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 5: Incentives for the Visitor Economy

SUBCHAPTER A – ELIGIBILITY

Section 2051.01.- Business Engaged in Tourist Activities.

(a) Any new or existing business engaged in a Tourist Activity not covered by a resolution or tax exemption decree conferred under the “Tourist Incentives Act,” Act No. 52 of June 2, 1983, as amended, the “Puerto Rico Tourist Development Act,” Act No. 78-1993, as amended, or the “Puerto Rico Tourism Development Act of 2010,” Act No. 74-2010, as amended, or if being covered, waives such resolution or exemption Decree in favor of a Decree under this Chapter, shall be deemed an Eligible Business which may enjoy the benefits of this Chapter.

(b) Tourist Activity means:

(1) the ownership or administration of:

(i) Hotels, including the operation of Casinos, Condo Hotels, Puerto Rican Paradores, Agri-Lodgings, Guest Houses, Timeshares and Vacation Clubs, lodgings that participate in the “Posadas de Puerto Rico” program, certified as Bed and Breakfast (B&B), and any other lodgings that, from time to time, participate in the programs promoted by the Tourism Office. Timeshare or vacation club ownership, or both per se, shall not be deemed to be a Tourist Activity, unless the owner is the creating Developer or a successor Developer, as such terms are defined in Act No. 204-2016, known as the “Puerto Rico Vacation Ownership Act”; or

(ii) Theme parks, golf courses operated by or associated with a Hotel that is an Exempt Business under this Code or any other similar law, or golf courses located within a tourist destination or resort, Tourist Marinas, docking facilities for tourists, Agritourism, Nautical Tourism (it being provided, however, that any Marinas in the Island Municipalities of Vieques and Culebra shall be deemed to be Tourist Marinas for purposes of this Chapter), Medical Tourism, and other facilities or activities that, due to the special attractive features deriving from their usefulness as a source of active or passive entertainment or amusement, constitute a stimulus to domestic or foreign tourism, and any other tourism sector, insofar as the Secretary of the DEDC determines that such operation is necessary and convenient for the development of tourism in Puerto Rico; or

(iii) The operation of a business engaged in leasing to an Exempt Business under this Chapter, of property devoted to an activity covered under subparagraphs (i) or (ii) of this paragraph, except that none of the provisions herein shall apply to contracts known as financial lease contracts. When leasing one or more vessels to an Exempt Business covered under this Chapter, the sail or motor vessel must be leased to such Exempt Business for a total period of not less than six (6) months during each calendar year.

(iv) The development and administration of sustainable tourism and ecotourism businesses, as provided in Act No. 254-2006, as amended, known as the “Puerto Rico Sustainable Tourism Development Public Policy Act,” and the development and administration of useful natural resources as a source of active or passive entertainment or amusement including, but not limited to, caves, forests and natural reserves, lakes, and canyons, insofar as the Secretary of the DEDC determines that such development and administration is necessary and convenient for the development of tourism in Puerto Rico.

(v) eSports and Fantasy Leagues activities.

SUBCHAPTER B – TAX BENEFITS

Section 2052.01.-Income Taxes.

(a) The Tourist Development Income derived from Exempt Businesses that hold a Decree under this Chapter shall be subject to a preferential flat tax rate of four percent (4%) in lieu of any other income tax, if any, provided by the Puerto Rico Internal Revenue Code or any other law.

(b) Distributions from earnings and profits.

(1) General Rule.- Shareholders, partners, or members of an Eligible Business that holds a Decree granted under this Chapter shall not be subject to income tax on distributions of dividends from earnings or profits arising from Tourist Development Income of the Exempt Business. Subsequent distributions from Tourist Development Income made by any Entity filing as a corporation or any partnership shall also be exempt from all taxes.

(2) Distributions described in paragraph (1) above shall also be excluded from:

(i) The alternate basic tax of an individual for purposes of the Puerto Rico Internal Revenue Code;

(ii) The alternative minimum income tax of a corporation for the purposes of the Puerto Rico Internal Revenue Code;

(iii) The surtax on corporations and partnerships for purposes of the Puerto Rico Internal Revenue Code;

(iv) The adjusted net income according to the books of a corporation for the purposes of the Puerto Rico Internal Revenue Code.

