Puerto Rico not only offers unmatched natural wonders and a vibrant culture, it also provides unique advantages in its structure than allows autonomy over unique incentives. Local legislation known as Act 60, or the Puerto Rico Incentives Code, was enacted in order to promote, attract and develop key industries, sectors and activities. This legislation organized previously existing incentives while providing a single point of reference for them.
In general some of these benefits include the following:
- 4% income tax on income generated from eligible activities
- 0% distribution of dividends rate
- 75% exemption from personal and real property taxes
- Personal and real property in the process of construction shall be 100% exempt during the construction period
- 50% exemption from municipal license tax, municipal excise taxes or any other municipal taxes
- 75% exemption from municipal construction excise taxes, which also covers contractors and subcontractors
The Incentives Code offers a wide spectrum of economic incentives, among them low fixed income tax rates, partial and/or total tax exemptions, income tax credits, and special deductions. Additionally, it provides tax benefits for the manufacturing, tourism, construction, telecommunications, export services, renewable energy, film, banking and financial services industries, among others. Additional benefits are available for small- and medium-sized businesses established in the municipal islands of Vieques and Culebra.
Additionally, the Incentives Code provides for a broad range of industries to be considered eligible for tax incentives:
Individuals – Chapter 2
The Incentives Code provides tax exemptions and tax credits to eligible individuals residing in Puerto Rico, including qualified medical physicians and resident investors. Formerly known as Act 22-2012, individuals that may classify for a tax exemption under Chapter 2 of the Incentives Code include qualified medical physicians, professionals of difficult recruitment per their expertise and resident individual investors.
Exportation of Services – Chapter 3
Under Chapter 3, formerly known as Act 20-2012, the Incentives Code provides tax exemptions and tax credits to businesses engaged in eligible activities in Puerto Rico. Such activities range from:
- Research and development;
- Advertising and public relations;
- Consulting services within economic, scientific, environmental, technological, managerial, marketing, human resources, computer and auditing industries;
- Creative industries, music and film production;
- Production of blueprints, architectural and engineering services, and project management;
- Professional services such as legal, tax and accounting services;
- Centralized management services, including, but not limited to, strategic direction, planning, distribution, logistics and budgetary services carried out by the headquarters or similar regional offices of an entity engaged in rendering such services;
- Centers for electronic data processing;
- Development of licensee computer software;
- Voice and data telecommunications between persons located outside of Puerto Rico;
- Shared services centers, including, but not limited to, accounting, finance, tax, auditing, marketing, engineering, quality control, human resources, communications, electronic data processing, and other centralized management services;
- Educational and training services;
- Hospital and laboratory services;
- Investment banking and other financial services, including but not limited to, asset management, management of investment alternatives, management of activities related to private capital investment, management of hedge funds and high risk funds, management of pools of capital, management of trusts that serve to turn different types of assets into stocks, and management of escrow accounts;
- Marketing centers
Financial, Investment & Insurance Services – Chapter 4
Chapter 4 of the Puerto Rico Incentives Code, effectively consolidates all tax incentives available for different economic activities in a single point of reference, including the provisions previously existing under the Private Equity Funds Act (Act 185-2014) and the Regulatory Act for the International Financial Centers (Act 273-2012)
Tourism & Visitor’s Economy – Chapter 5
Formerly grouped under Act 74 of 2010, the Incentives Code also gathers significant tax incentives and tax credits for the tourism and the visitor’s economy, in order to propel Puerto Rico’s spectacular geography and culture forward as a leading attraction in the industry.
Manufacturing – Chapter 6
One of the key objectives of the Incentives Code is to offer manufacturing, research and development and high technology industries incentives so that they can preserve and expand their investment in Puerto Rico. Chapter 6 provides tax incentives to businesses that are established in Puerto Rico for manufacturing products on a commercial scale and to businesses engaged in a wide range of specific economic activities.
Infrastructure and Green Energy – Chapter 7
Tax incentives and credits grouped under the Green Energy Incentives Act, or Act 83 of 2010, are now gathered under Chapter 7 of the Incentives Code. Green Energy includes “sustainable renewable energy”, waste to energy, landfill gas, full cells, among others) and alternative renewable energy, solar, wind or geothermic energies, qualified hydroelectric energy among others.
Agriculture – Chapter 8
Chapter 8 of the Incentives code provides incentives to businesses that are established in Puerto Rico as an agro-industrial business, with aims to promote high-technology farming as well as research & development.
Creative Industries – Chapter 9
The Incentives Code provides tax exemptions and credits for film projects in pre-, current or post- production, as well as projects intended to air, as commercial or as an exhibition, to the general public outside of Puerto Rico, including feature films, short films, documentaries, TV series, commercials broadcast outside of our jurisdiction, video games, reality shows, film festivals, music videos and more.
Entrepreneurship – Chapter 10
Tax benefits are available to young entrepreneurs who qualify as starters of new businesses, and include exemptions for up to the first $500,000 of net income.
Other Industries – Chapter 11
Tax exemptions are also available for public carries of air transportation, as well as maritime cargo transportation entities.
Disclaimer: Circular 230: This article was not written to be used, is not intended to be used and cannot be used by any taxpayer for purposes of avoiding United States federal income tax penalties that may be imposed. This material is written not to support the promotion or marketing of any transaction. We are providing the foregoing disclaimer to satisfy obligations we have under Circular 230, governing standards of practice before the IRS.
Disclosure: Taxpayers are urged to consult their tax advisers regarding specific questions as to U.S. federal or Puerto Rico taxes or as to the consequences of doing business in Puerto Rico and the application of these laws to their particular circumstances. The content of this article has been prepared for educational purposes. Its intention is not, and it does not constitute, legal advice. It is recommended to everyone who reads this information to seek advice from his/her lawyer and/or financial advisor before carrying out any transaction described here.