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 7: Incentives for Infrastructure

SUBCHAPTER A – ELIGIBILITY

Section 2071.01.- Businesses Engaged in Infrastructure and Green Energy.

It is hereby provided that a business established or to be established, in Puerto Rico by a Person, whether organized or not under a common name, may file an application for Incentives with the Secretary of the DEDC when the Entity is established in Puerto Rico to engage in one of the following eligible activities:

(1) Carrying out improvement, restoration, or reconstruction works of existing buildings, or restructuring works or new construction on vacant lots in the Historic Zones of Puerto Rico, and the leasing of such buildings located in those zones once they have been improved, restored, reconstructed, restructured, or constructed, as the case may be;

(2) The construction or rehabilitation of Affordable Housing to be sold or leased to Low- or Moderate-Income Families and Middle Class Housing;

(3) Persons engaged in the construction, rental, or leasing of properties to Elderly Persons who do not have their own housing and whose income is within the established limits may be equal or more liberal, but never more restrictive than those established by the Federal Government;

(4) Affordable Housing Developers approved and subsidized completely or partially by the Government of Puerto Rico;

(5) Developers of Assisted Living Housing for Elderly Persons in Puerto Rico;

(6) Any business engaged in the production or sale, at a commercial level, of Green Energy for consumption in Puerto Rico, whether as the owner or direct operator of the Generation Unit or as owner of a Generation Unit operated by another person, in which case, both the owner and the operator shall be deemed to be Eligible Businesses under this Chapter.

The term “Green Energy production or sale at a commercial level” includes the production or sale of Green Energy to one or more persons that are engaged in trade or business in Puerto Rico;

(7) Alternate Renewable Energy Producer and Sustainable Renewable Energy Producer, as defined in Section 1020.07 of this Code, for consumption in Puerto Rico; provided that this it is his principal business;

(8) Assembly of Green Energy generation equipment, including the installation of such equipment at the facilities of the user of Green Energy to be generated by such equipment;

(9)  Property Devoted to the Production of Green Energy;

(10)  During the first five (5) years from the effective date of this Code, a business established or to be established in Puerto Rico by a Person, whether organized or not under a common name, may apply for a Decree to carry out the following eligible activities:

(i) A High-Efficiency Energy Producer engaged in the production, sale, or operation at a commercial scale for consumption in Puerto Rico, whether as owner and direct operator, or as owner of a system operated by a third party, or as operator of a system owned by a third party, in which case, both shall be considered an Eligible Businesses under this Chapter;

(ii) Equipment assembly, including the installation thereof, for High- Efficiency Energy Generation Systems;

(iii)  Property devoted to the production of High-Efficiency Energy.

(iv)  Every contractor under Act No. 120-2018, as amended, known as the “Puerto Rico Electric Power System Transformation Act,” shall be eligible for a Decree under this subsection and/or tax treatment provided under subsection (a) of Section 12 of Act No. 29-2009, as amended, known as the “Public-Private Partnership Act.”

SUBCHAPTER B – TAX BENEFITS

Section 2072.01.- Income Taxes.

(a) Preferential flat tax rate of four percent (4%).- The income of an Eligible Business derived from eligible activities described hereinbelow shall be subject to a preferential flat income tax rate of four percent (4%) in lieu of any other income tax provided by the Puerto Rico Internal Revenue Code or any other law; provided, that the requirements applicable to its eligible activity are met:

(1) Rents received for the rental of buildings in the Historic Zones of Puerto Rico; provided, that they meet the requirements of Act No. 7 of March 4, 1955, as amended, known as the “Historic Zones Tax Exemption”;

(2) Income from the sale of affordable housing, as stated in paragraph (2) of Section 2071.01 of this Code, subject to the limits established in Section 2073.04;

(3) Rental income received by the owner of a Multi-family Affordable Housing Project, as indicated in paragraph (2) of Section 2071.01 of this Code, subject to the limits established in Section 2073.02 of this Code;

(4) Income from the sale of homes to Elderly Persons or Persons with Disabilities;

(5) The income derived from Housing facilities under the Assisted Living Housing Project for Elderly Persons who meet the qualification criteria set forth in this Code that are consistent with the definition of “Assisted Living.” When due to medical necessity and in the interest of the person’s safety, said person requires personal or medical care different from that set forth in this Act, said person shall not be covered by the provisions of this Code, and therefore, the residence cannot give lodging to said person pursuant to this Act. The residence shall make this determination in those cases in which the safety, welfare, or comfort of the person may be adversely affected because said person’s specific needs or limitations cannot be adequately met or dealt with thoroughly, for not being consistent with the definition of the term “Assisted Living.” Said determination shall be consistent with the guiding criteria prescribed by the Secretary of the DEDC by regulations for such purposes.

(b) Preferential flat tax rate of four percent (4%).- The income of an Exempt Business derived from activities described hereinbelow shall be subject to a preferential flat income tax rate of four percent (4%) in lieu of any other tax imposed by the Puerto Rico Internal Revenue Code or any other law; provided, that the requirements applicable to its eligible activity are met:

(1)  Rental income from properties leased to Elderly Persons;

(2)  Income from the construction of Rental Housing for Elderly Persons.

(c) Income derived from the sale of RECs.- For tax purposes, the purchase, sale, assignment, or transfer of RECs shall have the following effect:

(1) Tax Base.- The tax base for each REC for a business engaged in green energy production that generates RECs from its operations in Puerto Rico shall be equal to the RECs issue and processing costs, pursuant to Section 2074.01 of this Code. The basis of the RECs shall not include production costs of the green energy generated in the operation related to such RECs.

(2) Regular Income.- Any income or gain derived by a business engaged in the production of Green Energy from the sale of RECs originating from its operations in Puerto Rico shall be considered as a regular income derived from the operation in Puerto Rico, and treated as Green Energy Income for the all purposes of this Code, except that said income or gain shall be exempt from municipal license taxes and other municipal taxes.

