PUERTO RICO ECONOMIC INCENTIVES

BRIEF SUMMARY
THE GOVERNMENT OF PUERTO RICO ECONOMIC INCENTIVES AND THE
UNITED STATES GOVERNMENT EB-5 IMMIGRANT INVESTOR PROGRAM

  1. Act 73, May 28, 2008, Economic Incentives for the Development of Puerto Rico Act

Purpose: Provide the appropriate environment and opportunities for the continued development of a local industry, offer an appealing tax program to attract foreign direct investment, and promote economic development for Puerto Rico. Created primarily to support manufacturing operations on the Island.

Provides tax incentives, exemptions, tax credits, and other benefits to eligible activities:

  • 4% corporate tax rate
  • 1% tax rate for pioneer activities
  • 12% tax rate on royalties and licenses fees received by corporations not engaged in business in PR, derived from sources within PR
  • 100% exemption on income derived from eligible investment (dividends and interest)
  • 20-year decree guaranteeing these rates

 

  1. Act 20, January 17, 2012, Act to Promote the Export of Services

Purpose: Promote the export of services, expand the number of local services providers to clients outside of Puerto Rico, and attract foreign services providers to establish operations in Puerto Rico.

It states the Government of Puerto Rico’s public policy to encourage and support a services industry on the Island, aiming at the exportation of a wide range of services. In accordance with this policy, it establishes a reduced tax rate on income and certain exemptions on property taxes in order to encourage local service providers to expand their businesses by offering their services to clients located outside of Puerto Rico, as well as attract foreign service providers to establish their businesses to the Island.

Provides tax incentives, exemptions, tax credits, and other benefits to eligible activities:

  • 4% corporate tax rate
  • 100% tax exempt dividends
  • 60% exemption on municipal taxes
  • 90% on real and property taxes
  • 20-year decree guaranteeing these rates

 

  1. Act 22, January 17, 2012, Act to Promote the Relocation of Individual Investors to Puerto Rico

Purpose: Attract individual investors to establish residence in Puerto Rico as new residents and encourage former residents and professionals to return to the Island. Such relocations should result in new local investments and in foreign capital injections to boost local economic development for Puerto Rico.

Provides tax incentives and other benefits after such individuals become bona fide residents of Puerto Rico:

  • 0% tax on dividend and interest income for new PR residents
  • 0% tax on short- and long-term capital gains for new PR residents
  • 0% Federal taxes on PR source income

 

  1. Act 273, September 25, 2012, The International Financial Center Regulatory Act

Purpose: Expand the potential market of the International Financial Center of Puerto Rico, regulate the organization and operations of the International Financial Entities (IFEs) in Puerto Rico as authorized by the Office of the Commissioner of Financial Institutions, provide tax benefits, allow the issuance of tax decrees, establish penalties, and other related purposes.

Provides tax incentives, exemptions, and other benefits to eligible activities:

  • 4% income tax rate
  • 6% tax rate on dividends (from earnings and profits derived from the IFE) for shareholders or partners that are PR residents
  • 100% PR dividend tax exemption (from earnings and profits derived from the IFE) on distributions to non-PR residents
  • 100% exemption on municipal taxes
  • 100% on real and property taxes
  • 15-year decree guaranteeing these rates

 

  1. Act 399, September 22, 2004, International Insurers and Reinsurers Act

Purpose: Establish the legal basis to develop Puerto Rico as an International Insurance Center (IIC), position and promote Puerto Rico as an important player in the international insurance market, and provide a competitive environment to facilitate the establishment of entities, insurers and reinsurers, that export and import insurance and insurance industry related services.

Provides tax incentives, exemptions, and other benefits to eligible activities:

  • 0%-4% corporate tax rate; $1.2 million tax exemption on net income with a preferential 4% tax rate on net income on top of $1.2 million
  • 100% exemption on dividends and capital gains distributed by the international insurer or international insurer holding company
  • 100% exemption on municipal taxes
  • 100% on real and property taxes
  • 15-year decree guaranteeing these rates

 

  1. ACT 27, March 4, 201, Puerto Rico Film Industry Economic Incentives Act

The Act provides tax exemptions and tax credits to businesses engaged in film production in Puerto Rico. To avail from such benefits, a business needs to become an exempt business by applying for a tax concession and obtaining a tax exemption decree.

Eligible media projects and related requirements are as follows:

  • Feature films; short films; documentaries; television programs; series in episodes; mini-series; music videos; commercials, both international and national; video games; recorded live performances; and original soundtrack recordings, and dubbing;
  • $100,000 minimum spend requirement per project ($50,000 for short films);
  • No principal photography requirement: full development, partial development, pre-production, and post-production are eligible activities; and
  • No per project or individual wage caps.

 

The Act offers the following tax credits:

  • 40% tax credit on all payments to Puerto Rico resident companies and individuals
  • 20% tax credit on all payments to non-resident “Above the-Line” talent, including actors, producers, directors, and writers
  • 25% infrastructure tax credit on costs incurred in the development of a film studio or other eligible infrastructure project

 

  1. The EB-5 Immigrant Investor Program of the United States Government Applicable to Puerto Rico

The United States Citizenship & Immigration Services (USCIS) has designated Puerto Rico as an EB-5 Regional Center.

Purpose: Attract immigrant investors interested in obtaining U.S. citizenship. Non-U.S. nationals can obtain a visa or resident card ‘green card’ for themselves and their families (spouses and unmarried children under the age of 21) by investing at least US$500,000 to start a new business, or in a current business, that creates or preserves at least ten (10) full-time jobs. The jobs must be created or preserved within the two-year period after the investor has received their conditional permanent residency.

After five years of holding the conditional permanent residency, the investor becomes eligible to apply for U.S. citizenship.

Other incentive acts approved by the Government of Puerto Rico to serve as economic development stimulus in various sectors include:

  • Cruise Industry Incentives Act (Act 113, July 4, 2011)
  • Green Energy Incentives Act (Act 82 and 83, July 9, 2010)
  • Incentives for Business Activity Performed in Vieques and Culebra (Act 118, 2010)
  • Incentives for Rum Producers in Puerto Rico (Act 178, December 1, 2010)
  • Municipal Economic Development and Tourism Incentives Act (Act 118, August 1, 2010)
  • Puerto Rico Housing Incentives (Act 34, July 2013)
  • Tax Exemption for Scientists (Act 101, June 27, 2009)
  • Puerto Rico Tourism Development Act (Act 74, July 10, 2010)