(3) Imposition of exempt distributions.- Distributions of dividends or benefits made by an Exempt Business that holds a Decree granted under this Chapter, even after said Decree has expired, shall be deemed to be made from its Tourist Development Income if, at the time of the distribution, it does not exceed the undistributed balance of earnings and profits accrued and arising from its Tourist Development Income, unless said Exempt Business, at the time of the statement, chooses to distribute, totally or partially, the dividend or benefit of other earnings or profits. The amount, year of accrual, and nature of the distribution made from the earnings or profits arising from Tourist Development Income shall be that which is designated by said Exempt Business, through a notice sent, together with the payment, to its shareholders, members, or partners and to the Secretary of the Treasury, in an information statement, in the form established in the Puerto Rico Internal Revenue Code.

(i) In the case of Entities that, on the date of the commencement of operations as Exempt Businesses, have earnings or profits accrued, the distribution of dividends or profits made as of that date shall be deemed to have been made from the undistributed balance of such earnings or profits, but once such balance is exhausted by such distributions, the provisions of this subsection shall apply.

(4) The profits made from the sale, exchange, or other disposal of Entity Stocks or joint venture shares, or substantially all Assets of such corporations, partnerships, or limited liability companies, or joint ventures that are or have been Exempt Businesses, and Entity Stocks or joint venture companies that are in any way the owners of the aforesaid entities, shall be subject to the provisions of subsection (c) of this Section if such sale, exchange, or other disposal is conducted, and any subsequent distribution of such profits, be it as dividends or a distribution in liquidation, shall be exempt from any additional taxes.

(c) Sale or exchange.- If the sale or exchange of Stocks of Entities or joint ventures shares, or substantially, all Assets devoted to a Tourist Activity of an Exempt Business is carried out, and such property continues to be devoted to a Tourist Activity after such sale for a period of at least twenty-four (24) months:

(1) During the exemption period, the profit or loss resulting from such sale or exchange, which shall be recognized in the same proportion as Tourist Development Income of the Exempt Business, shall be subject to the payment of income taxes; the basis of such Stocks or Assets involved in the sale or exchange shall be determined, for purposes of establishing profits or losses, pursuant to the applicable provisions of the Internal Revenue Code in effect on the date of the sale or exchange.

(2) After the expiration date of the exemption, only the profits or losses resulting from the sale or exchange of Stocks shall be recognized in the manner provided in paragraph (1) of this subsection, but only up to the total value of the Stocks in the books of the corporation, partnership, or limited liability company on the expiration date of the exemption (minus the sum of any exempt distribution received over such Shares after said date), minus the basis of such Stocks. The remainder, if any, of the profits or losses shall be recognized pursuant to the provisions of Subtitle A of the Puerto Rico Internal Revenue Code. The profits or losses in the sale or exchange of Assets shall be recognized pursuant to the provisions of Subtitle A of the Puerto Rico Internal Revenue Code.

(3) The requirement of having the property continue to be devoted to a Tourist Activity for a period of at least twenty-four (24) months shall not apply in those cases in which the sale or exchange involves Stocks of an Investor who is not a Developer nor exerts any kind of Control over the Exempt Business.

(d) Flexible Tax Exemption.- Exempt Businesses shall be entitled to choose that their Tourist Development Income for a specific Taxable Year not be covered by the tax exemption provided in subsection (a) of this Section, by attaching a notice to that effect to their tax income tax return for such Taxable Year filed on or before the date provided by the Puerto Rico Internal Revenue Code to file such return, including any time extension granted by the Secretary of the Treasury for the filing thereof. The exercise of this right by means of such notice shall be irrevocable and binding for the Exempt Business. However, the total number of years that an Exempt Business may enjoy the exemption shall not exceed fifteen (15) years.

(e) Tourist Development Income shall not be subject to the following income taxes:

(1) the alternative minimum tax established in Section 1022.03 of the Puerto Rico Internal Revenue Code;

(2) the surtax on corporations and partnerships established in Section 1022.05 of the Puerto Rico Internal Revenue Code; and

(3) the alternate basic tax for individuals established in Section 1021.02 of the Puerto Rico Internal Revenue Code.

(f) Royalties or Proprietary Rights;

(1) Taxes on and Withholding of Royalties paid by an Exempt Business to Corporations, Partnerships, or Limited Liability Companies or Other Foreign Persons Not Engaged in Trade or Business in Puerto Rico.

