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 8: Incentives for Agriculture

SUBCHAPTER A – ELIGIBILITY

Section 2080.01- Companies Engaged in Agriculture, the Livestock Industries, and Agro-industries

(a) It is hereby provided that a business established or to be established in Puerto Rico by any Person, or combination of the different types of Persons, whether organized or not under a common name, may file with the Secretary of the DEDC, upon a technical recommendation from the Secretary of Agriculture, an application for Incentives when such Person establishes in Puerto Rico to perform or carry out one of the following eligible activities:

(1)  The activities of the Puerto Rico Milk Industry, Inc.

(2)  Livestock or agro-industrial businesses engaged in the operation or development in Puerto Rico of one or more of the following businesses:

(i) The farming and/or cultivation of land for the production of fruit and vegetables, spices for condiments, seeds, and all kinds of foodstuffs for human beings or animals, or raw materials for other industries;

(ii) The raising of animals for the production of meat, milk, or eggs among others, used as foodstuffs for human beings, or raw materials for other industries;

(iii) The breeding of thoroughbred race horses, breeding of paso fino horses, and breeding of saddle horses;

(iv) The agro-industrial and livestock operations that acquire raw materials produced in Puerto Rico, provided that they are available.

(v) The milk producers, manufacturers, and milk sterilizers and their agents; provided, that the milk used is extracted from the milking done in Puerto Rico.

(vi) The Operations engaged in the packing, crating, or labeling of agricultural produce cultivated in Puerto Rico that are part of the same agro- industrial business. The operations that are exclusively related to the packing, crating, or labeling of agricultural produce shall not constitute an agro-industrial business.

(vii) Mariculture, commercial marine fishing, and aquaculture.

(viii) The commercial production of flowers, plants, and ornamental grasses for the local market and for export, not including the professional services of landscapers.

(ix) The cultivation of vegetables with hydroponic methods, tents, and other equipment used for such purposes.

(x) The production of grain for livestock businesses by bona fide Farmer’s associations.

(xi) The breeding of gamecocks and the production of spurs.

(xii) Any other business that, upon receiving an eligibility recommendation from the Secretary of Agriculture, the Secretary of DEDC considers a livestock or agro-industrial business pursuant to the Incentives Regulations and in consultation with the Secretary of Agriculture; provided, that the business is not inconsistent with the purpose of this Code.

SUBCHAPTER B – TAX BENEFITS

Section 2082.01.- Tax Exemptions.- Puerto Rico Milk Industry, Inc.

(a) In General- The Puerto Rico Milk Industry, Inc. is hereby exempted from the payment of income taxes, municipal license taxes, property taxes, excise taxes, duties, and any other type of import duty or purchase tax on its machinery.

(b) For purposes of the exemption provided in this Section, the requirements provided in Section 2083.02 of this Code must be met.

Section 2082.02.- Bona-fide Farmers Income Tax.

(a) In General.- Bona-fide Farmers are hereby exempted from the payment of income taxes on ninety percent (90%) of their income derived directly from the livestock or agro-industrial business. This exemption does not include income from interest, dividends, bonuses, or profits derived from the sale of assets, including those assets used in the agricultural business, or any other income derived from the livestock or agro-industrial businesses of bona-fide Farmers which is not derived directly from livestock or agro-industrial activity, as defined and established in paragraph (2) of subsection (a) of Section 2081.01 of this Code.

(b) Any interest on bonds, promissory notes, and other debt instruments executed after January 1, 1996, by bona-fide Farmers and any Financial Institution, as said term is defined in Act No. 4 of October 11, 1985, as amended, known as the “Financial Institutions Commissioner’s Office Act,” or issued in transactions authorized by the Commissioner of Financial Institutions, related to the financing of livestock or agro-industrial businesses, shall be exempt from the payment of income taxes.

(c) The shareholders or partners of an Exempt Business holding a Decree under the provisions of this Chapter and that are engaged in the activities listed in paragraph (2) of Subsection (a) of Section 2081.01 of this Code, shall be subject to the income taxes provided in the Puerto Rico Income Tax Code on dividend distribution or the net income benefit of such Exempt Business.

