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 10: Incentives for Entrepreneurship

Section 2100.01.- Young Entrepreneurs.

(a) Eligibility.- It is hereby provided that every Young Entrepreneur who enters into a Youth Business Creation Agreement, as defined in this Code, with the Secretary of the DEDC may enjoy the financial benefits described in this Section.

(b) Tax Benefits.-

(1) Income Taxes.- New businesses as required in subparagraphs (i) through (iii) of paragraph (1) of subsection (c) of this Section, operating under a Young Entrepreneurs agreement entered into with the Secretary of the DEDC shall be entitled to an income tax exemption for the first five hundred thousand dollars ($500,000) of their net income subject to taxation. Any net income generated by new businesses in excess of first five hundred thousand dollars ($500,000) shall be subject to the regular tax rates established in the Puerto Rico Internal Revenue Code.

(i) Shareholders of an Exempt Business holding a Decree under subsection (a) of this Section, shall be subject to the income tax provided in Puerto Rico Internal Revenue Code on distributions of dividends or benefits of said Eligible Business’ net income.

(2) Personal Property Tax- New businesses operating in accordance with this Section shall enjoy full tax exemption on the real property of the new business during the exemption period described in this Section.

(3) Municipal Taxes- New businesses operating in accordance with this Section shall be exempt from municipal taxes during the exemption period described in this Section.

(4) Exemption Period- New businesses shall enjoy the tax exemption provided in this Chapter during the first three (3) years from the commencement of operations, as established in the tax exemption Decree.

(5) The tax exemptions granted to a Young Entrepreneur under this Chapter shall not be granted, even if the applicant meets the requirements, if said Young Entrepreneur is availing himself of tax or economic incentives granted under any law or Chapter under this Code. If during the effective term of the Agreement, a Young Entrepreneur avails himself of any law granting tax or economic incentives, including the incentives provided in this Code, it shall be understood that said Young Entrepreneur waives the benefits provided in this Chapter.

(c) Requirements.-

(1) New businesses of Young Entrepreneurs who wish to avail themselves of the tax benefits provided under this Chapter shall comply with the following:

(i) The business shall begin its main business operations after entering into a Youth Business Creation Agreement with the Secretary of the DEDC.

(ii) The business shall be operated solely by Young Entrepreneurs;

(iii) No business that has been operating through Affiliates or resulting from a reorganization, as defined in Puerto Rico Internal Revenue Code, shall be considered a new business.

(iv) Benefits shall be limited to only one new business per each Young Entrepreneur.

(v) Any other requirement prescribed by the Secretary of the DEDC in the Incentives Regulations.

Section 2100.02.- Support to Small- and Medium-sized Businesses through the Preferential Rent Program.

(a) Eligibility.- Any natural or juridical person, including corporations, partnerships, limited liability companies, or any other Entity or organization that is doing business or that intends to do business in Puerto Rico, regardless of its place of organization, that is a SMB.

(b) Economic Benefit - Preferential Rent Program – Any SMB, through the process set forth in Incentives Regulations, may lease an eligible DEDC property, among which unused properties may qualify, to establish operations and shall pay an annual rent of one dollar ($1) during the first three (3) years of the lease. The DEDC shall prescribe through the Incentives Regulations, guidelines for leasing their properties. The lease agreement shall include all the usual terms and conditions for this type of agreement and shall comply with all the legal provisions applicable to the lease of DEDC properties. The applicable rent, once the three (3)-year period ends, shall be the prevailing rent at the time the lease agreement is executed.

Section 2100.03.- Business Incubator Program

(a) For purposes of this Section, the term “Business Incubator” means an organization or Entity established and certified by the Secretary of the DEDC to promote the startup of new businesses or to accelerate the growth of early stage enterprises by providing entrepreneurs the resources and services needed to produce feasible businesses that help to comply with public policy of the Government of Puerto Rico on job creation, and to revitalize weak areas. This definition does not include for profit organizations or Entities.

(b) The DEDC shall explore new ways to stimulate the expansion of business incubators in Puerto Rico through the adoption of the incentives set forth in this Code to strengthen entrepreneurial self-management on the Island, by providing the training needed for the creation of sustainable business that generate new jobs. For such purposes, the Secretary may grant incentives for:

(1) The development of feasibility studies and plans for the creation or expansion business incubators;

(2) The implementation of said studies and plans to support the creation or expansion business incubators, together with the adequate technical and programmatic assistance;

(3) The temporary support of business incubators’ operations to the extent it is determined that such support is essential to enable business incubators to become self-sustainable.

(c) The Secretary of the DEDC shall prescribe through regulations, the criteria and requirements to be considered in any competitive process for the selection of the applicants eligible for the incentives, including requirements related to:

(1) The number of jobs to be created during the first five (5) years after the date of receipt of the incentive;

(2) The funds required to create or expand a business incubator during the first five (5) years after the date of receipt of the incentive;

(3) The types of businesses and research entities that are expected to participate in the business incubator and the surrounding community;

(4) Letters of intent from businesses and research entities to establish a space within the business incubator; and

(5) Any other factor deemed appropriate by the Director to further the public policy and purposes of this Code.

(d) The funding for the benefits provided in this Section shall originate from the Economic Incentives Fund.

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