(i) A tax twelve percent (12%) shall be imposed, charged, and paid for each Taxable Year, in lieu of the tax imposed under the Puerto Rico Internal Revenue Code, on the amount received on account of royalties or proprietary rights for the use in Puerto Rico of any Intangible Property related to the activity exempt under this Chapter, by all foreign corporations, foreign partnerships, or persons not engaged in trade or business in Puerto Rico, originating exclusively from sources within Puerto Rico.

(ii) All Exempt Businesses required to pay royalties or proprietary rights to foreign corporations, foreign partnerships, or persons not engaged in trade or business in Puerto Rico for the use in Puerto Rico of Intangible Property related to the activity exempt under this Chapter, shall deduct and withhold at the source a tax equal to that which is imposed in subparagraph (i) of paragraph (1) of this subsection.

(2) The appropriate tax shall be withheld at the source by an Exempt Business that makes royalty or proprietary right payments for the use in Puerto Rico of any Intangible Property related to the activity exempt under this Chapter and which originate from sources within Puerto Rico.

(g) Exemption for individuals, estates, corporations, partnerships, limited liability companies, and trusts with respect to interest paid or credited on bonds, notes, or other obligations of certain Exempt Businesses.

(1) Exemption.- Any individual, estate, corporation, partnership, limited liability company, or trust shall be exempt from any tax imposed under the Puerto Rico Internal Revenue Code and any other successor law; and any license fee imposed under the “Municipal License Tax Act,” as amended, on income from interest, charges, and other credits received with respect to bonds, notes, or other obligations of an Exempt Business for the development, construction, or rehabilitation or improvements of an Exempt Business under this Chapter, provided that the funds shall be entirely used in the development, construction, or rehabilitation or improvements of an Exempt Business or the payment of existing debts of said Exempt Business, insofar as the funds from these existing debts have been originally used in the development, construction, or rehabilitation or improvements of the Exempt Business. The expenses incurred by any person making an investment as described above shall not be subject to the provisions of Section 1033.17(a)(5), (10), and (f) of the Puerto Rico Internal Revenue Code with respect to such investment and the income derived therefrom.

(2) The proceeds of the bonds, note, or other obligation must be granted directly to an Exempt Business covered under this Chapter.

(h) Deduction and Net Loss Carryover.

(1) If an Exempt Business incurs net losses other than from the operation of a Tourist Activity, said loss shall be deductible and may be used solely against income other than Tourist Development Income and shall be governed by the provisions of the Puerto Rico Internal Revenue Code.

(2) If an Exempt Business incurs net losses while conducting a Tourist Activity, said loss may be deducted up to an amount equal to the percentage of its Tourist Development Income that would have been taxable.

(3) A deduction for a prior year loss carryover shall be granted as provided below:

(i) The excess of losses deductible under paragraph (2) of this subsection may be carried over against the taxable portion of the Tourist Development Income pursuant and subject to the limitations provided in said Section. The losses shall be carried over in the order they were incurred.

(ii) Any net loss incurred in a year in which the election under subsection (d) of this Section is in effect may be carried over only against the Tourist Development Income generated by the Exempt Business in a year in which the election under subsection (d) of this Section was made. Losses shall be carried over in the order they were incurred.

(4) None of these provisions shall limit in any way the right under the Puerto Rico Internal Revenue Code of partners of a special partnership to claim a deduction on their distributable share of the loss incurred by the special partnership against income from other sources subject to the limitations of the Puerto Rico Internal Revenue Code.

(i) Basis or adjusted basis.- For purposes of this Code, except for subsection (d) of Section 3010.01, any reference to the term “basis” or the phrase “adjusted basis” shall require the computation of the same as established in Section 1034.02, 1071.05, or 1114.17 of the Puerto Rico Internal Revenue Code, prior to the adjustments included in this Chapter.

Section 2052.02.- Property Taxes.

(a) Any Property Devoted to a Tourist Activity shall enjoy up to a seventy- five percent (75%) exemption on all municipal and state taxes on real and personal property.

(b) In cases of personal property consisting of equipment and furniture to be used in a lodging facility, except for any commercial unit, and in cases of special Timeshare rights, vacation club property rights or lodging, as said terms are defined in Act No 204-2016, better known as the “Puerto Rico Vacation Ownership Act,” of a Timeshare or Vacation Club Plan duly licensed by the Tourism Office pursuant to the provisions of Act No 204-2016, the personal or real property shall enjoy the exemption provided in this Section, regardless of who is the owner of the equipment, furniture, or real property devoted to a Tourist Activity. Said exemption shall continue to be in effect as long as the exemption granted to the Timeshare or Vacation Club Plan is in effect. The Secretary of the DEDC shall prescribe by regulation the procedure to claim said exemption.

