Puerto Rico Tax Incentives - Act 20 | Act 22

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Tax Incentives Defined

Few places on earth offer a return on investment the way Puerto Rico does. With an every-growing array of services and emerging industries, part of your success will be directly attributable to the incentives available.

In order to bolster the manufacturing sector as well as other strategic areas, the Puerto Rico government has created an aggressive economic and tax incentives program with the purpose of helping operations on the island become more profitable to those companies who manufacture here.

These incentives were created to ensure Puerto Rico’s competitiveness in attracting investments and they are an opportunity for companies all over the world, particularly those dedicated to state-of-the-art technologies and added value.

In addition, the law promotes investments on research and development and initiatives from the academic and private sectors by granting credits and exemptions for these activities. Furthermore, it helps to decrease operational and energy spending for companies moving to the island in order to help their operations remain profitable and efficient.

Overview of Incentives

Below is a brief overview of incentives based on the following key business sectors

  • Manufacturing
  • Export Services
  • Individual Investors
  • Agriculture
  • International Finance and Insurers
  • Film and Creative Services
  • Hospitality and Hotel Development
  • Education and Training
  • Foreign Trade Zones
  • Housing Incentives
  • Energy Incentives

Manufacturing

  •  4% income tax on industrial development income
  • 0% to 1% tax rate on income for pioneer or novel products manufactured in PR
  • Up to 50% tax credit on purchases of products manufactured or recycled locally
  • Up to $5,000 for each job created during 1st year of operation
  • Up to 50% tax credit on Research and Development activities
  • Special deductions on investments from structures, machinery and equipment
  • Marketing incentives program available to pre-qualified companies whose sales are greater than $100,000 per year

Export of Services - Act 20

The Export Services Act (Act 20 of 2012) looks to establish and develop in Puerto Rico an international export services center. This act seeks to encourage local service providers to expand their services to persons outside of Puerto Rico, promote the development of new businesses in Puerto Rico and stimulate the inbound transfer of foreign service providers to Puerto Rico.

The tax benefits are as follows:

  • 4% corporate tax rate, which may be reduced to 3%
  • 100% tax exemption on dividends or profit distributions from export services businesses
  • 100% exemption on property taxes for certain export service businesses services
  • Decree of 20 years, renewable for an additional 10 years, guaranteeing these rates

For ALL information on Act – 20: Export Services Act

Individual Investors Act - 22

The Individual Investors Act (Act 22 of 2012) seeks to attract new residents to Puerto Rico by providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico.   To qualify, the new resident must not have been a resident of Puerto Rico at any time from January 16, 1997 through January 16, 2012.  Benefits are as follows: 100% tax exemption on interest and dividend income for New Residents of Puerto Rico, 100% tax exemption on all long-term capital gains accrued after becoming a New Resident.

For ALL information on Act – 22: Individual Investors Act

Agriculture

  • Bona fide farmers qualify for the following tax benefits:
  • 100% exemption on taxes for agricultural equipment
  • 100% exemption on property taxes (land, buildings, vehicles, etc.)
  • 100% exemption on municipal taxes
  • 100% exemption on stamp payments to PR’s Treasury Department and fees to register a property
  • 90% exemption on earning contribution from agricultural activity
  • 50% tax credit for investment in eligible agricultural busines
  • Annual bonus for agricultural workers
  • Wage subsidy program to eligible farmer

For more information on the Agro incentives or how to apply: ddec.pr.gov

International Finance & Insurers

International Insurers, Branches, and International Insurer Holding Companies receive attractive tax treatment:
International Banking Entities (IBE) incentives:

Tax & Rate 

  • Income Tax – 0%
  • Branch Profit Tax – 0%
  • Dividends/Other distributions of profits – 0%
  • Distributions in liquidation – 0%
  • Municipal License Tax – 0%
  • Property Tax – 0%

In addition, they are not required to file tax returns, and the revenues to non-residents are also exempt from taxation. A response to a complete application presented to the Insurance Commissioner’s Office is granted within 60 days.