(3) Capital Gain.- RECs shall be excluded from the definition of capital assets, as provided in Section 1034.01 of the Internal Revenue Code. However:

(i) The proceeds derived from the sale of a REC by the person who acquired such REC by means of a purchase, and subsequently disposed of it in exchange for cash or property shall be treated as capital gain, and the appropriate provisions of the Internal Revenue Code of Puerto Rico regarding the disposition of a capital asset shall apply thereto, including the applicable tax rate, basis, and holding period of the RECs, among others,

(ii) The income derived from the disposal of a REC by a person who acquired such REC by means of purchase and subsequently disposed of the same shall be exempt from municipal licenses and other taxes.

Any person engaged in the trade or business of purchasing and reselling RECs shall be excluded from this treatment.

(4) Retirement and Cancellation of RECs.- Any person who, in the conduct of a trade or business, to comply with the requirements of the Renewable Portfolio Standard, acquires RECs by means of purchase, assignment or transfer in order to promote Green Energy sources development, may deduct from his regular income the cost of acquisition of the REC or the basis acquired in the assignment or transfer thereof. This deduction shall not be available until the REC is retired or cancelled.

(5) Income From Sources Within Puerto Rico.- The gain from the sale or disposal of a REC outside of Puerto Rico, generated in the operation of a Green Energy project located in Puerto Rico realized by Foreign Persons not engaged in a trade or business in Puerto Rico shall not be deemed to be income from sources in Puerto Rico.

(d) Businesses Engaged in the Green Energy Industry- Exempt Businesses whose activities are described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 shall be subject to the following:

(1) Preferential flat tax rate of four percent (4%).- The businesses described above shall be subject to a preferential flat income tax rate of four percent (4%) on their Green Energy Income during the corresponding exemption period, in lieu of any other income tax, if any, provided by the Puerto Rico Internal Revenue Code or any other law.

(2) Royalties and License Fees.- The provisions of the Puerto Rico Internal Revenue Code notwithstanding, in the case of payments made by Exempt Businesses that hold a Decree under this Chapter to Foreign Persons not engaged in trade or business in Puerto Rico, for the use or the privilege to use in Puerto Rico of Intangible Property related to the operation declared as exempted under this Chapter, subject to the consideration of said payments as totally derived from sources within Puerto Rico, the following rules shall be observed:

(i) Tax on Foreign Persons not Engaged in Industry or Business in Puerto Rico.- Tax Imposition.- A twelve percent (12%) tax shall be imposed, collected, and paid for each Tax Year, in lieu of the tax imposed by Sections 1091.01 and 1091.02 of the Puerto Rico Internal Revenue Code, on the amount of such payments, received or implicitly received by any foreign corporation or partnership not engaged in trade or business in Puerto Rico, derived solely from sources within Puerto Rico.

(ii) Withholding at the Source of the Tax in the Case of Foreign Persons that are Entities not Engaged in Trade or Business in Puerto Rico.- Any Exempt Businesses required to make payments to non-residents for the use in Puerto Rico of Intangible Property related to the exempt operation under this Chapter, shall deduct and withhold at the source a tax equal to that imposed in subparagraph (i) above.

(3) Distributions, Sale, or Exchange of Stocks or Assets.-

(i) The gains realized in the sale, exchange, or other disposition of Stocks of Entities, which are or have been Exempt Businesses under this Chapter; shares in joint ventures and similar entities constituted by various corporations, partnerships, individuals, or combination thereof, which are or have been Exempt Businesses; and Stocks of Entities that otherwise own the entities described above, shall be subject to the provisions of subparagraph (ii) of this paragraph (3) when conducting said sale, exchange, or other disposition, and any subsequent distribution of said gain, be it as a dividend or as a distribution in liquidation, shall be exempted from the payment of additional taxes.

(ii) Sale or Exchange of Stocks or Assets.-

A. During the Exemption Period- The gains from the sale or exchange of Stocks of Entities, or substantially all assets of an Exempt Business, made during its exemption period and which would have been subject to income tax under the Puerto Rico Internal Revenue Code, shall be subject to a four- percent (4%) tax on the amount of the gain realized, if any, in lieu of any other tax imposed by the Puerto Rico Internal Revenue Code or any other law. Any loss in the sale or exchange of said Stocks or assets shall be recognized pursuant to the provisions of the Puerto Rico Internal Revenue Code.

B. After the Expiration Date of the Exemption Period.- When the sale or exchange is conducted after the expiration date of the exemption, the gains shall be subject to the tax provided in clause (A) above, but only up to the amount of the value of the Stocks of the Entity or of substantially all the assets in the books of the corporation or partnership on the expiration date of the exemption period, reduced by the amount of the exempted distributions received from said Stocks of the Entity after said date, minus the basis of said Stocks or of substantially all assets. Any remainder of the gain or any loss, if any, shall be recognized pursuant to the provisions of the Puerto Rico Internal Revenue Code in effect on the date of the sale or exchange.

C. Exempted Exchanges.- The exchanges of Stocks from Entities which do not result in taxable events for being exempted reorganizations shall be treated pursuant to the provisions of the Puerto Rico Internal Revenue Code in effect on the date of the exchange.

(iii) Determination of Basis in the Sale or Exchange.- The basis in the sale or exchange of Stocks or assets of an Exempt Businesses under this Section shall be determined pursuant to the applicable provisions of the Puerto Rico Internal Revenue Code in effect at the time of the sale or exchange, increased by the amount of the Green Energy Income accrued under this Code.

(iv) For the purposes of this paragraph (3), the term “substantially all assets” shall mean those assets of the Exempt Business which represent not less than eighty percent (80%) of the value in the books of the Exempt Business at the time of the sale.

(v) The Secretary of the DEDC, in consultation with the Secretary of the Treasury, shall prescribe regulations as are necessary to implement the provisions of this paragraph.