Section 2082.03.- Real and Personal Property Tax.

Bona-fide Farmers engaged in the activities provided in paragraph (2) of subsection (a) of Section 2080.01 of this Code, and that also hold a Decree granted under this Code, shall be exempt from the payment of property taxes imposed by the

“Municipal Property Tax Act,” including real and personal property, whether tangible or intangible, such as land, buildings, equipment, accessories, and vehicles owned, leased, or held in usufruct, and used in thirty-five percent (35%) or more of such activities covered by the Decree.

Section 2082.04.- Municipal Tax.

Bona-fide Farmers engaged in the activities provided in paragraph (2) of subsection (a) of Section 2080.01 of this Code and that hold a Decree granted under this Code shall be exempt from the payment of municipal license taxes imposed under the “Municipal License Tax Act” on activities covered by the Decree.

Section 2082.05.- Exemption from the Payment of Excise Taxes and the Sales and Use Tax.

(a) All Bona-fide Farmers engaged in the activities provided in paragraph (2) of subsection (a) of Section 2080.01 of this Code, and that hold a Decree under this Code are hereby exempted from the payment of excise taxes and the sales and use tax, if applicable, as provided in Subtitles C, D, and DDD of the Puerto Rico Internal Revenue Code, provided that they meet the requirements of Section 2083.05 of this Code, on the following articles when they are introduced or acquired directly or indirectly by them to be used in such activities:

(1) Incubators and breeding places for poultry and other animals; articles for the breeding and raising of bees and cattle;

(2) Milkers, including electric milkers, fillers for silos, and tanks used by livestock farmers to preserve milk in farms or livestock farms;

(3)  Electric generators;

(4)  Equipment, devices, and objects that operate solely on solar, wind, hydraulic, or any other type of power, excluding the power generated from crude oil and petroleum products;

(5) Equipment used by coffee producers to process the beans from the moment they are harvested until they are suitable for roasting; equipment and devices used in the production, processing, pasteurization or production of milk or its derivatives;

(6) Equipment used to mix food in the farm and the food distribution systems for animals or bees in the farms; treated posts and wire for fencing the farms;

(7) Equipment and devices used for raising poultry and in the production of eggs, and semen for the breeding of livestock;

(8) Equipment, devices or objects used by bona-fide Farmers in the business of producing and cultivating vegetables, seeds, coffee, mango, legumes, sugar cane, ornamental flowers and plants, grass or hay for livestock fodder, farinaceous products, fruit, pigeon peas and pineapples, for livestock, horticulture, cuniculture, pig breeding, aviculture, apiculture, aquaculture, and fishing; for cattle or goat breeding for meat or milk; for the production, processing, pasteurization or sterilization of milk or its derivatives, for the breeding of native saddle horses, native thoroughbred horses, Puerto Rican purebred paso fino horses, breeding of fighting cocks and spur production, and any other activity determined by the Secretary of the DEDC upon recommendation of the Secretary of Agriculture;

(9) Honey or molasses as fodder for cattle; any other food for livestock, rabbits, goats or sheep;

(10) Spare parts including, but not limited to, tires and tubes for aircraft used in agro-industrial activities;

(11) Any kind of vehicle other than automobiles used in agricultural activities.

(i) The exemption established in this paragraph shall also apply to the replacement of said vehicles; provided, that the motor vehicle to be replaced was owned by a Bona-fide Farmer for use in the agricultural business for a period of not less than four (4) years. However, when the vehicle to be replaced has lost its utility due to accidental causes not attributed to the owner’s negligence, the exemption shall be applicable to the replacement. When the owner of a vehicle who is enjoying benefit of this exemption, sells, transfers, or otherwise alienates it, for a price that does not exceed five thousand seven hundred sixty-nine dollars ($5,769), the new owner shall be required to pay a minimum excise tax of two hundred fifty dollars ($250.00), before taking ownership thereof. In the event the price exceeds five thousand seven hundred sixty-nine thousand dollars ($5,769), the new owner shall be required to pay the excise tax set forth in the table provided in Section 3020.08 of the Puerto Rico Internal Revenue Code.

