Act 60: Puerto Rico Tax Incentives

Puerto Rico's unique structure makes it a part of the US system but gives it autonomy over its own financial affairs. This allows it to grant unique incentives for investors.

All acts and incentives were combined into one act, Act 60, in July 2019. Act 60 has a number of chapters of incentives covering various aspects of the  economy, as well as sections on tax credits.

This is not intended as legal or tax advice. We are not accountants or lawyers. We do our best to give you enough information to get started and recommend you check everything with licensed professionals. If you are aware of any errors on the site, please let us know.

Chapter 1: General Incentives

Section 2011.01.- General Provisions.

The benefits of this Subchapter shall generally apply to Exempt Businesses under this Code, except as otherwise provided in this Chapter 1 and the following Chapters of this Subtitle B.

Section 2011.02.- Income Tax.

(a) Income Tax.

(1) In general- The Exempt Income generated in the eligible activities of an Exempt Business under this Code shall be subject to a preferential flat income tax rate of four percent (4%), in lieu of any other income tax, if any, provided in the Puerto Rico Internal Revenue Code or any other law. For purposes of this exemption, any funds from an insurance policy for business interruption that covers the eligible activity of an Exempt Business, shall be deemed to be Exempt Income.

(b) Distributions.

(1) The stockholders or partners of a corporation or partnership that

is an Exempt Business holding a Decree granted under this Code shall not be subject to the payment of income taxes on distributions of dividends or profits from the Exempt Income of said Exempt Business, or in the case of an Exempt Business other than a domestic corporation, on distributions of dividends or profits from the income from sources outside Puerto Rico generated by the Exempt Business, as provided in the Puerto Rico Internal Revenue Code.

(2) Attribution of Exempt Distributions.-

(i) The distribution of dividends or profits made by an Exempt Business holding a Decree granted under this Code, even after its Decree has expired, shall be deemed to have been made from its Exempt Income if, on the date of the distribution, it does not exceed the undistributed balance of accrued Exempt Income, unless the Exempt Business, when preparing the distribution information statement, chooses to distribute the dividend or profit, totally or partially derived from other earnings or profits. The amount, the year of accrual, and the nature of the distribution from Exempt Income thus made shall be as designated by said Exempt Business through notice delivered together with the payment thereof to its stockholders or partners, and as notified to the Secretary of the Treasury, through an information statement not later than February 28 following the year of the distribution.

(3) In those cases where an Entity that as of the date of commencement of operations as an Exempt Business has accrued earnings or profits, the distributions of dividends or benefits made as of said date shall be deemed to be made from the undistributed balance of said earning or profits, however, once the balance is exhausted by such distributions, the provisions of paragraph (1) shall apply.

(4) Subsequent distributions from Exempt Income made by any Entity shall also be exempt from all taxation.

(c) Deduction and Net Operating Loss Carryover.-

(1) Deduction for Current Loss Incurred in Activities Not Covered by an Exemption Decree.- If an Exempt Business holding a Decree granted under this Code incurs net operating losses other than operations declared exempt under this Code, computed without the benefit of the deduction provided in Sections 2062.06 and 2072.06, when such deductions are applicable, said losses shall be used solely against income not covered by an exemption Decree and shall be governed by the provisions of the Puerto Rico Internal Revenue Code.

(2) Deduction for Ongoing Loss Incurred in the Operation of an Exempt Business.- If an Exempt Business holding a Decree granted under this Code incurs net operating losses declared exempt under this Code, computed without the benefit of the special deduction provided in Sections 2062.06 and 2072.06, when such deductions are applicable, said loss may be deducted from its Industrial Development Income of the operation that incurred the loss.

(3) Deduction for Loss Carried Over from Previous Years.- A deduction for loss incurred in previous years shall be granted as provided below:

(i) The excess over losses deductible under paragraph (2) of this subsection may be carried over against the Exempt Income of subsequent taxable years. Losses shall be carried over in the order they were incurred.