(4) Liquidation.-

i. No income taxes shall be imposed or collected from the assignor or the assignee in relation to the total liquidation of a Exempt Business that has obtained a Decree under this Chapter and that is engaged or has been engaged in the activities described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01, on or before the expiration of its Decree; provided, that the following requirements are met:

A. Any property distributed in the liquidation was received by the assignee pursuant to a liquidation plan on or before the expiration date of the Decree; and

B. the distribution in liquidation by the assignor, whether all at once or from time to time, was made by the assignor to cancel or totally redeem its capital stock.

The basis of the assignee on the property received in liquidation shall be equal to the adjusted basis of said Exempt Business on said property immediately before the liquidation. Furthermore, and for purposes of this paragraph (4), a corporation or partnership participating in a partnership that is an Exempt Business shall be considered, in turn, an Exempt Business.

ii. Liquidation by Assignors with Revoked Decrees.- If the Decree of the assignor were revoked prior to its expiration date, pursuant to the provisions of this Code, in relation to allowable revocations, the Green Energy Income surplus accrued as of the effective date of the revocation, may be transferred to the assignee at any later time, subject to the provisions of subparagraph (i) of this paragraph (4). In cases of mandatory revocations, the surplus accrued shall be subject to taxation pursuant to the Puerto Rico Internal Revenue Code.

iii. Liquidations After the Expiration of the Decree.- After the Decree of the assignor has expired, the assignor may transfer to the assignee the Green Energy Income surplus accrued during the effective period of the Decree, subject to the provisions of subparagraph (i) of this paragraph (4).

iv. Liquidation of Assignors with Exempt and Nonexempt Activities.- In the event that the assignor engages in exempt and nonexempt activities, the assignor may transfer to the assignee the Green Energy Income surplus accrued under this Code and the property devoted to the eligible activity under this Code as part of its total liquidation, subject to the provisions of subparagraph (i) of this paragraph (4). The surplus accrued over sources other than Green Energy Income and the property that is not devoted to the eligible activity, shall be distributed in accordance with the provisions of the Puerto Rico Internal Revenue Code.

(e) The stockholders or partners of an Exempt Business, holding a Decree under the provisions of this Chapter that is engaged in the activities described in paragraphs (1) through (5) of subsection (a) of Section 2071.01 of this Code, shall be subject to the income tax provided in the Puerto Rico Internal Revenue Code on distributions of dividends or benefits from the net income of said Exempt Business.

Section 2072.02.- Real and Personal Property Tax.

(a) Properties in Historic Zones.- The eligible property, as described in paragraph (1) of Section 2071.01 of this Code, which is to be improved, restructured, constructed, restored, or reconstructed, and the lot where such property is located, shall be declared fully exempt by the Director of CRIM for the period stated in subsection (a) of Section 2072.04 of this Code.

(b) Affordable Housing Devoted to Rental Purposes

(1) In General.- The Housing units of Multi-family Housing Projects for rental to Low- or Moderate-Income Families, as such eligible activity is described in paragraph (2) of Section 2071.01, shall be one hundred percent (100%) exempt from property tax payments during the exemption period provided in subsection (b) of Section 2072.04, provided that:

(i) The requirements established in subsection (a) of Section 2073.02 of this Code are met.

(ii) The rental fee of each Housing unit reflects a reduction equal to the total sum of the property tax that the owner would be required to pay if the tax exemption provided herein were not applied.

(c) Properties Leased to Low-Income Elderly Persons.- In General- Any owner that constructs or rehabilitates real property to be leased to a low-income Elderly Person shall be one hundred percent (100%) exempt from the payment of real and personal property taxes; provided, that the requirements established in Section 2073.03 of this Code are met.

(d) Properties from Housing Projects Under the “Assisted Living” Housing Project- Any housing project under the “Assisted Living” Housing Project may benefit from the exemptions provided in subsection (c) of Section 2072.03 of this Code.

(e) RECs Exemption.- RECs shall have a seventy-five percent (75%) exemption from municipal or state property taxes.

(f) Real and personal property of Eligible Businesses under paragraphs (6), (7), (8), (9), and (10) of subsection (a) of Section 2071.01-

(1) In General:- The real and personal property used in the development, organization, construction, establishment, or operation of an eligible activity covered under the Decree, shall enjoy a seventy-five percent (75%) exemption from municipal and state taxes on real and personal property during the exemption period.

Section 2072.03.- Municipal Taxes.

(a) Construction or Rehabilitation of Affordable Housing- In General.- The housing units under Multi-family Projects leased to Low- or Moderate-Income families shall receive a ninety percent (90%) exemption from the payment of municipal license taxes; provided, that the requirements established in Section 2073.02 of this Code are met. Furthermore, a ninety-percent (90%) exemption shall also apply to the payment of any municipal tax or fee that may apply thereto.

(b) Construction of Low-Income Elderly Person Housing- The income generated by Housing construction or rehabilitation projects to be leased to low-income Elderly Persons shall receive a ninety percent (90%) exemption from the payment of municipal license taxes; provided, that the requirements set forth in Section 2073.07 of this Code are met. Furthermore, a ninety percent (90%) exemption shall apply to the payment of any municipal tax or fee that may apply to such projects, except for the excise tax to which no exemption shall apply.

(c) Income from Housing Projects Under the “Assisted Living” Housing Project- Any housing project under the “Assisted Living” Housing Project may benefit from the exemptions provided under subsection (a) of this Sections.

(d) Exempt Businesses described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 shall receive a fifty percent (50%) exemption on municipal license taxes, municipal excise taxes, and other municipal taxes imposed by any municipal ordinance, during the periods covered by the Decree pursuant to subsection (e) of Section 2072.04, regardless of any subsequent amendment made to the Decree to cover the operations of the Exempt Business in one or several municipalities.