Film Industries - Creative Services

Puerto Rico’s amazing locations, state-of-the-art equipment, post-production and sound recording facilities, along with one of the highest tax credit programs in the world, allow you to produce your film in Puerto Rico from start to finish.
Act for the Development of the Film Industry Production Incentives:

  • 40% tax credit on all payments to Puerto Rico Residents
  • 20% tax credit on all payments to Non-Resident Talent (including stunt doubles).
  • No principal photography requirements (full or partial development, pre-production and post-production may qualify)
  • No per project or individual wage caps
  • No cap on credits for payments to Non-Residential Talent

Requirements to receive the 40% and 20% tax credit

  •  Spend a minimum of $100,000 in payments per project to Puerto Rico Residents, including equipment, crew travel and accommodations ($50,000 for short films).
  • 20% tax credit payments made to Non-Resident Talent are subject to a 20% withholding over their Puerto Rico income.

Any project in the development, pre-production, production, or post-production phase that is carried out in Puerto Rico partially or fully is eligible. Qualifying media projects: feature films; short films; documentaries; television programs; series in episodes; mini-series; music videos; national and international commercials; video games; recorded live performances; and original sound track recordings and dubbing.

Infrastructure Incentives

  • 25% tax credit on development or expansion costs of eligible infrastructure projects
  • Minimum investment of $5 million per project
  • Maximum aggregate annual cap of $10 million and lifetime cap of $150 million for all infrastructure credits

Preferential Tax Treatment

Persons engaged in qualifying media and infrastructure projects as well as operators of studios and other purpose-built media facilities with a budget equal to or greater than $50 million (including their suppliers), are eligible for the following preferential tax rates or exemptions:

  • Fixed income tax rate of between 4% and 10%
  • 100% exemption on dividend taxes
  • 90% exemption from municipal and state taxes on property
  • 100% exemption from municipal license taxes, excise taxes and other municipal taxes

Film Investment Fund:

  •  Financing for locally produced short films, feature films and documentaries.

For more information on the Film incentives or how to apply: ddec.pr.gov

Hospitality & Hotel Development

Puerto Rico’s tax incentives package offers hotel developers a competitive advantage over other destinations. The “Tourism Development Act of Puerto Rico” – (Act No. 74 of 2010) depicts the parameters of such benefits: Benefits under this law will remain valid for a period of 10 years from the starting date of the eligible tourism-related project, and the business operation will be entitled to a 10-year extension:

  • Tax credit of 10% of the total project cost, or 50% of cash from investors (whichever is lowest)
  • 100% exemption on municipal construction excise tax
  • 100% exemption on taxes on imported goods and sales tax
  • 100% exemption on municipal licenses
  • 90% exemption on income tax
  • 90% exemption on property tax

For more information on other Tourism development incentives: seepuertorico.com

Education & Training

The Workforce Investment Act includes incentives such as:

  • Up to 50% of the salary of on-the-job training participants
  • Up to 50% of the salary of participants in customized training
  • 100% of training costs and up to 50% of the participants salary for combined training programs
  • 100% of the cost of retraining employees to handle new tasks and up to 50% of the salary of the participant’s during the retraining period

Foreign Trade Zones

Puerto Rico has the largest non-contiguous Foreign Trade Zone (FTZ) system in the United States. The system allows companies to obtain significant financial savings, since raw material, components, and packaging can be transported tax-free throughout these zones and items shipped abroad after processing are exempt from U.S. taxes. Benefits include:

  • Deferment of federal customs duties
  • Deferment of Puerto Rico excise taxes
  • 100% exemption on Municipal License Taxes on exports outside the United States
  • 100% exemption on tangible property and equipment used
  • 60% exemption on the value of the property that is designated intangible
  • 100% exemption on exports from the zone and sub-zones

 2013: Incentive Legalities Defined - puertoricosothebysrealty.com