(c) The Stock of an Entity that enjoys an exemption granted under this Chapter shall not be subject to property taxes.

Section 2052.03.- Municipal Taxes.

(a) A New Exempt Business and an Existing Tourism Business that is an Exempt Business shall enjoy up to a fifty percent (50%) exemption on license fees, excise taxes, and other municipal taxes on its Tourist Development Income, transactions, events, or on use, imposed by any ordinance of any municipality.

(b) Except for the provisions of the “Municipal License Tax Act,” no municipality may impose taxes, fees, licenses, excise taxes, or any other kind of charge based on or related to the guest’s stay in an Exempt Business.

Section 2052.04.- Taxes on Use and Consumption Items.

(a) Exempt Businesses shall enjoy up to a one hundred percent (100%) exemption from the taxes imposed under Subtitles C, D, and DDD of the Puerto Rico Internal Revenue Code with respect to those items acquired and used by an Exempt Business relating to a Tourist Activity.

(b) The exemption provided in this Section includes items acquired by a contractor or subcontractor, to be used solely and exclusively by an Exempt Business in construction works related to a Tourist Activity of said Exempt Business.

(c) The exemption granted under this Section shall not apply to items or other property of such a nature that they are part of the inventory of the Exempt Business under Section 3010.01(a)(2)(B) of the Puerto Rico Internal Revenue Code, and which represent property mainly held for sale during the regular operations of the trade or business; nor shall such exemption apply to the tax on hotel room occupancy imposed under Act No. 272-2003, as amended, known as the “Room Occupancy Rate Tax Act.”

(d) The Secretary of the Treasury shall grant a credit or refund for any tax paid on the sale or on the introduction of items sold to Exempt Businesses for use relating to a Tourist Activity in the manner and with the limitations prescribed in the Puerto Rico Internal Revenue Code or any other successor law.

Section 2052.05.- Municipal Excise Taxes on Construction.

(a) All Exempt Businesses and their contractors or subcontractors shall enjoy up to a seventy-five percent (75%) exemption on any tax, levy, fee, license, excise tax, rate, or charge for the construction of works to be devoted to a Tourist Activity within a municipality, imposed by any ordinance of any municipality, as of the date prescribed on the Decree.

(b) Only for purposes of this exemption, any person in charge of performing administrative duties and the physical and intellectual work inherent to the construction of a work to be devoted to a Tourist Activity by an Exempt Business, and any middleman or chain of middlemen between such person and the Exempt Business shall be deemed to be a contractor or subcontractor of the Exempt Business.

(c) In case of Condo Hotels, and only for purposes of this exemption, any person in charge of carrying out administrative duties and the physical and intellectual work inherent to the construction of a Condo Hotel, and any middleman between such person and the owner of a Condo Hotel unit, including the Developer of the Condo Hotel himself, when he has contracted another for the construction of the Condo Hotel, shall be deemed to be contractors of an Exempt Business in terms of each Condo Hotel unit that meets all the requirements to enjoy the benefits available in this Chapter, including, but not limited to, the requirement of devoting the same to an integrated leasing program for at least nine (9) months of the year.

(d) Amount to be taken as exemption in the case of Condo Hotels.- The amount to be taken as an exemption in the case of a Condo Hotel pursuant to this paragraph shall be divided and assigned in terms of every unit of the Condo Hotel according to the proportion of the interest of each unit regarding the common elements of the regime, when all of the units of the Condo Hotel are devoted to a single horizontal property or another regime under the “Puerto Rico Condo Hotel Act,” or by using any prorating method acceptable to the Secretary of the DEDC when the units are devoted to more than one horizontal property regime.

(1) The exemption shall be taken in whole for the year in which it is required to meet the tax liability for the construction. However, it shall be understood that taxpayers shall be entitled to take as an exemption a one hundred-twentieth part of the amount available as assigned prorated exemption in relation to each unit during each consecutive month in which said units are devoted, from the time of their construction, to an integrated leasing program. The exemption taken at the time of the construction and development of the Condo Hotel shall be equal to the total amount of exemption which would be finally obtained on such account in the event that all units of the Condo Hotel are devoted to an integrated leasing program for at least nine (9) months for each of the first fifteen (15) years, namely, one hundred eighty (180) months as of the construction of each unit.

