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 11: Other Incentives

Section 2110.01.- Exemptions for Air Carriers.

(a) Eligibility.- It is hereby provided that a business established or to be established in Puerto Rico by a Person engaged in air transportation services as a carrier, may apply to the Secretary of the DEDC for the tax benefits provided in subsection (b) of this Section.

(b) Tax Benefits.-

(1) Income Taxes.-

(i) In General- The net income derived from the eligible activities described in subsection (a) of this Section shall be exempt during the effective period of the Decree.

(2) Real and Personal Property Tax.-

(i) In General.- Air Carriers shall be exempt from state, local, and municipal taxes, whatever their name or nature, on all real or personal property now owned or hereafter acquired by it, including all taxes or excises taxes on equipment or supplies.

(A) Any aircraft and the equipment related thereto, leased and owned by a public carrier engaged in air transportation services shall be exempt from all property taxes; provided, that it is established to the satisfaction of the Secretary of the DEDC and the Secretary of the Treasury that such property is being used for such purpose.

(B) These exemptions shall not include the excise taxes on fuels nor the fee that Act No. 82 of June 26, 1959, authorized the Ports Authority to levy on all aviation gasoline, all fuel products for use and consumption in propelling air transportation vehicles and any blend of gasoline with other fuel products for use and consumption in the propelling of air transportation vehicles, to be consumed in air travel between Puerto Rico and other places or in air travel within the territorial limits of Puerto Rico.

(3) Municipal Taxes.-

(i) In General.- Air Carrier Contractors and subcontractors shall be exempt from any tax, levy, duty, license, excise tax, rate or tariff imposed by any municipal ordinance on the construction of works to be used by such air carriers within a municipality. Said taxes shall not include the municipal license tax imposed on the volume of business of a contractor or subcontractor of an air carrier, during the authorized exemption period.

Section 2110.02.- Exemptions for Ocean Freight Carriers

(a) Eligibility.- It is hereby provided that a business established or to be established in Puerto Rico by a Person, or combination thereof, whether or not organized under a common name, may apply to the Secretary of the DEDC for a Grant when the Entity establishes in Puerto Rico to engage in any of the following eligible activities:

(1) Ocean Freight Shipping between ports in Puerto Rico and ports in foreign countries.

(2) The lease or chartering of vessels used for said mode of transportation or property of any other kind, real and personal, used in connection with the operation of said vessels when the mode of transportation meets the requirements of subsection (c) of this Section.

(b) Tax Benefits.-

(1) Income Taxes.-

(i) In General.- Net Income derived from Eligible Shipping Activities described in subsection (a) of this Section shall be exempt from income taxes during the entire exemption period.

(2) Distributions.-

(i) The distribution of dividends or benefits by a corporation or partnership availing itself of the provisions of this Subchapter, that has not enjoyed or is not enjoying industrial tax exemption and that, on the date of commencement of the exempt shipping operations it has accumulated a taxable surplus, shall be considered as made from the undistributed balance of said surplus, but after said surplus is exhausted by virtue of such distribution, the provisions of subparagraph (iii) of this paragraph (2) shall apply.

(ii) The distribution of dividends or benefits by a corporation or partnership that has enjoyed or is enjoying industrial tax exemption shall be considered as made from the surplus accumulated during the period in which it has enjoyed or is enjoying industrial tax exemption and shall be governed by the provisions of the laws under which they have been governed. After such surplus is exhausted, the provisions of subparagraph (iii) of this paragraph (2) shall apply.

(iii) Except as otherwise provided in subparagraphs (i) and (ii) of the preceding paragraphs, the distribution of dividends or benefits by a corporation or partnership availing itself of the provisions of this Chapter shall be considered as derived from the earnings or profits most recently accumulated and shall be exempt in the same proportion in which the income was exempt, for the following persons:

(A)  Domestic Persons; or

(B)  Nonresident aliens that are not required to pay in any jurisdiction outside of Puerto Rico any tax on the income derived from any source in Puerto Rico;

(C) Nonresident aliens that, by reason of the laws of their country of residence, cannot take, as a deduction from income or as a credit against the tax payable in said country on the dividends or benefits derived from a corporation or partnership exempt under this Code, the tax which would be imposed on them in Puerto Rico on such dividends or benefits; or

(D) Nonresident aliens that, by reason of the laws of their country of residence, can only take partially, as a deduction from income or as a credit against the tax payable in said country on the dividends or benefits derived from a corporation or partnership exempt under this Code, the tax which would be imposed on them in Puerto Rico on such dividends or benefits. The exemption provided in this Section shall apply only to such portion of the income tax which may be imposed in Puerto Rico on dividends or benefits as may not be deductible from the income or creditable against the tax to be paid in such country on such dividends or benefits.

(E) Any person who wishes to avail himself of the provisions of clauses (C) and (D) above, shall submit to the Secretary of the DEDC a translated, certified or authenticated copy, in Spanish or English, of the laws or regulations in effect of his country of residence, specifically stating the provisions of such laws or regulations that apply to his case, with any other information or proof showing that said person qualifies under the clauses (C) and (D) above.