(e) All Exempt Businesses and their contractors or subcontractors shall receive a seventy-five percent (75%) exemption on any tax, levy, fee, license, excise tax, rate or tariff, imposed by a municipal ordinance on the construction of works to be used by said Exempt Business within a municipality, without it being understood that said taxes include the municipal license tax imposed on the volume of business of the contractor or subcontractor of the Exempt Business, during the period authorized under the Decree.

Section 2072.04.- Exemption Period.

(a) The exemption period for persons with eligible activities as provided in paragraph (1) of Section 2071.01 of this Code, shall be as described hereinbelow; provided, that the requirements are met:

(1) Five (5) years: when the restoration work is partial but includes, among others, the restoration of the facade and the main architectural elements such as the zaguan and the main staircase, if any.

(2) Five (5) non-renewable years: when the facade of a building of no historic or architectural value has been restored to conform it to the surroundings of the Historic Zone where it is located.

(3)  Ten (10) years: when a building has been fully restored.

(4)  Ten (10) years: in cases of full restoration where more than fifty percent (50%) of new construction elements are incorporated into buildings lacking historic or architectural value in order to conform them to their traditional surroundings, and in cases of new construction on lots that are either vacant or where ruins are located.

(5) Upon expiration of the ten (10)-year period on a given property, the Secretary of the DEDC may extend the exemption for an additional ten (10) years in any of the aforementioned cases; provided, that the Institute of Puerto Rican Culture certifies that such property (1) has not been substantially altered from its original design, (2) deserves to be preserved as part of our cultural heritage because of its historic or architectural value, and (3) upon conclusion of the work, in accordance with the requirements of the Institute of Puerto Rican Culture, it shall be in the same or in better condition than when its first full restoration was performed.

(b) The tax benefit provided in paragraphs (2) and (3) of subsection (a) of Section 2072.01 and subsection (a) of Section 2072.03 of this Code shall remain in effect as long as the Housing units on which it is claimed are occupied by Low- or Moderate-Income Families; however, it shall not exceed a period of fifteen (15) years, starting from January 1 of the year following the date of occupancy of the Housing unit by a Low- or Moderate-Income Family.

(c) The tax exemption granted under paragraph (1) of subsection (b) of Section 2072.01 of this Code as well as under subsection (b) of Section 2072.03 of this Code shall remain in effect as long as the Housing units on which it is claimed are occupied by Elderly Persons; however, it shall not exceed a period of fifteen (15) years, starting from January 1 of the year following the date of occupancy of the Housing unit by an Elderly Person.

(d) The tax exemption granted under paragraph (5) of subsection (a) of Section 2072.01, as well as under subsection (c) of Section 2072.03 of this Code, shall remain in effect as long as the “Assisted Living” Housing Project meets all the requirements established in this Code and in the provisions of the Incentives Regulations for a period not to exceed fifteen (15) years, starting from January 1 of the year following the date of certification as an Eligible Business for “Assisted Living” Housing Project.

(e) Tax exemption periods for Green Energy Businesses- The tax exemption periods applicable to Entities whose Eligible Businesses are covered under paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 of this Code are described hereinbelow.

(1) Exemption.- An Exempt Business that holds a Decree granted under this Chapter shall enjoy tax exemption for a period of fifteen (15) years.

(2) Flexible Tax Exemption.- Exempt Businesses shall have the option of choosing the specific taxable years to be covered under their Decrees with regard to their Green Energy Income; provided, that they notify the Secretary of the DEDC and the Secretary of the Treasury not later than the due date provided by the Puerto Rico Internal Revenue Code of Puerto Rico to file their income tax returns for said Taxable Year, including the extensions granted for said purpose. Once the Exempt Business opts for this benefit, its exemption period shall be extended by the number of taxable years it did not enjoy said benefit under the exemption Decree.

(3) Provisions Applicable to the Tax Exemption for Businesses with Property Devoted to the Production of Green Energy.-

(i) The period during which a Property Devoted to the Production of Renewable Energy was owned by any political subdivision, agency, or instrumentality of the Government of Puerto Rico, shall not be deducted from the period mentioned in paragraph (1) of this subsection. In such cases, the property shall be deemed, for the purposes of this Chapter, as not having been previously devoted to the Production of Green Energy.

(ii) When the Exempt Business is a Property Devoted to the Production of Green Energy, the period mentioned in paragraph (1) of this subsection shall not cover those periods in which the Property Devoted to the Production of Green Energy is on the market to be leased to a Exempt Business, or is vacant, or is leased to a non-exempt business, except as provided below. Said period shall be computed on the basis of the total period during which the property was at the disposal of a Exempt Business; provided, that the total number of years is not greater than that provided under paragraph (1) of this subsection, and the Exempt Business that qualifies as Property Devoted to the Production of Green Energy, notifies the Secretary of the DEDC, in writing, of the date on which the property is leased to an Exempt Business for the first time, and the date on which the property is vacated and is again occupied by another Exempt Business.

(iii) In the event that the exemption of an Exempt Business holding a Decree as Property Devoted to the Production of Green Energy expires while it is being used under a lease by an Exempt Business, the Property Devoted to the Production of Green Energy in use by the Exempt Business shall enjoy a fifty percent (50%) exemption on property taxes while the Exempt Business continues to use said property under a lease.

(iv) When the Exempt Business is a business of Property Devoted to the Production of Green Energy, the period mentioned in paragraph (1) of this subsection shall continue its normal course even when the exemption Decree of the other Exempt Business using said property, as a result of the conclusion of its normal period or by revocation of its Decree, expires before the exemption period of the Property Devoted to the Production of Green Energy unless it is proven in the case of revocation, that at the time said property was made available to the Exempt Business, the owners thereof were aware of the facts that led to the revocation.

(4) Tax Exemption During Construction Period -The real property of the Exempt Businesses to which the exemption provided in subsection (f) of Section 2062.02 applies shall be fully exempt during the period authorized by the Decree in order for the Exempt Business to be constructed or established and during the first Government Fiscal Year in which the Exempt Business would have been subject to property taxes on account of being operational as of January 1 of the year preceding such Fiscal year, were it not for the exemption herein provided. Likewise, the real property of Exempt Business that is directly related to any expansion of the Exempt Business shall be fully exempt from property taxes during the period authorized by the Decree to perform the expansion. Once the full exemption period established in this paragraph expires, the partial exemption provided under subsection (f) of Section 2072.02 shall become effective.

