Tax Incentives

Puerto Rico has a lot more to offer than ever before.

Since January of 2012, the Government of Puerto Rico signed into law Act 20 and Act 22, as well as other tax incentives, to urge investors to move to the Island to do business, while becoming a center for exportation of international services throughout the world.

According to the Department of Economic Development and Commerce of the Government of Puerto Rico, and due to the Island’s favorable tax and cost structure, as well as solid infrastructure, Act 20 was designed to provide the appropriate environment and opportunities to make Puerto Rico a center for international services. In order to do so, the Act is focused on encouraging local service providers to expand their businesses by offering their services to clients located outside the Island. Also, it aims to convince foreign services providers to move their businesses to Puerto Rico.

Puerto Rico, officially the Commonwealth of Puerto Rico, is a self- governing, territory of the United States, located in the northeastern Caribbean, east of the Dominican Republic and west of both the US Virgin Islands and the British Virgin Islands.

Act 20

The Export Services Act or Act 20 was established to promote the exportation of services, by providing the appropriate environment and opportunities to make Puerto Rico a center for international services. In order to do so, the Act is focused on encouraging local service providers to expand their businesses by offering their services to clients located outside the Island. Also, it aims to convince foreign services providers to move their businesses to Puerto Rico.

Act 20 offers a four (4)% corporate tax rate for Puerto Rican businesses providing services for exportation, 100% tax-exempt dividends from earnings and profits derived from the export services income of eligible businesses, and a 60% exemption on municipal taxes.

Since there are special rules provided for the year of the move from the United States to Puerto Rico, investors are encouraged to follow them closely in order to take full advantage of the new laws and its benefits.

Act 20 offers:

4% corporate tax rate
100% tax-exempt dividends
60% exemption on municipal taxes
20-year decree guaranteeing these rates
No federal taxes on Puerto Rico source income

Act 22

The Individuals Investors Tax Act of 2012 or Act 22 was established to promote the relocation of individual investors to Puerto Rico, in order to attract new residents to the Island by providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents. On the long run, the goal is to attract new local investments in real estate, services, and capital injections to the Puerto Rico banking sector, in order to accelerate the Island’s economy.

The incentives under Act 22 of 2012, which will expire on December 31, 2035, include 100% tax-exemption on dividends and interests and a 100% tax exemption on short-and long-term capital gains, after becoming residents. To become a new bona fide resident of Puerto Rico, an individual must have physical presence in the Island for at least 183 days of the year and must not have been a resident in Puerto Rico for the 15 years prior to the Act’s effective date.

Tax experts and financial counselors working with international firm BDO, both in Puerto Rico and through offices around the world, have powerful knowledge and current updates to assist new investors through the process of establishing both their residences and businesses in Puerto Rico.

Act 22 offers:

0% tax on dividend and interest income for new Puerto Rico residents
0% tax on short-and-long term capital gains for new Puerto Rico residents
0% federal taxes on Puerto Rico source income
Incredible tax savings on your investment portfolio returns
82°F weather all-year round and 300 miles of paradise beaches

Act 273

Another important legislation that was conceived as a complimentary one to Acts 20 and 22 was The International Financial Center Regulatory Act (Act 273 of 2012).

This law was enacted with the objective of making Puerto Rico an international banking and financial center by providing tax incentives for new banking and financial activity in Puerto Rico that is done for clients outside of Puerto Rico.

The tax incentive offer is mainly a four (4)% income tax rate for new banking and financial businesses established in Puerto Rico under qualifying circumstances.

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

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.

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

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).