operations, each with its own decree and its own compliance program. OCIF investigates the owners of each licensed entity, so every owner should expect to be identified and investigated. Read more on blockchain compliance in Puerto Rico.
Next Steps
Before committing capital to an IFE, map each planned activity against Act 273, confirm that the client base is outside Puerto Rico, and confirm that no exchange activity sits inside the IFE. Our free IFE guide covers the full process. To discuss a specific business plan, request a free initial evaluation at lawyerinpr.com/start.
Christian M. Frank Fas, Esq. is a Puerto Rico licensed attorney with over 25 years of commercial and business law experience.