Puerto Rico

Tax Incentives Defined

El Morrow | Old San Juan


F
ew 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 local 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.

 

Puerto Rico, the smallest isle of the Greater Antilles and with a population of approximately 4 million, boasts one of the most dynamic economies in the Caribbean. With a GNP of approximately $64.84 billion, the island has the highest GNP per capita of Latin America. For the past 50 years, the island has been a manufacturing powerhouse. Many of the top prescription drugs in the U.S. as well as medical devices are manufactured in Puerto Rico. In the financial sphere, Puerto Rico is home to one of the most sophisticated financial markets in the hemisphere. The island has a vibrant mutual funds market of $14 billion and financial firms on the island manage client assets that exceed $34 billion. Yet, as a place for doing business, Puerto Rico is still a well-kept secret.

 

As a Commonwealth of the U.S., Puerto Rico enjoys fiscal autonomy, which means that it can offer very attractive tax incentives not available on the mainland U.S. Yet, all federal laws apply to Puerto Rico. We share a common currency, common military defense and citizenship with the U.S. No passports are needed to travel to and from the U.S. mainland. This is a formidable combination in which the investor has access to alluring incentives, while the investments are safeguarded by:

 

  • The prevailing rule of law.
  • The lack of currency risk.
  • Puerto Rico’s political stability.
  • Low country risk. 

 

The island has been part of the U.S. since 1898 and those born in Puerto Rico have been citizens of the U.S. since 1917. Yet, because Puerto Rico is not a state, federal taxes do not apply generally to income generated by individuals or corporations within the Commonwealth. Puerto Rico corporations are treated for federal tax purposes as foreign corporations and are not generally subject to U.S. corporate taxes. Individual bona-fide residents of Puerto Rico are not subject to federal taxes on income derived from Puerto Rico sources. In addition, Puerto Rico has provided incentives for manufacturing operations for over four decades. Products manufactured in Puerto Rico carry the Made in USA label.

 

In 2008, a new Economic Incentives Act for the Development of Puerto Rico (hereinafter, Act 73 or Economic Incentives Act) went into effect. Also during the year 2012, two additional laws where enacted: Act 20 and Act 22, promoting the export of services from Puerto Rico and the transfer of wealthy individuals to Puerto Rico. These new laws established a legal framework of incentives designed to stimulate the establishment and development of a wide array of ventures, among them manufacturing, social media, other internet-based operations, commercial businesses, and the export of services.

 

 
Puerto Rico Tax 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 qualified companies whose sales are greater than $100,000 per year

Export Services

The Export Services Act 20 (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
 

Almost all services provided for export are eligible including research and development, advertisement and public relations, consulting, investment banking, asset management and other financial services, and professional services such as legal, accounting, architectural and engineering services.

Individual Investors

The Individual Investors Act 22 (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. 

The Act provides the following benefits to new Puerto Rico bona-fide residents on qualified investments:

  • 100% tax exemption from Puerto Rico income taxes on all dividends
  • 100% tax exemption from Puerto Rico income taxes on all interest
  • 100% tax exemption from Puerto Rico income taxes on all short-term, and long-term capital gains accrued after the individual becomes a bona- fide resident of Puerto Rico (“Puerto Rico Gain”).

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, Here

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%

 

Film & Creative Services

Our 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 PR 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, Here.

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: Here

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 noncontiguous 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

 

Renewable Energy (Green Energy Fund)
  • Rebates of up to 60% of eligible costs for Tier 1 (0-100 kW) and up to 50% for Tier 2 (101 kW-1MW)
  • 60% refund on acquisition and installation costs incurred during the installation of renewable energy equipment for residential properties and small businesses (50% for other businesses).

Information

Puerto Rico Sotheby's International Realty

1.787.523.6500

puertoricosothebysrealty.com

puertoricotaxincentives.com

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