(ii) Any net loss incurred in a year in which an election of the flexible tax exemption provided in Section 2011.05 of this Code is in effect, may be carried over only against the Exempt Income generated by the Exempt Business, under the Decree under which an election under Section 2011.05 of this Code was made. Losses shall be carried over in the order they were incurred.

(iii) Once the exemption period has expired for income tax purposes, net losses incurred in an exempt operation under this Code, as well as any excess of the deduction allowed under Sections 2062.06 and 2072.07, when the Exempt Business is carrying over such applicable deductions as of the expiration date of said period, may be deducted from any taxable income in Puerto Rico, subject to the limitations provided in Subtitle A of the Puerto Rico Internal Revenue Code. Said losses shall be deemed to be incurred in the last Taxable Year in which the Exempt Business holding a Decree granted under this Code enjoyed the income tax exemption under the Decree.

(iv) The amount of the net operating loss to be carried over shall be calculated pursuant to the provisions of Section 1033.14 of the Puerto Rico Internal Revenue Code. In the case of Exempt Businesses holding a Decree granted under Chapter 6 of Subtitle B of this Code, in addition to the exceptions, additions, and limitations provided in said Section, the loss shall be adjusted by the Eligible Investment Income of said Exempt Business.

(d) Tax Payment- In the absence of a provision to the contrary, taxes withheld or payable shall be held or paid in the form and manner provided by the Puerto Rico Internal Revenue Code for the payment of income taxes and withholdings in general.

Section 2011.03.- Property Taxes.

(a) An Exempt Business under this Code shall have a seventy-five percent (75%) exemption on the real and personal property tax provided in Act No. 83-1991.

(b) Tax Rate.- During the term of the Decree, the taxable portion shall be subject to the tax rate in effect as of the date the Decree was signed, regardless of any subsequent amendment made to the Decree.

(c) Real and Personal Property “Construction in Progress” (CIP).- Any Real and Personal Property “Construction in Progress” shall have a total exemption from real and personal property taxes during the construction period in lieu of the terms and requirements provided in the “Municipal Property Tax Act.”

Section 2011.04.- Municipal Taxes

(a) The income generated from the eligible activities of an Exempt Business under this Code shall have a fifty percent (50%) exemption on municipal taxes, that is, on municipal license taxes, municipal excise taxes, and other municipal taxes imposed through a municipal ordinance.

(b) Tax Rate.- During the term of the Decree, the taxable portion of the volume of business shall be subject to the tax rate in effect as of the date the Decree was signed, regardless of any subsequent amendment made thereto.

(c) Exemption for the First Semester.- The Exempt Business holding a Decree granted under this Code shall have full exemption from the municipal licenses taxes applicable to the volume of business of said Exempt Business during the semester of the Government’s Fiscal Year in which the Exempt Business commences operations in any municipality, pursuant to the provisions of the “Municipal License Tax Act.”

(d) Statute of Limitation for Assessment and Collection of License Taxes.- Any Exempt Business under this Code or under Prior Incentive Laws may waive the benefit of a five percent (5%) discount for paying in advance, as provided in Section 11 of the “Municipal License Tax Act,” and pay in full the municipal license tax on the date provided by said Act. Provided, that in the case of Exempt Businesses that opt to pay in advance and waive the discount, the statute of limitations to assess and collect the license tax imposed under the “Municipal License Tax Act” shall be three (3) years from the filing date of the Declaration of Volume of Business, in lieu of the terms provided in subsections (a) and (b) of Section 19 of the “Municipal License Tax Act.”

(e) Capital Gains.- The net capital gains as well as any other net gain realized from the sale of any asset or property used in the exempt operations shall be subject to municipal taxes (license taxes), in the taxable portion, only to the extent of the amount of the net gains, if any, in lieu of the terms provided in the “Municipal License Tax Act.”