(2) Each year, there shall be a reduction of the amount taken by virtue of the exemption applicable to such units:

(i) Acquired during said year from the Entity that developed or built them and which have never been used for any purpose whatsoever prior to said acquisition and which are not devoted by the acquirer to an integrated leasing program, within the term provided by the Secretary of the DEDC during which said units must be devoted to such a purpose so that they enjoy the benefits of this Chapter; or

(ii) that during said particular year they have not met, for the first time, the requirement of being devoted to an integrated leasing program for at least nine (9) months during said year.

(3) The equivalent of that reduction in the amount taken on account of the exemption may be recovered annually by the municipality from the taxpayers. The amount to be recovered annually shall be computed as follows:

(i) First: The total portion of the exemption assigned pursuant to this paragraph shall be taken for each unit that during said year and that, for the first time, did not meet the requirement of being devoted at least nine (9) months to an integrated leasing program, and the same shall be multiplied by a fraction whose numerator shall be equal to the subtraction of one hundred eighty (180) minus the number of consecutive months during which said unit met the requirement of being devoted at least nine (9) months each year to an integrated leasing program, and whose denominator shall be one hundred eighty (180).

(ii) Second: The results obtained from the corresponding equations for each unit described in the preceding subparagraph shall be added, and the final result thereof shall be the total amount of the exemption taken in excess and subject to recovery that year. Under no circumstance shall any charges, surcharges, penalties, interest, or any other kind of additional fee be imposed or charged with respect to any tax, levy, fee, license, excise tax, rate, or duty, whose amount is required pursuant to the provisions of this paragraph for reasons arising before or at the time it was determined that said exemption does not proceed, whether in whole or in part.

(iii) When computing the number of months said unit was devoted to an integrated leasing program each year, the fractions of the months shall be rounded up to the preceding month.

(4) As a condition of the aforementioned exemption, any municipality, with the previous consent of the Secretary of the DEDC, may request from any taxpayer with respect to the tax, levy, fee, license, excise tax, rate, or duty on the construction of a Condo Hotel, or from those persons who have a proprietary interest on said taxpayers if they are Entities of any type, a security or Bond to ensure the payment of any amount indebted as a tax pursuant to this paragraph.

(5) The operator of the integrated leasing program of a Condo Hotel shall submit an annual report to the director of finances of the municipality or municipalities where the Condo Hotel is located, should said municipality or municipalities impose any tax, levy, fee, license, excise tax, rate, or duty on the construction of said Condo Hotel. Said report shall indicate the dates on which participating units began to participate in the program, as well as the date or dates on which one or more units withdrew from the program.

(6) For purposes of this subsection, should an Investor in a Condo Hotel fail to meet any requirement established in the Decree granted for such a purpose or should the same be revoked for any reason, said Investor shall be deemed to have failed to devote the Condo Hotel unit(s) covered under said Grant to an integrated leasing program. The Secretary of the DEDC shall notify the director of finances of the appropriate municipality, in case an Investor has failed to meet any requirement established in his Decree or if such Decree has been revoked.

(b) In the case of Condo Hotels, it is hereby established that, in order to enjoy the exemption from municipal excise taxes on construction, each Condo Hotel unit must be devoted to an integrated leasing program for nine (9) months a year for a period of fifteen (15) consecutive years. In those cases in which the use of the Condo Hotel project changes and the Condo Hotel units are removed from the integrated leasing program before the term required under this Code, to such effect, insofar as the unit that is an Exempt Business under this Code is immediately devoted to another Tourist Activity that is an Exempt Business under this Code, for not less than the remaining time period under the integrated leasing program. If this condition is not met, the subsequent acquirer of the unit shall be liable for any amount that must be recovered subsequently on account of this tax collected in excess. In such case, no recovery shall be in order for the years in which the unit belonged to an integrated leasing program and was devoted to another Tourist Activity that is an Exempt Business under this Chapter.

Section 2052.06.- Exemption for Fuel Used by the Exempt Business.

(a) Oil by-products (excluding residual No. 6 fuel oil or bunker C) and any other hydrocarbon blend (including propane and natural gases) used as fuel by an Exempt Business under this Chapter to generate electric power or thermal power used by the Exempt Business in connection to a Tourist Activity, shall be completely exempt from taxes under Sections 3020.07 and 3020.07A of the Puerto Rico Internal Revenue Code.