(3) Real or Personal Property Taxes.- Vessels and property of any other kind, real or personal, used in connection with an eligible business, shall not be subject to municipal or state taxes on real and personal property, during the effective period of the Decree.

(4) Municipal Taxes.- Eligible Businesses shall be exempt from the payment of municipal license taxes, excise taxes, and other taxes imposed pursuant to any municipal ordinance, during the effective period of the Decree.

(c) Requirements.- In the evaluation, analysis, consideration, granting, renegotiation, and review of any incentive or benefit granted under this Section, the Secretary of the DEDC shall determine that such exemption is necessary and convenient for the promotion of the economy and welfare of the People of Puerto Rico, because:

(1) it shall provide greater Ocean Freight Shipping facilities between ports in Puerto Rico and ports in foreign countries; and

(2) it shall provide such specific services as the Government of Puerto Rico may deem necessary for the promotion of the economy and welfare of the People of Puerto Rico.

Section 2110.03.- Incentives for the Puerto Rico Cruise Ship Industry.

(a) The main objectives of this incentive for the cruise ship industry are the following:

(1) to reaffirm and strengthen the importance of Puerto Rico as a regional and world cruise ship home port;

(2) to increase the number of cruise ships arriving in Puerto Rico;

(3) to increase the stay of cruise ship passengers in lodgings throughout all the regions and municipalities of Puerto Rico, as well as on the islands that comprise its archipelago (Vieques, Culebra, and others);

(4) to increase the number of visits and the volume of passengers in the cruise ships that visit Puerto Rico;

(5) to promote consumption on the Island by passengers and crew members, including expenses related to the acquisition of supplies and other operating expenses of cruise ships arriving in the Island;

(6) to generate and increase profits for the different economic segments of Puerto Rico connected directly or indirectly with the cruise ship industry; and

(7) to offer incentives on equal terms to all cruise lines and establish partnerships with every cruise line so as to maximize the promotion of Puerto Rico as a tourist destination and improve the relationship with the cruise ship industry in general.

(b) Fund Administration.-

(1) The DEDC shall prescribe in the Incentives Regulations, all that pertains to the form and manner in which the incentives provided in this Section shall be applied for and granted, in order to ensure a sound administration of public funds.

(2) The DEDC shall be required to ensure that the funds allocated to the Fund are used in accordance with the regulations it establishes. Eligibility - Cruise ship companies or operators that visit any port in the jurisdiction of Puerto Rico may be eligible for these benefits. Only cruise ship owners and operators, Entities engaged in the sale of travel deals established in Puerto Rico or abroad, and organizations authorized by the DEDC to collect passengers at piers, as the case may be, shall be entitled to apply for these incentives; provided, that the agencies or agents thereof in Puerto Rico have authority to apply for, process, and receive such benefits as part of the business relationship with those they represent.

(c) Benefits.-

(1) Incentive for Cruise Ship Companies:

(i) For cruise ships that dock in a port in the jurisdiction of Puerto Rico, four dollars and ninety-five cents ($4.95) shall be deducted from the thirteen dollars and twenty-five cents ($13.25)-tax imposed per passenger as fixed by the head or administrative authorities of the ports of Puerto Rico. This incentive shall apply to the first one hundred forty thousand (140,000) passengers arriving in any port of Puerto Rico in the company’s cruise ships within the twelve (12)-month period of the fiscal year, beginning Fiscal Year 2019-2020. Likewise, seven dollars and forty-five cents ($7.45) per passenger shall be deducted when the company has exceeded such number of passengers. If the port tax is less than the thirteen dollars and twenty-five cents ($13.25)-tax, four dollars and ninety-five cents ($4.95) shall be deducted from the tax applicable to said port. If there is any reduction in the official flat tax rate, the incentive herein provided shall be reduced in the same proportion.

(2) Home Port Frequent Visit Incentive:

(i) The following amounts shall be contributed:

(A) One dollar ($1.00) per passenger to cruise ship companies or operators that use any port in the jurisdiction of Puerto Rico as home port.

(B) Two dollars ($2.00) per passenger after the twenty- first (21st) visit of the cruise ship company within a fiscal year period. As of the fifty- third (53rd) visit of the cruise ship company within a Fiscal Year period, the cruise ship company shall receive a contribution of three dollars ($3.00) per passenger.

(C) An additional fifty cents ($0.50)-contribution per passenger, to cruise ship companies or operators that use any port in the jurisdiction of Puerto Rico as home port from Monday through Friday, inclusively.

(D) In addition to the incentives stated above, any cruise ship that uses any port in the jurisdiction of Puerto Rico as home port, and also visits one or more ports in the jurisdiction of Puerto Rico in the same week, shall receive fifty cents ($0.50) in addition to any of the incentives provided in this clause.

(E) Any cruise ship that uses any port in the jurisdiction of Puerto Rico as home port, and departs twice a week from the same port shall receive fifty cents ($0.50) in addition to any of the incentives provided in this clause.