(5) Municipal Exemption and Establishment of Operations in Other Municipalities.-

(i) Tax exemption period granted under this subsection. The Green Energy Exempt Business holding a Decree granted under this Chapter shall be fully exempt from the payment of the municipal taxes or municipal license taxes applicable to the volume of business of the 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.” Furthermore, the Exempt Business shall be fully exempt from the payment of municipal taxes or license taxes on the volume of business attributable to such municipality during the two (2) semesters of the Government’s Fiscal Year or Fiscal Years following the semester in which it commenced operations in the municipality.

(ii) An Exempt Business may establish additional operations or facilities as part of the operations covered under an exemption Decree in effect, in the same municipality where the main office is located or in any other municipality of Puerto Rico, without the need to apply for a new exemption Decree or amend the Decree in effect; provided, that it notifies the Incentives Office within thirty (30) days from the commencement of the additional operations or facility. By virtue of said notice the additional, unit, operation or facility to be included in the exemption Decree and it shall enjoy the exemptions and benefits provided under this Code for the remainder of the exemption period of the Decree in effect.

(6) Interruption of the Exemption Period.- In the event that a Exempt Business has ceased operations and later wishes to resume operations, the time during which no operations were conducted shall not be deducted from the corresponding exemption period, and the Exempt Business may enjoy the remaining exemption period while the tax exemption Decree is in effect; provided, that the Secretary of the DEDC determines that the ceasing of operations was for good cause and that reopening said Exempt Business shall serve the best social and economic interests of Puerto Rico.

(7) Setting the Date for the Commencement of Operations and the Exemption Periods.-

(i) An Exempt Business holding a Decree granted under paragraphs (6), (7), (8), (9), or (10) of Section 2071.01 of this Code may choose the date of commencement of operations for the purposes of this Code by filing an affidavit with the Incentives Office, with a copy to the Secretary of the Treasury stating the unconditional acceptance of the Grant approved for the Exempt Business under this Chapter. The date of the commencement of operations for purposes of this Chapter may be the date of the first training or production payroll of the Exempt Business or any date within a two (2)-year period after the date of the first payroll.

(ii) The Exempt Business may postpone the application of the flat rate provided in this Code and established though a Decree for a period not to exceed two (2) years from the date of commencement of operations established under subparagraph (i) of this paragraph. During the postponement period, said Exempt Business shall be subject to the applicable tax rate under Subtitle A of the Internal Revenue Code of Puerto Rico.

(iii) The tax exemption period provided in this subsection for real or personal property shall commence on July 1, following the last Fiscal Year in which the Exempt Business was fully exempt pursuant to the provisions of this Code. The partial exemption for said Fiscal Year shall apply to the tax on the property owned by the Exempt Business on the 1st of January preceding the beginning of said Fiscal Year.

(iv) The partial exemption period provided in this Code, for the purposes of the municipal tax or license tax exemption shall commence on the first day of the first semester of the Fiscal Year of the Government of Puerto Rico following the expiration of the full-exemption period provided in said subparagraph. In the case of Exempt Businesses that have been operating before applying for the benefits of this Code, the date of commencement of operations for the purposes of municipal license taxes shall be the first day of the semester following the filing date of the application for tax exemption.

(v) In the case of Exempt Businesses holding a Decree granted under this Code or any Prior Incentives Laws which have been operating before applying for the benefits of this Code, the date of commencement of operations for the purposes of the flat income tax rate provided in subsection (d) of Section 2072.01 of this Code shall be the filing date of the application with the Incentives Office, but the commencement date may be postponed for a period not to exceed two (2) years from said date.

(vi) A Exempt Business shall commence operations within one (1) year from the granting of the Decree, which term may be extended at the request of such business for good cause, but no extension shall be granted which extends the date of commencement of operations for a period that exceeds five (5) years from the approval of the Decree.

Section 2072.05.- State Excise Tax and Sales and Use Tax.

(a) Businesses engaged in Green Energy, as described in in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01.-

(1) In addition to any other exemption from excise taxes or from the sales and use tax granted under Subtitle D of the Puerto Rico Internal Revenue Code, a full exemption from said taxes shall be granted, during the exemption period provided in this Chapter, ti the following items directly or indirectly introduced or acquired by a business holding a Decree granted under this Chapter:

(i) Any raw material to be used in Puerto Rico to produce Green Energy, for the purposes of this subsection and the applicable provisions of Subtitles C or D of the Puerto Rico Internal Revenue Code, the term “raw material” shall include:

(A) any product in its natural form, derived from agriculture or from extractive industries (including natural gas or propane gas); and

(B) any byproduct, residual product, or partially manufactured or finished product.

(ii) The machinery, equipment, and accessories thereof used exclusively and permanently to transport the raw material within the system of the Exempt Business; the machinery, equipment and accessories used for Green Energy production, or which the Exempt Business is required to acquire under federal or state law or regulations for the operation of the eligible activity.

(iii) Any machinery and equipment that an Exempt Business must use to meet the environmental, safety, and health requirements shall be fully exempt from the payment of state excise taxes as well as from the sales and use tax.

(iv) Chemical materials used by an Exempt Business in the treatment of used waters.

(v) Energy-efficient equipment, duly certified by the Secretary of the DEDC pursuant to the provisions of the Incentives Regulations.

(vi) Electrical substations.