(ii) The amount of the excise tax to be paid shall be calculated based on the taxable price on which the exemption was granted, minus the depreciation. It shall be the responsibility of the exempt person to require the new owner to show evidence of having paid the excise tax before handing over the vehicle. When the new owner is another Bona-fide Farmer, he may avail himself of the benefits provided in this paragraph for the remainder of the four (4)-year term exemption period originally granted.

(12) Gas oil or diesel oil used solely for the operation of machinery and vehicles used for agriculture, husbandry, aviculture or for the breeding of native thoroughbred horses or purebred Puerto Rican paso fino horses, or in the operation of machinery or vehicles of producers, processors, pasteurizers, or sterilizers of milk and its derivatives as well as other equipment used in different agro-industrial and livestock operations;

(13) Tractors, plows, rakes, mowing machines, planters, and any other accessory equipment for tractors, including the parts thereof, to be used in the agro- industrial business by Bona-fide Farmers;

(14) Herbicides, insecticides, pesticides, and fertilizers, including the equipment for the application thereof;

(15) Drip irrigation systems, sprinklers, including but not limited to pumps, pipes, valves, timers, filters, injectors, chemigation equipment, shading structures for steel, aluminum or wood bales, materials for shipping, material for propagation beds, planting stock, planters, baskets and trays, plant support materials (wood or bamboo stakes), plastic mulch or ground cover, steel, aluminum or treated wood nurseries, saran shade cloth or fiberglass to roof the nurseries;

(16) Equipment, machinery, and materials used in the hot water treatment process for the mangos to be exported;

(17) Systems, equipment, and materials used for environmental control as required by the regulatory agencies to operate their business;

(18) Structures, shading structures, and other equipment used for the growing of vegetables with hydroponic methods; and

(19) Spare parts, accessories, and replacements for any of the items described in paragraphs one (1) through eighteen (18) of this subsection, as provided in Subtitle D of the Internal Revenue Code.

(b) To acquire the articles exempted from the sales and use tax which are listed in paragraph (a) of this Section, the Bona-fide Farmer shall show the Exempt Purchases Certificate to the salesperson during each sales transaction.

SUBCHAPTER C – REQUIREMENTS FOR GRANTING EXEMPTIONS

Section 2083.01.- Decree Application Requirements.

(a) Any person that has established or proposes to establish an eligible business in Puerto Rico under the provisions of this Chapter, may file with the Secretary of the DEDC, upon recommendation of the Secretary of Agriculture, an application for the benefits of this Chapter in accordance with the provisions of Subtitle F of this Code.

(b) Any person may apply for the benefits of this Chapter; provided, that they meet the eligibility requirements of Subchapter A and of this Chapter as well as any other criteria that the Secretary of the DEDC prescribes through the Incentives Regulations, administrative order, circular letter, or any general communication. The contribution made by the Exempt Business to the economic development of Puerto Rico shall be included as an evaluation criteria.

Section 2083.02.- Requirements for the Puerto Rico Milk Industry, Inc. Tax Exemption

(a) In General- The Puerto Rico Milk Industry, Inc. may enjoy the benefits of this Chapter provided that the total capital stock of the corporation remains in the Milk Industry Development Fund created by Act No. 34 of June 11, 1957.

(b) When all or part of the Stock ownership is transferred to private persons, the tax exemptions granted shall be rendered ineffective and, after such date, the property and income of the corporation shall be taxable in the same manner as any other private corporation pursuant to the Puerto Rico Internal Revenue Code; likewise, any other tax from which the corporation was exempt shall apply thereto.