Section 2052.07.- Setting the Date for the Commencement of Operations and the Exemption Periods.

(a) Effective Date of Exemption.-

(1) Income Tax.- The exemptions in this Chapter relating to taxes on the Tourist Development Income of an Exempt Business shall begin as of the date of commencement of its Tourist Activity, but never before the first day of the Taxable Year during which an application to avail itself of the benefits of this Code was duly filed and the appropriate application payment was made.

(2) Real and personal property taxes.- The exemptions in this Chapter relating to the taxes on real and personal property devoted to a Tourist Activity of an existing business that is an Exempt Business shall begin as of January 1st of the Calendar Year during which an application to avail itself of the benefits of this Chapter has been duly filed with the Secretary of the DEDC, together with the appropriate payment, or with regard to a New Tourism Business that is an Exempt Business, as of January 1st of the Calendar Year in which said business commences its Tourist Activity.

(3) License fees, excise taxes, and other municipal taxes.- The exemptions in this Chapter relating to the license fees, excise taxes, and other municipal taxes, shall begin as of January 1st or July 1, whichever date first occurs after the date on which the application to avail itself of the benefits of this Chapter was filed, together with the appropriate payment.

(4) Sales and use taxes and excise taxes.- The exemptions in this Chapter relating to the sales and use taxes and excise taxes shall begin thirty (30) days after having filed an application with the applicable payment to avail itself of the benefits of this Chapter, insofar as a Bond is posted pursuant to the applicable provisions of the Puerto Rico Internal Revenue Code, prior to the commencement date chosen for the exemption and if the aforementioned application has not been denied. If the application for exemption is denied, the taxes mentioned in this paragraph shall be paid within sixty (60) days from the date of notice of the denial.

(5) Municipal excise taxes on construction.- The exemptions in this Chapter relating to municipal excise taxes on construction, shall begin as of the filing date of an application to avail itself of the benefits of this Chapter. In the case of Condo Hotels, contractors and subcontractors shall begin to enjoy the exemption from the time the Developer files the master Decree application in which he describes the nature of the project, and meets such additional requirements as the Secretary of the DEDC may establish for such purposes.

(b) An Exempt Business shall have the option to postpone each of the aforementioned commencement dates by notifying the Secretary of the DEDC to that effect. Such notices shall be filed on or before the date prescribed by regulation promulgated to such effect. Commencement dates may not be postponed for a period that exceeds thirty-six (36) months from the date established in this Section. The Secretary of the DEDC shall issue an order prescribing the commencement dates of the exemption periods under this Code, according to the application of the Exempt Business and pursuant to the regulations promulgated for these purposes.

(c) None of the provisions in this Section shall provide for the refund of taxes assessed, imposed, and collected prior to the dates established as the dates of commencement of operations for purposes of the exemptions provided in this Chapter.

(1) The Secretary of the DEDC shall follow the procedures described in this Chapter and determine whether such exemption is essential for the development of the tourist industry, taking into account the facts stated, the nature of the physical facilities, the number of jobs, the total payroll, the total investment, the location of the project, its environmental impact, the reinvestment in the Exempt Business, whether in whole or in part, of the depreciation taken as a tax deduction, or other factors that, in his judgment, warrant such determination.

SUBCHAPTER C – REQUIREMENTS FOR GRANTING EXEMPTIONS

Section 2053.01.- Requirements for Decree Applications.

(a) Any person who has established or plans to establish an Eligible Business in Puerto Rico may apply for the benefits of this Chapter by filing an application with the Secretary of the DEDC pursuant to the provisions of Subtitle F of this Code.

(b) Any person may apply for the benefits of this Chapter provided that said person meets the eligibility requirements of Subchapter A of this Chapter as well as any other criteria that the Secretary of the DEDC prescribes through regulations, administrative order, circular letter, or any other general communication, including as an evaluation criteria, the Eligible Business’ contribution to the economic development of Puerto Rico. In addition, the evaluation criteria shall take into account the following:

(1) Jobs.- The Tourist Activity and the Exempt Business shall promote the creation of new jobs.

(2) Sound integration.- The conceptual design and planning of the Tourist Activity and the Exempt Business shall be, above all, carried out while taking into account environmental, geographical, and physical aspects, as well as the materials and goods that are abundantly available in the site where it is to be developed.

