Puerto Rico International Financial Entity (IFE): How to License, Acquire, and Fund One
A Puerto Rico International Financial Entity is a licensed financial institution chartered under Act 273 that serves clients outside Puerto Rico and operates under a 4 percent fixed income tax rate through an Act 60 decree. This page explains what the license requires, the two routes to obtaining one, the 18 to 22 month timeline, and what the process costs.
Download the Free IFE Guide Free Initial EvaluationWhat Is a Puerto Rico International Financial Entity?
An International Financial Entity, or IFE, is a financial institution organized in Puerto Rico and licensed by the Office of the Commissioner of Financial Institutions (OCIF) under the International Financial Center Regulatory Act, Act 273 of 2012. The IFE license permits a broad range of banking and financial activities, including deposit taking, lending, trade finance, treasury services, asset management, trust services, and digital asset custody, so long as those services are provided to persons who are not residents of Puerto Rico.
The structure exists to attract international financial business to the island. In exchange for locating operations, staff, and capital in Puerto Rico, an IFE receives a tax decree under Act 60 that fixes its income tax rate at 4 percent and exempts distributions to non-resident owners in full. Because Puerto Rico is a United States jurisdiction, an IFE operates in US dollars, within the US legal system, and under federal anti-money laundering rules, while remaining outside the scope of federal income tax on its Puerto Rico source income.
Act 44 of 2024, effective May 16, 2024, raised the capital and substance requirements significantly. Any plan built on pre-2024 figures is out of date.
Capital, Staffing, and Substance Requirements
The following requirements apply to a newly licensed IFE and must be satisfied at the time the license to operate is issued.
Paid in full at licensing. Speculative securities do not count. Capital cannot be reduced without the approval of the Commissioner.
Held separately from paid-in capital, typically as certificates of deposit at a Puerto Rico bank pledged to the Commissioner. Total funds required: $11,000,000.
Located in Puerto Rico, at least two assigned to compliance, plus a designated compliance officer.
A board that includes at least one independent director, plus a physical office in Puerto Rico.
| Statutory fee | Amount | When paid |
|---|---|---|
| Investigation fee | $50,000 | With the application to OCIF |
| Original license fee | $50,000 | On issuance of the license to operate |
| Annual renewal fee | $25,000 | Each year |
| Change of control (acquisitions) | $25,000 research fee plus $50,000 authorization fee | With the change of control filing |
OCIF investigates the proponents, meaning every owner, director, and officer, before it issues a permit to organize. Each proponent submits a sworn personal history, financial statements, and source of funds documentation, and consents to background checks. The regulator approves people, not paperwork.
The Act 60 Tax Decree
The IFE license and the Act 60 decree are two separate approvals from two separate agencies. OCIF issues the license. The Department of Economic Development and Commerce (DDEC) issues the decree. The decree is a contract with the Government of Puerto Rico with a 15 year term, renewable for a further 15 years, and it provides:
- 4 percent fixed income tax rate on IFE income
- 100 percent exemption on distributions to owners who are not residents of Puerto Rico
- 6 percent rate on distributions to owners who are residents of Puerto Rico
- 75 percent exemption from property taxes
- 50 percent exemption from municipal license taxes
The decree application runs in parallel with the licensing process and is usually filed once the permit to organize is in hand. Read more about Puerto Rico tax incentives under Act 60.
Two Routes to an IFE License: Acquire or Apply
A prospective IFE owner can purchase an existing licensed entity or apply for a new license. Both routes end with the same OCIF investigation of the owners, which is the step most people underestimate.
| Criterion | Acquisition of an existing IFE | Initial application |
|---|---|---|
| Approval standard | Full investigation of the new owners (change of control) | Full investigation of the proponents |
| Purchase price | Negotiated premium to the seller | None |
| Supervisory record | Inherited, including any deficiencies | New |
| Decree term | Unexpired remainder of the seller decree, subject to transfer approval | Full 15 years plus 15 |
| Business plan | Must be reconciled with the existing approved plan | Written to the intended model |
| Staff and systems | In place | Built during organization |
| Estimated time to operations | 20 to 24 months | 18 to 22 months |
Transfers of an IFE license or of control without prior OCIF authorization are void by statute. In practice, the initial application is the lower cost route and often the faster one when no suitable target has already been identified, and it delivers a clean supervisory record and a full decree term. An acquisition makes sense when a specific target with staff, systems, and correspondent banking in place is available at a sensible price.