Section 2083.03.- Bona-fide Farmer Tax Exemption Requirements

(a) A livestock or agro-industrial business shall be deemed to be eligible for the purposes of this Chapter if fifty-one percent (51%) or more of its gross income is derived from one (1) or more of the eligible activities described in paragraph (2) of subsection (a) of Section 2081.01 of this Code.

(b) New agro-industrial entrepreneur- In the case of new farmers or agro- industrial entrepreneurs who are unable to obtain a Bona-fide Farmer certification, the Secretary of the DEDC, in consultation with the Secretary of Agriculture, shall prescribe in the Incentives Regulations or other special regulations the requirements and procedures for them to avail themselves of the benefits of this Chapter.

Section 2083.04.- Debt Instrument Exemption Requirements

(a) In order to enjoy the exemption on interests provided in subsection (b) of Section 2082.02 of this Code, the lender must grant the loan directly to the Bona- fide Farmer. If the financing is granted to an intermediary who, in turn, lends or otherwise contributes the product of the financing to an agro-industrial business, the loan to the intermediary shall not constitute an eligible loan for purposes of this exemption. The term “intermediary” includes, but is not limited to, related parties pursuant to the criteria established in Sections 1010.04 and 1010.05 of Puerto Rico Internal Revenue Code.

(b) In the case of an agro-industrial business disqualified as such, the interest generated by the debt instruments shall not be considered eligible for the exemption provided under Section 2082.02 of this Code.

(c) The term “financing” does not include the refinancing of the debt insofar as the product is used to pay off existing debts whether from the agro- industrial business or other. Therefore, the income tax exemption on any interest on bonds, promissory notes, and other debt instruments shall not apply to the refinancing.

Section 2083.05.- State Excise Taxes and Sales and Use Tax (SUT) Exemption Requirements

(a) The Bona-fide Farmer who wishes to avail himself of the exemptions provided in Section 2082.05 of this Code shall comply with the Bona-fide Farmer provisions established by the Secretary of Agriculture pursuant to the provisions of this Code and shall certify through the mechanisms to be established by the Secretary of the DEDC, in consultation with the Secretary of Agriculture, that he is engaged in the operation or development of an agro-industrial business, and that he shall use the article for which the exemption was claimed for the operation and development of the business.

SUBCHAPTER D – SPECIAL PROVISIONS

Section 2084.01.- Agricultural Research Incentives

(a) The Department of Agriculture shall be required to promote high technology farming as well as the development of a research plan to promptly address the needs of local businesses, in light of our condition as a tropical Island, and to promote an increase in the production and export of agricultural products.

(b) The Department of Agriculture shall identify the priorities each year in order to grant funds to the best research proposals in accordance with the government’s public policy and shall establish mechanisms and regulations as are necessary to process the research proposals received.

(c) The Department of Agriculture shall submit a formal request to the DEDC through the Economic Incentives Fund for agricultural research that has been identified as a priority, subject to the budget limitations that, from time to time, are imposed by the Legislative Assembly of Puerto Rico.

SUBCHAPTER E – GENERAL PROVISIONS

Section 2085.01- Documents and Recordation in the Puerto Rico Property Registry; Exemption.

Bona-fide farmers are hereby exempted from the payment of Internal Revenue stamps and recordation fees in the execution of documents and recordation in the Puerto Rico Property Registry, including but not limited to the options, segregation, purchase, assignment, exchange, gift, usufruct or lease of personal or real property for the use of their agro-industrial business, as well as the assignment, constitution, extension, modification, release or cancelation of liens on real or personal property, to finance their agro-industrial business and/or jointly and severally secure the financing of the agro-industrial business of another Bona-fide Farmer, regardless of the banking or credit institution used for these purposes. The authorizing notary shall comply with establishing the capacity of the appearing party as a Bona-fide Farmer, taking as reference the certification issued by the Secretary of Agriculture.

Furthermore, in the execution, the appearing Bona-fide Farmer shall state under oath that the binding legal transaction is for the use of his agro-industrial business and/or to jointly and severally secure the financing of another agro-industrial business as defined in this Chapter.

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