(F) Every home port cruise ship that departs from the Port of San Juan before 4:00 P. M. shall receive an incentive of one dollar and fifty cents ($1.50) per passenger.

(G) The total contributions established in this Code shall never exceed thirteen dollars and twenty-five cents ($13.25). Any balance in excess of said amount shall not be paid. If there is a reduction or increase in this tax, the maximum contribution shall be proportionally adjusted.

(3) Cruise Ship Home Port Bilateral Marketing Program:

(i) A Bilateral Marketing Program between the DEDC and the eligible cruise ship company (hereinafter, the Marketing Program) shall be created for the purpose of placing Puerto Rico as the home port of the Caribbean and incentivize its worldwide demand. The sum of one dollar ($1.00) per passenger shall be contributed to each Marketing Program in cruise ships departing from any port of the jurisdiction of Puerto Rico during the fiscal year period beginning in Fiscal Year 2019-2020; provided, that to qualify for such incentive, the cruise ship company shall contribute a apportion of the amount of the incentive claimed to its Marketing Program, as prescribed by the DEDC in the Incentives Regulations, pursuant to this Code.

(4) Port of Call Time Incentive.

(i) The sum of one dollar and fifty cents ($1.50) per passenger shall be contributed to ships in transit docking at any port of the jurisdiction of Puerto Rico for at least eight (8) hours and pay the applicable tax to said port during a fiscal year period. This incentive shall require the cruise ship to dock before 11:00 A.M. If it docks after 11:00 A.M., one dollar ($1.00) shall be contributed; provided, that the cruise ship is docked for eight (8) hours in the port.

(ii) The funds required to grant the incentives provided hereunder shall originate from the Incentives Fund, and shall be administered by the DEDC.

(5) Supplies and Services Incentive.

(i) Every cruise ship that docks in any port in the jurisdiction of Puerto Rico shall be eligible to receive an incentive equal to ten percent (10%) of the expenses incurred in the purchase of supplies or hiring shall apply maintenance or repair services for the cruise ship in Puerto Rico, excluding materials, goods, or equipment installed as a result of such service, as specified in the regulations adopted by the DEDC. An additional five-percent (5%) shall be offered for the acquisition of goods manufactured in Puerto Rico as certified by the Puerto Rico Industrial Development Company, or agricultural products of Puerto Rico as certified by the Department of Agriculture.

(ii) The services set forth herein shall exclude docking services required by the cruise ships in each port of call.

(iii) Cruise ship owners or operators that comply with these provisions shall receive these benefits after presenting evidence, to the satisfaction of the aforementioned agencies that the purchases were made from companies in which fifty percent (50%) or more of their Shareholders are Puerto Rico residents or that said companies manufacture fifty percent (50%) or more of the sold goods. In the case of companies engaged in the rendering of services, as defined by the DEDC, the employees rendering such services shall be Puerto Rico residents. Transshipment or transfer of goods directly to cruise ships from ports where ships carrying food or beverages dock shall not constitute an activity incentivized or eligible for this incentive. Vendors and service providers shall also be certified by the DEDC and shall comply with all applicable circular letters, administrative orders, and regulations.

(iv) The funds for the incentives to be awarded hereunder shall originate from the Incentives Fund.

(d) The incentives herein provided shall be granted by the DEDC, as the case may be, to the appropriate company, operator, or agent within a period not to exceed thirty (30) days after submitting the invoices, in accordance with the appropriate regulations. Should the DEDC and the Puerto Rico Ports Authority be in disagreement with regard to any invoice item, such disagreement shall not prevent the payment of any other item in the invoice that has not been objected. Likewise, the DEDC shall be responsible for notifying the requesting Entity within said thirty (30)-day period about any objection to any invoice item stating the reasons that support the objection.

(e) Incentives for Organizations Authorized to Offer Tourist Transportation in Piers.

(1) Any tour operator authorized by the DEDC to offer tours or tourist transportation in the piers of Puerto Rico where it collects and drops off passengers, shall be entitled to provide its services and contract directly with cruise ship companies and may receive a basic contribution of one dollar ($1.00) per cruise ship passenger that purchases a tour in the cruise ship in which he travels. Tour operators may receive a special contribution of four dollars ($4.00) for each cruise ship passenger that purchases a tour in the cruise ship in which he travels; provided, such tour includes a visit to the municipalities of Vieques and Culebra. The special contribution for tours to Vieques and Culebra shall be in addition to the basic contribution. The DEDC may change the contribution per passenger, as resources allow, the need to incentivize the purchase of these tours, and the market competitiveness.

(2) Any tour operator authorized by the DEDC to offer tourist transportation in the pier area shall be eligible to receive the benefits provided in this paragraph; provided, that it complies with the provisions of this Section and the regulations promulgated thereunder.

(3) The Secretary of DEDC shall be empowered to prescribe by regulations, the form and manner in which these incentives shall be granted as well as the tour operator certification that applicants must obtain from the DEDC.

(f) Funding.- The funds to grant incentives under this Sections shall originate from the Economic Incentives Fund and shall be administered by the DEDC.

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