The IFE Licensing Process, Stage by Stage
A new IFE application moves through three phases and ten stages. The following schedule reflects a conservative 18 to 22 month path from engagement to license to operate.
| Phase | Stage | Months |
|---|---|---|
| Phase 1: Preparation | 1. Structure and formation of the applicant entity | 1 to 4 |
| 2. Business plan and five year financial projections | ||
| 3. Capital commitment and source of funds documentation | ||
| 4. BSA/AML compliance program, policies, and manuals | ||
| 5. Proponent files and filing with OCIF | ||
| Phase 2: Investigation | 6. OCIF investigation, deficiency responses, and meetings | 4 to 14 |
| 7. Permit to organize | 14 to 15 | |
| Phase 3: Organization and licensing | 8. Organization: office, eight employees, compliance officer, board, systems, correspondent bank, unencumbered assets | 14 to 20 |
| 9. Capital paid in, final OCIF inspection, license to operate | 19 to 22 | |
| Parallel track | 10. Act 60 tax decree through DDEC | 10 to 20 |
The investigation phase is the longest and the least controllable. Its length depends on the quality of the filing, the complexity of the ownership structure, and the speed of the proponents in answering deficiency letters, which carry 30 day response windows.
What an IFE License Costs
Three categories of cost apply, and only one of them is an expense.
1. Capital retained by the entity
The $10,000,000 of paid-in capital and the $1,000,000 of unencumbered assets remain assets of the IFE. They are not spent. For a deposit-taking IFE, capital may be invested in the categories of investments permitted to national banks under Act 273, Section 10(5), such as US Treasury and agency securities, investment grade bonds, and bank deposits. Speculative securities, including digital assets, are excluded from paid-in capital under Section 2(e).
2. Statutory fees
$50,000 on filing and $50,000 on licensing, with DDEC filing fees for the decree and $25,000 per year thereafter.
3. Professional fees
Legal work on a new application is billed hourly by stage. For illustration only, a bottom-up estimate of roughly 390 attorney and paralegal hours across the ten stages, at a purely illustrative blended rate of $300 per hour, produces professional fees in the range of $117,000 over the life of the engagement, with the heaviest concentration in Phase 1. Actual fees depend on the ownership structure, the business model, the number of proponents, and the number of OCIF question rounds. The free guide below sets out the hours stage by stage.
Digital Assets: What an IFE Can and Cannot Do
This distinction is misunderstood more often than any other. Act 273, Section 10(10), permits an IFE to provide custody of digital assets for its clients with a no-objection letter from the Commissioner, and several licensed IFEs serve digital asset businesses. Act 273, Section 11(8), prohibits an IFE from operating a virtual currency exchange. 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. A business plan that places exchange activity inside the IFE will not be approved. Read more on blockchain compliance in Puerto Rico.
Is an IFE Right for You? A Readiness Checklist
- Capital of $10,000,000 plus $1,000,000 is held, traceable, and documented to its origin
- Every owner is willing to be identified, investigated, and fingerprinted
- No owner, director, or officer has adverse regulatory, criminal, or credit history
- The client base is outside Puerto Rico
- No virtual asset exchange activity is planned inside the IFE
- An office and eight employees in Puerto Rico are part of the budget
- A US dollar correspondent bank relationship is identified or realistically attainable
- An 18 to 22 month path to license is acceptable
If every item is checked, the matter is ready for a preliminary evaluation. If two or more are open, the guide explains what each one takes to close.
Frequently Asked Questions
Can a Puerto Rico IFE serve United States clients?
Yes. An IFE may serve any person who is not a resident of Puerto Rico, which includes residents of the fifty states. The restriction is on Puerto Rico residents, with narrow exceptions.
Is the $10,000,000 capital requirement in addition to the $1,000,000 in unencumbered assets?
Yes. The two requirements are separate. Paid-in capital of $10,000,000 is contributed to the entity, and $1,000,000 of unencumbered assets is pledged to the Commissioner. Total funds required are $11,000,000.
How long does it take to get an IFE license in Puerto Rico?
A conservative estimate for a new application is 18 to 22 months from engagement to license to operate. An acquisition typically runs 20 to 24 months once the search, diligence, and change of control approval are counted.
Can I buy an existing IFE license instead of applying?
An existing IFE can be acquired, but the transfer of control requires prior OCIF authorization and a full investigation of the buyers. A transfer without authorization is void. The buyer also inherits the supervisory record of the seller.
Can an IFE operate a cryptocurrency exchange?
No. Section 11(8) of Act 273 prohibits an IFE from operating a virtual currency exchange. An IFE may provide digital asset custody with a no-objection letter from the Commissioner under Section 10(10).
Does the IFE owner need to move to Puerto Rico?
No. The entity needs a physical office, eight employees, and a compliance officer in Puerto Rico. Owners may reside anywhere, and distributions to non-resident owners are fully exempt under the Act 60 decree.
What is the tax rate for an IFE?
Under an Act 60 decree, 4 percent on IFE income, with a 100 percent exemption on distributions to non-resident owners, a 75 percent property tax exemption, and a 50 percent municipal license tax exemption, for a 15 year term renewable once.
Christian M. Frank Fas, Esq. is a Puerto Rico licensed attorney with over 25 years of commercial and business law experience. He is admitted before the Supreme Court of Puerto Rico, the United States District and Bankruptcy Courts for Puerto Rico, Colorado, Nebraska, and New Mexico, and the United States District Court for the Southern District of Texas. About the firm.
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