(2) Exceptions- The following items for use and consumption that are used by an Exempt Business holding a Decree granted under this Chapter, regardless of the area or premises where they are located or their use, shall not be deemed to be raw material, machinery, or equipment for purposes of paragraph (1) of this subsection:

(i) Any construction material and pre-fabricated structures;

(ii) any electrical material and water pipes affixed to the structures;

(iii) the lubricants, fats, waxes, and paints not related to the manufacturing process;

(iv) the lighting posts, and lighting fixtures installed in parking areas; and

(v) treatment plants.

Section 2072.06.- Special Deduction for Investment in Buildings, Structures, Machinery, and Equipment for Green Energy.-

(a) Any Exempt Business holding a Decree granted under this Chapter shall be granted the option of deducting, during the taxable year in which they were incurred, its total expenses incurred after the effective date of this Code, for the purchase, acquisition, or construction of buildings, structures, machinery, and equipment, in lieu of any capitalization of expenses required by the Puerto Rico Internal Revenue Code; provided, that these buildings, structures, machinery, and equipment:

(1) Have not depreciated or been previously used by any other business or Person in Puerto Rico; and

(2) are used solely in activities described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 of this Code, for which the benefits provided under this Code were granted.

(b) The deduction provided under this Section shall not be in addition to any other deduction provided by law, but shall merely be an acceleration of the deduction of the expenses described above. Provided, that in the case of machinery and equipment previously used outside of Puerto Rico, but that has not previously depreciated or been used in Puerto Rico, the investment in said machinery and equipment shall qualify for the special deduction provided in this Section only if on the date of the acquisition thereof by the Exempt Business, said machinery and equipment still have at least fifty percent (50%) of their useful life, as determined pursuant to the Puerto Rico Internal Revenue Code.

(c) The Exempt Business that complies with the provisions of subsection (a) of this Section, may deduct, during the taxable year in which they were incurred, all expenses incurred after the effective date of this Code in remodeling or repairing buildings, structures, machinery, and equipment, in lieu of any capitalization of expenses required by the Puerto Rico Internal Revenue Code, whether said buildings, structures, machinery, and equipment have been acquired or constructed before or after the effective date of this Code, and whether they have or have not depreciated or been used by another business or person prior to being acquired by the Exempt Business holding a Decree granted under this Code.

(d) The amount of the Green Energy Investment described in subsections (a) and (c) of this Section for the special deduction provided in this subsection, in excess of the Green Energy Income of the Exempt Business in the year of the investment, may be claimed as a deduction in subsequent taxable years until said excess is depleted.

(e) The Exempt Business that complies with the provisions of subsection (a) of this Section, may claim the deduction provided in this Section in any year in which said Exempt Business elects the flexible tax exemption benefit, in accordance with this Code.

SUBCHAPTER C – REQUIREMENTS FOR GRANTING EXEMPTIONS

Section 2073.01.- Requirements for Decree Applications.

(a) Any person who has established or plans to establish an Eligible Business in Puerto Rico under this Chapter 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 insofar as said person meets the eligibility requirements of Subchapter A of this Chapter as well as any other criteria prescribed by the Secretary of the DEDC through the Incentives 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 governing principles:

(1) Jobs.- The Infrastructure or Green Energy Activity and the Exempt Business shall promote the creation of new jobs. In addition, it shall be taken into account if the Exempt Business pays its employees more than the federal minimum wage established in the Fair Labor Standards Act.

(2) Sound Integration.- The conceptual design and planning of the Infrastructure or Green Energy Activity and the Exempt Business shall mainly take into account the environmental, geographical, and physical aspects, as well as the materials and goods that are abundantly available at the site where it is to be developed. Safe development shall be ensured to prevent catastrophic damage from potential natural disasters.

(3) Commitment to 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. The Secretary of the DEDC may waive compliance with this requirement and issue a certificate attesting to such facts if the purchase of said products is not financially justified when taking into account criteria such as quality, quantity, price, and availability of these products in Puerto Rico.

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

(5) Transfer of Knowledge.- The Exempt Business shall acquire, to the extent possible, 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, or 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.

(ii) The term “services” shall mean, without limiting the authority of the Secretary of the DEDC to include other services by regulations, the contracting of jobs related 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 demonstrate that they use the services of, and that they deposit a significant amount of the income derived from their economic activity in, banking and/or cooperative institutions with a presence in Puerto Rico.

(7) Puerto Rico Energy Bureau Certificate of Compliance - Exempt Businesses engaged in the eligible activities described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 of this Code shall meet the essential requirement of filing along with its application, a Certificate of Compliance with Act No. 17-2019, known as the Energy Public Policy[sic] and with the Integrated Resource Plan. The certificate shall be issued by the Puerto Rico Energy Bureau.

(8) The Secretary of the DEDC shall be the official responsible for verifying and ensuring that Exempt Businesses meet the eligibility requirements provided in this Section and in this Chapter in relation to the eligible activities described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 of this Code; provided, that for such cases related to the eligible activities described in paragraphs (1), (2), (3), (4), and (5) of Section 2071.01 of this Code, the Secretary of the DEDC shall proceed in consultation with the Secretary of Housing. 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 incentive, in order to obtain the exact percentage of the benefit in question. However, the foregoing shall not apply to applications related to the eligible activities described in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 of this Code, that fail to meet the essential requirement of the Certificate of Compliance with Act No. 17-2019, known as the Energy Public Policy [sic], and the Integrated Resource Plan issued by the Energy Bureau.

Section 2073.02.- Affordable Housing Tax Exemption on Rental Income.

(a) In General- A person may receive the benefits provided in paragraph (3) of subsection (a) of Section 2072.01, subsection (b) of Section 2072.02, subsection (a) of Section 2072.03, and subsection (b) of Section 2072.04 of this Code; provided, that said person files an application for exemption with the Secretary and meets the following requirements:

(1) He demonstrates, through the presentation of documents and records required by regulations, that the capital invested in the construction or rehabilitation of the Multi-family Project, as the case may be, is the product of a bona fide transaction.