(f) Construction Excise Taxes.- An Exempt Business holding a Decree under this Code and its contractors and subcontractors shall have a seventy-five percent (75%) exemption from any tax, levy, fee, license, construction excise tax, excise tax, duty, or tariff imposed by any municipal ordinance on construction works to be used by said Exempt Business in its operations, without it being understood that said taxes include the municipal license taxes imposed on the volume of business of the contractor or subcontractor of the Exempt Business. When the exemption provided in this subsection is applicable to those Decrees granted under this Code or Prior Incentive Laws, it shall be understood that: (1) a construction work shall be used by an Exempt Business insofar as it is conducted within the premises of the operation and to facilitate the operations of the Exempt Business, regardless of whether the Exempt Business possesses said premises or any part thereof as owner, through a lease or by any other means and, (2) for such purposes, neither the Exempt Business for whose benefit the construction is being carried out, nor its contractors or subcontractors, shall need to present a certification issued by a municipality as evidence of having paid the construction excise taxes for the issuance of any permit.

Section 2011.05.- Flexible Tax Exemption.-

The Exempt Businesses holding a Decree under this Code shall have the option of choosing the specific taxable years to be covered under their Decrees in terms of their Exempt Income, provided, that they notify to the Secretary of the DEDC and the Secretary of the Treasury not later than on the date established in the Puerto Rico Internal Revenue Code for filing their income tax return for said Taxable Year, including the time extensions granted for this purpose. Once said Exempt Businesses opt for this benefit, their exemption period shall be extended for income tax purposes for the number of taxable years in which they have not enjoyed the Decrees.

SUBCHAPTER B – SMALL- AND MEDIUM-SIZED BUSINESSES (SMBs)

Section 2012.01.- Tax Exemption.

An Exempt Business that is a New SMBs in accordance with the provisions of this Code shall enjoy all the benefits provided in this Subchapter in addition to being subject to the provisions applicable to said Exempt Business under this Code. A Successor Business of a SMBs shall not qualify for the benefits provided for in this Subchapter. The Exempt Income of a New SMB shall be subject to a flat income tax rate of two percent (2%) for a term of five (5) years, and four percent (4%) for the remaining period of the Decree. Moreover, the New SMB shall enjoy a one hundred percent (100%)-exemption from real and personal property taxes, as well as from municipal taxes for the first five (5) years of the Decree. For the remaining exemption period, the New SMB shall enjoy a seventy-five percent (75%)- exemption from real and personal property taxes, and a fifty percent (50%)- exemption from municipal taxes.

Section 2012.02.- Credit for Purchasing Products Manufactured in Puerto Rico.-

An Exempt Business that is a New SMB may apply to the DEDC for a Tax Credit for Purchasing Products Manufactured in Puerto Rico of up to thirty percent (30%) of the purchases of such products, subject to the provisions of Sections 3000.01 and 3000.02 of this Code.

SUBCHAPTER C – VIEQUES AND CULEBRA

Section 2013.01.- Businesses Operating in Vieques and Culebra.

The Benefits of this Subchapter shall apply solely to the operations conducted by an Exempt Business in the island municipalities of Vieques or Culebra, subject to the criteria and limitations prescribed by the DEDC and the Department of the Treasury in the Incentives Regulations. The Exempt Businesses shall enjoy the benefits provided under this Subchapter in addition to being subject to the provisions applicable to said Exempt Businesses under this Code.

Section 2013.02.- Tax Benefits.

The Exempt Income generated from the activities carried out by an Exempt Business in the island municipalities of Vieques and Culebra shall be subject to a flat income tax rate of two percent (2%) for a period of five (5) years, and four percent (4%) for the remaining period of the Decree. Moreover, the Exempt Business shall enjoy a one hundred percent (100%)- exemption from real and personal property taxes, as well as from municipal taxes for the first five (5) years of the Exemption Decree. For the remaining exemption period, the Exempt Business shall enjoy a seventy-five percent (75%)- exemption from real and personal property taxes, and a fifty percent (50%)- exemption from municipal taxes.