(3) Commitment to the economic activity.- The Exempt Business shall acquire, to the extent possible, raw materials and Products Manufactured in Puerto Rico for the construction, maintenance, renovation, or extension of the physical facilities thereof. If the purchase of said products is not financially justified when taking into account criteria such as the quality, quantity, price, and availability of these products in Puerto Rico, the Secretary of the DEDC may waive compliance with this requirement and issue a certificate attesting to such facts.

(4) Commitment to agriculture.- The Exempt Business shall acquire, to the extent possible, Puerto Rican agricultural products to be used in its operations. If the purchase of said products cannot be financially justified when considering criteria such as the quality, quantity, price, or availability of these products in Puerto Rico, the Secretary of the DEDC may waive compliance with this requirement and issue a certificate attesting to such facts.

(5) Transfer of knowledge.- The Exempt Business shall, to the extent possible, acquire services from professionals or companies with a presence in Puerto Rico. However, if this is not possible due to criteria such as availability, experience, specificity, skill, or any other valid reason recognized by the Secretary of the DEDC, the Exempt Business may acquire such services through an intermediary with a presence in Puerto Rico, which shall contract directly with the service provider chosen by the Exempt Business, in order to receive the requested services.

The term “services” shall mean, without impairing the authority of the Secretary of the DEDC to include other services through regulations, the contracting of jobs relating to:

(A) Surveying, the production of construction plans, as well as engineering and architectural designs, and related services;

(B) construction and all that pertains to this sector;

(C) financial, environmental, technological, scientific, management, marketing, human resources, information technology, and auditing consulting services;

(D) advertising, public relations, commercial art, and graphic design services; and

(E) security or facility maintenance.

(6) Financial commitment.- The Exempt Business shall submit proof that they use the services of, and that they deposit a significant amount of the income derived from their economic activity in, banking or cooperative institutions with a presence in Puerto Rico.

(7) The Secretary of the DEDC shall be the sole official responsible for verifying and ensuring that the Exempt Business meets the eligibility requirements established in this Section and in this Chapter. If the Exempt Business partially meets the requirements established in this Section, the Secretary of the DEDC shall be required to establish a formula that allows for the quantification of the aforementioned factors, and for the subtraction of the requirement that has not been met from the total percentage of the specific credit, in order to obtain the exact percentage of the benefit in question.

SUBCHAPTER D – SPECIAL PROVISIONS

Section 2054.01.- Exempt Business Transfer.

(a) General rule.- The transfer of the Grant conferred under this Chapter, or of the Stock or majority proprietary interest of an Exempt Business to another person who, in turn, shall continue to be engaged in the Tourist Activity to which the Exempt Business devoted itself previously in a manner substantially similar, shall require the previous approval of the Secretary of the DEDC. If such transfer is made without prior approval, the Decree shall be null at the time of the transfer. Notwithstanding the foregoing, the Secretary of the DEDC may approve any transfer made without his approval effective retroactively when, in his judgment, the circumstances of the case warrant such approval, taking into account the best interests of Puerto Rico and the tourism development purposes of this Code. All transfer applications under this Section must be approved or denied within sixty (60) days following the date of filing. Any transfer application that is neither approved nor denied within such period shall be deemed to be approved. The denial of a transfer application shall be made in writing and shall also state the reasons for such denial.

(b) Exceptions.- The following transfers shall be authorized without previous consent:

(1) The transfer of the assets of a deceased to his estate or the transfer by bequest or inheritance;

(2) The transfer of stocks of an Exempt Business when such a transfer does not result, directly or indirectly, in a change in the ownership or Control of the Exempt Business;

(3) The pledge or mortgage executed in the regular course of business with the purpose of providing a surety for a bona fide debt. Any transfer of Control, title, or interest by virtue of said contract shall be subject to the provisions of subsection (a) of this Section;

(4) The transfer by operation of law, by a court order or by a bankruptcy judge to a trustee or fiduciary. Any subsequent transfer to a third party other than the aforementioned debtor or bankrupt himself, shall be subject to the provisions of subsection (a) of this Section;

(5) All transfers included in the exceptions to this Section shall be notified to the Secretary of the DEDC by the Exempt Business within thirty (30) days from the date of the transfer.

Section 2054.02.- Interrelation with other Laws.