(2) The rental fee of the rented Housing units does not exceed the amount that the Secretary of the DEDC, in consultation with the Secretary of Housing, determines is adequate for the owner of the housing units to cover the administration and maintenance expenses of the rented property, to have a return on his capital investment, and to cover his other obligations as an owner, pursuant to the parameters prescribed by regulations.

(3) The income on which a tax exemption is claimed is derived from the rental fee paid by Low- or Moderate-Income Families.

(4) The unit rented within the Multi-family Housing Project or the family occupying the unit does not receive a direct subsidy for the payment of the rental fee from the Government of Puerto Rico or the Government of the United States of America.

(5) The construction or rehabilitation of the Housing units to which said income is attributable, on account of rent, began after the approval of this Code.

Section 2073.03.- Requirements – Exemption for Renting Housing to Elderly Persons.

(a) In General- A person may receive the benefits provided in paragraph

(1) of subsection (b) of Section 2072.01, subsection (c) of Section 2072.02, subsection (b) of Section 2072.03, subsection (c) of Section 2072.04 of this Code, provided that:

(1) The construction or rehabilitation of the Housing units for rent began after the effective date of this Code.

(2) The rental fee of the rented Housing units does not exceed the amount determined by the Secretary of the DEDC, in consultation with the Secretary of Housing, as adequate for the owners of the Housing units to cover the administration and maintenance expenses of the rented property, receive a return on his capital investment, and cover any other of his obligations as owner, pursuant to the parameters prescribed in the Incentives Regulations.

(3) The income on which tax exemption is claimed is derived from the rental fees paid by the Elderly Persons.

Section 2073.04.- Requirement- Exemption on Income from the Sale Affordable Housing

(a) In General- A person may receive the benefits provided in paragraph (2) of subsection (a) of Section 2072.01 of this Code, provided that:

(1) The construction or rehabilitation of the Housing units for sale began after the effective date of this Act.

(2) Prior to the beginning of the construction or rehabilitation work, he presents an itemized cost breakdown duly approved by the Secretary of the DEDC.

(3) The buyer of the Housing unit is a Low- or Moderate-Income Family or a Middle Class Family, as defined in this Code, and certified as eligible by the mortgagee who originates the permanent mortgage financing for the Housing.

(4) As a general rule, in the case of Affordable and Middle Class Housing, for sale or rent, the income on which the tax exemption is claimed (exempt income) is derived from profits that do not exceed a maximum of fifteen percent (15%) over the sales price of each unit, in the case housing for sale, and over the fair market price in the case of housing for rent, per Housing unit, derived from the sale Affordable and/or Middle Class Housing units, and such profits are exclusively directly related to the Affordable and/or Middle Class Housing Project to which such income is attributed. As a special rule, it is provided that subject to the provisions of this Code, when an Affordable and Middle Class Housing Project is developed for sale or rent in an urban center, or when it can be attested that an Investment on Housing Infrastructure and Infrastructure of Regional or Municipal Impact is being made, the income on which tax exemption is claimed (exempt income) is derived from profits that do not exceed a maximum of twenty percent (20%) over the sales price of each unit, in the case of housing for sale, and over the fair market price in the case of housing for rent, per Housing unit, derived from the sale of Affordable and/or Middle Class Housing Units, and that such profits are exclusively directly related to the Affordable and/or Middle Class Housing Project to which such income is attributed. For the purpose of calculating the exemption provided under this Code, only the special investment on Housing Infrastructure and Infrastructure of Regional or Municipal Impact, as approved by the Secretary of the DEDC in consultation with the Department of the Treasury, shall be taken into account.

(5) The owner shows, to the satisfaction of the Secretary of the DEDC and the Secretary of the Treasury, that the housing unit to which the income is attributed did not have a lien or tax burden at the time the sale was executed.

Section 2073.05.- Requirement – Income from Housing Projects Under the Assisted Living Housing Project.

(a) In General- A person may receive the benefits provided in paragraph (5) of subsection (a) of Section 2072.01, subsection (d) of Section 2072.02, subsection (c) of Section 2072.03, and subsection (d) of Section 2072.04 of this Code, provided that:

(1) An application for certification as an Eligible Business is submitted based on the criteria prescribed by the Secretary of the DEDC, in conjunction with the Secretary of Housing, through Incentives Regulations to be adopted.

(2) If any person or Entity wishes to promote any “Assisted Living” Housing project, and a certification to operate as an Eligible Business of said project has not been issued, the sponsor or the applicant shall notify the Secretary of the DEDC in writing, with a copy to the Secretary of Housing, of his intention to request said certification, and indicate in the advertising or promotional materials that the sponsored project has not completed the process to obtain the certification from the Secretary of the DEDC.

(3) The Secretary of the DEDC, in conjunction with the Secretary of Housing, shall determine through the Incentives Regulations any additional information or procedure as is necessary for the certification of the “Assisted Living” Housing Project.

Section 2073.06.- Additional Requirements to Those in Sections 2073.02 and 2073.04.

(a) In General- Any owner who builds or rehabilitates Affordable Housing to be sold or rented to Low- or Moderate-Income Families, and middle class Housing to be sold to middle class persons, who wishes to avail himself of the tax exemptions established in this Code, as applicable, shall file with the Secretary of the DEDC an application for exemption including the following information:

(1)  the name of his business or company;

(2)  the cadaster number of the property or properties connected to the business;

(3)  the merchant registration number;

(4)  the Employer Identification Number;

(5)  the information required under Act No. 216-2014, better known as the “Fiscal Information and Permit Control Act”; and

(6) any other requirement prescribed in the Incentives Regulations.

Section 2073.07.- Exemption Requirements for the Construction of Rental Housing for Elderly Persons.