Section 2013.03.- Credit for Purchasing Products Manufactured in Puerto Rico.-

(a) The provisions of Sections 3020.01 and 3000.02 of this Code notwithstanding, an Exempt Business under this Code operating in the island municipalities of Vieques or Culebra, but only during the period it is operating from the island municipalities of Vieques or Culebra may request the DEDC a Tax Credit for Purchasing Products Manufactured in Puerto Rico of up to thirty percent (30%) of the purchases of such products, subject to the provisions of Section 3000.01 and 3000.02 of this Code.

(b) The credit provided for in this Section shall be non-transferrable, except in the case of an exempt reorganization. The amount of the credit that is unused by the Exempt Business within a taxable year may be carried over to subsequent taxable years until it is exhausted. This credit shall not generate a refund.

SUBCHAPTER D – OTHER INCENTIVES

Section 2014.01.- Strategic Projects.

The Secretary of the DEDC, with the favorable recommendation of the Secretary of the Treasury, shall have the authority to prescribe in the Incentives Regulations those activities and projects that shall be deemed to be strategic for purposes of this Code. Moreover, as part of the Government’s human resources reform, the Secretary of the DEDC, with the favorable recommendation of the Secretary of the Treasury, shall be empowered to grant incentives, through the Economic Incentive Fund and other sources that promote job development and creation in high-impact industries deemed to be Strategic Projects. The Secretary of the DEDC and the Secretary of the Treasury shall ensure that the incentives are in the best interest and geared to the social and economic wellbeing of Puerto Rico.

Section 2014.02.- Novel Pioneering Activity.

(a) The Secretary of the DEDC shall prescribe in the Incentives Regulations such economic activity that has not been produced or carried out or conducted in Puerto Rico before the twelve (12) months ending on the date on which the exemption on the novel pioneering activity was requested, and that said activity has special characteristics, attributes, or qualities that would have a beneficial impact on the socioeconomic development of Puerto Rico, including a profile of the jobs to be created by the aforementioned novel pioneering activity.

(b) Determination of Novel Pioneering Activity.- To determine whether an activity constitutes a novel pioneering economic activity, the Secretary of the DEDC shall consider the economic impact that said activity would have on Puerto Rico, based on priority factors, in particular: (i) The degree or level of use and integration of research and/or development activities to be conducted in Puerto Rico; (ii) the tax impact that the novel pioneering activity may have in Puerto Rico; (iii) the nature of the activity with a particular interest in those that increase the competitiveness in global markets, that requires or brings about the development of the innovation capacities as well as the investment of additional capital in Puerto Rico; (iv) the investment of capital in the plant, machinery and equipment; (v) the uniqueness of the novel pioneering activity in Puerto Rico for the international market; (vi) the technological improvements that shall be a part of the operation with a particular interest in the implementation of emerging or cutting-edge technologies; and (vii) any other factor that warrants the recognition of the activity as a novel pioneering activity, seeing as the activity shall serve the best economic and social interests of Puerto Rico.

(c) The income of a Novel Pioneering Activity shall be subject to a flat preferential income tax rate of four percent (4%) which may be reduced up to one percent (1%), when the Secretary of the DEDC, upon previous favorable recommendation from the Secretary of the Treasury, determines that said rate shall serve the best economic and social interests of Puerto Rico. The Secretary of the DEDC shall prescribe in the Incentives Regulations such rules as are necessary to determine what would constitute a Novel Pioneering Activity as well as establish the requirements of the information that must be submitted to the Secretary of the DEDC.

Download the Act

Act 60 English
Download
Act 60 Spanish
Download

Make Your Plan

Plan your tax strategy, incorporate your companies, file for your decree and find your perfect home. Whether you want to do it yourself, work with the best service providers, or a combination of both, our custom guide will walk you through every step.

Get Started

Join a Unique Community

Get access to all our research,  get tips on incentives and relocation, and join a unique community of Puerto Rican and mainland experts

Get Started