(a) The provisions of this Chapter shall not be used in conjunction with other incentives provided in this Code, except those provided in Sections 3010.01 and 5010.01, or any other economic or tax incentive laws in such a manner that the joint application of such laws results in obtaining tax or other benefits that exceed the benefits to which a party would be entitled under any of the laws applied individually.

(b) Notwithstanding the foregoing, the following situations shall be excluded from this prohibition:

(1) A real estate investment trust with a valid election under Subchapter B of Chapter 8 of Subtitle A of the Puerto Rico Internal Revenue Code, or any other prior or subsequent similar law, or any corporation, limited liability company, partnership, special partnership, or legal Entity entirely owned, whether directly or indirectly, by the real estate investment trust, may benefit from the provisions of this Chapter, except for the benefits provided under subsection (a) of Section 2052.01 of this Code.

(2) An Exempt Business holding a Decree and that benefits from tax incentives under Chapter 6 of Subtitle B of this Code may elect to benefit, alternatively, from the provisions of this Chapter on the part devoted to the generation and sale of power generated from alternative energy sources, such as wind, solar, water, and biomass, among others, for consumption by an Exempt Business.

Section 2054.03.- Releases and Other Exemptions.

(a) Lessees who lease personal property to Exempt Businesses are hereby released from the requirement of holding a personal property leasing license as defined under Act No. 20 of May 8, 1973, as amended, known as the “Personal Property Leasing Institutions Act.”

(b) Exemption from the collection of fees and tariffs on public or private instruments.

(1) Any deeds, petitions or documents, judicial, public or private, related to the registration, annotation, cancellation, release, restriction, constitution, modification, extension, rectification, limitation, creation or renewal of any real property or contractual right that has access to the Property Registry in connection with real property covered under this Chapter, shall enjoy a ninety percent (90%) exemption from the payment of: (i) internal revenue, legal assistance, or any other stamps required by law or regulation for the execution, issuance of any partial or complete certified copy, presentation, recordation, or any other operation in the Property Registry; and (ii) tariffs, levies, taxes, and fees for its filing, recordation, and any other transaction in the Property Registry. This exemption shall be subject to the prior approval of the Secretary of the DEDC, to be evidenced by a certification issued by the Secretary of the DEDC to that effect. A certified copy of such certification shall be submitted to any notary public, Registrar, Court, or other Entity before which the benefits of this exemption are to be claimed and the same shall be attached to any document to be submitted at the Property Registry. The persons who are issued said certification may rely on the trustworthiness of such certification, which shall be presumed for all legal purposes to be correct and final.

(2) The term “real or contractual right with access to the Property Registry,” as used in the foregoing paragraph, includes all real or personal rights that, as an exception, currently have or may in the future have access to the Property Registry, including, but not limited in any way to:

(i) easements, whether legal, real, or personal, or equitable easements;

(ii) constitution of horizontal property, Timeshares, or Vacation Clubs, or Condo Hotels regimes;

(iii) surface and building rights, and any other building record or certification of completion of works through which the registration of a building or improvement is requested;

(iv)  leases;

(v)  mortgages;

(vi)  mortgage cancellations;

(vii)  purchases and sales;

(viii)  exchanges;

(ix)  gifts;

(x)  right of first refusal, right of redemption, and ground rent;

(xi)  private waters;

(xii)  administrative concessions;

(xiii)  option to purchase, and

(xiv)  use restrictions.

Section 2054.04.- Limited Liability.

(a) Notwithstanding the provisions of the Civil Code pertaining to the obligations of partners to third parties, any partners or stockholders that constitute a partnership or any other juridical person organized under the laws of Puerto Rico or any other jurisdiction that enjoys a Grant under this Chapter, shall not be liable with their personal estate beyond their contribution to the licensee Entity for any debts and obligations of the Entity, in the event that the assets of the Entity are not enough to cover them. The limited liability shall benefit the partners or stockholders in terms of all the activities of the juridical Entity, including, but not limited to: (i) claims from tourist activities that resulted in the aforementioned Grant; (ii) activities related to the liquidation and termination of such activity; (iii) activities related to the disposal and Transfer of the property used in the same; and (iv) activities related to the operation of any Casino operating under a franchise granted pursuant to the “Games of Chance Act.” The limited liability benefit provided herein shall take effect on the date of filing an application for exemption under this Code, and the same shall apply to any cause of action that may arise from the facts transpired, before the juridical Entity is dissolved.

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