(a) In General- A person may receive the benefits provided in paragraph (2) of subsection (b) of Section 2072.01, subsection (b) of Section 2072.03, subsection (b) of Section 2072.04 of this Code, as applicable to such businesses, provided that:

(1) The construction or rehabilitation of the Housing units for rent begins after the effective date of this Code;

(2) Prior to the beginning of the construction or rehabilitation work, the owner presents an itemized cost breakdown duly approved by the Secretary of the DEDC;

(3) The tenant of the housing unit is an Elderly Person certified as eligible in accordance with the criteria prescribed by the Secretary of the DEDC in the Incentives Regulations; and

(4) The owner submits to the Secretary of the DEDC a certification from the CRIM attesting that at the time the project was completed, the housing units did not have a lien or tax burden.

Section 2073.08.- Requirement- Developers of Affordable Housing Subsidized by the Government of Puerto Rico.

a) In Affordable Housing Projects approved and subsidized in whole or in part by the Government of Puerto Rico, the Developer shall reserve five percent (5%) of the Housing units to be designated as residences for Elderly Persons or for Persons with Disabilities who qualify to acquire them. If said units have not been sold upon the completion of the Housing project, the Developer shall be authorized to sell them in the free market.

SUBCHAPTER D – SPECIAL PROVISIONS

Section 2074.01.- RECs Processing by the DEDC.

The DEDC may establish a reasonable processing fee for each REC to be paid by the owner of the REC. The processing fee may be included in the price of each processed REC. Any income earned by means of the imposed processing fees shall be used to defray the operating expenses incurred to ensure the attainment of the purposes and objectives of this Chapter.

Section 2074.02.- Green Energy Successor Business.

(a) General Rule.- A Green Energy Successor Business may avail itself of the provisions of this Chapter, provided that:

(1) The Exempt Green Energy Predecessor Business has not ceased operations for more than six (6) consecutive months before the filing of the application for exemption by the Green Energy Successor Business, nor during the exemption period of the successor business, unless this is due to a Force Majeure.

(2) The Exempt Green Energy Predecessor Business maintains its annual average number of jobs for the three (3) taxable years ending at the close of its Taxable Year prior to the filing of the application for exemption by the Green Energy Successor Business, or the applicable part of said period while the Green Energy Successor Business’ Decree is in effect, unless said average cannot be maintained due to Force Majeure.

(3) The number of jobs of the Green Energy Successor Business after its first year of operations is greater than twenty-five percent (25%) of the average annual number of jobs of the Exempt Infrastructure Predecessor Business referred to in paragraph (2) of this subsection.

(4) The Green Energy Successor Business does not use the physical facilities, including land, buildings, machinery, equipment, inventory, supplies, trademarks, patents, and marketing outlets, that have a value of fifty thousand dollars ($50,000) or more and which have been previously used by the Exempt Green Energy Predecessor Business. The foregoing shall not apply to additions to Property Devoted to the Production of Green Energy, even when said additions constitute physical facilities with a value of fifty thousand dollars ($50,000) or more and which are being or have been used by the main unit or Exempt Green Energy Predecessor Business. The foregoing notwithstanding, the Secretary of the DEDC may determine, upon recommendation of the agencies issuing tax exemption reports, that the use of the physical facilities or the acquisition of any facility of an Exempt Green Energy Predecessor Business that is or was in operation shall serve the best economic and social interests of Puerto Rico, in view of the nature of said facilities, the number of jobs, the amount of the payroll, the investment, the location of the project, or other factors that in his judgment merit said determination.

(b) Exceptions.-Notwithstanding the provisions of subsection (a) of this Section, the conditions shall be deemed to be complied with, when:

(1) The Green Energy Successor Business assigns to the Exempt Green Energy Predecessor Business such a portion of its annual number of jobs as may be necessary so that the annual number of jobs of the Exempt Green Energy Predecessor Business is maintained at or is equal to the annual number of jobs that said Exempt Green Energy Predecessor Business must maintain. The assignment provided herein shall not be covered by the Decree of the Green Energy Successor Business, but it shall enjoy the benefits provided under this Chapter, if any, with respect to the portion so assigned which the Exempt Green Energy Predecessor Business would have enjoyed, as if such a portion had been its own annual production. If the exemption period of the Exempt Green Energy Predecessor Business has expired, the Green Energy Successor Business shall pay the appropriate taxes on such a portion of its annual production assigned to the Exempt Green Energy Predecessor Business.

(2) The Green Energy Successor Business declares as not covered by its Decree, for property tax purposes, such portion of its facilities as may be necessary so that the investment in physical facilities of the Exempt Green Energy Predecessor Business is maintained at or is equal to the total investment in physical facilities at the close of the Taxable Year of such Exempt Green Energy Predecessor Business prior to the filing of the application for exemption of the Green Energy Successor Business, minus depreciation thereon and minus any decrease in the investment in physical facilities that may have occurred as of the date the provisions of this paragraph are applied as a result of an authorization to use them under paragraph (4) of subsection (a) of this Section. In those cases where the tax exemption period of the Exempt Green Energy Predecessor Business has not expired, the Green Energy Successor Business shall enjoy the benefits provided by this Code which the Exempt Green Energy Predecessor Business would have enjoyed with respect to the portion of its investment in said physical facilities that, for purposes of this paragraph it declares as not covered by its Decree, if said facilities had been used in producing its Green Energy Income.

(3) The Secretary of the DEDC determines that the operation of the Green Energy Successor Business serves the best economic and social interests of Puerto Rico, in view of the nature of the physical facilities, the number of jobs, the payroll amount, the investment, the location of the project or any other factors that in his judgment merit said determination, including the financial state of the particular Exempt Business, and waives its full or partial compliance with the provisions of subsection (a) of this Section, may condition such operations as may be convenient and necessary to serve the best interests of Puerto Rico.

Section 2074.03.- Sale of Electric Power to the Electric Power Authority.

Eligible Businesses that carry out any of the eligible activities provided in paragraphs (6), (7), (8), (9), and (10) of Section 2071.01 and that are completely disconnected from the electrical system of the Puerto Rico Electric Power Authority shall not be required to sell electric power they generate to the Authority in order to obtain or maintain a Decree under this Code, regardless of any other legal provision to the contrary.

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