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 9: Incentives for Creative Industries

SUBCHAPTER A – ELIGIBILITY

Section 2091.01.- Businesses Engaged in Creative Industries

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

(1) Film Projects - A Person may obtain a Grant in connection with a Film Project; provided, that:

(i) the production or post-production of the Film Project is carried out in whole or in part in Puerto Rico;

(ii) the Film Project is intended for airing, commercial distribution or exhibition to the general public outside of Puerto Rico by any means and media, except for the Film Projects listed in clauses (A), (B), and (C) of subparagraph (iv) of this paragraph (1) below, which may be intended for airing, commercial distribution or exhibition to the general public in Puerto Rico. The Secretary of the DEDC shall determine that Film Projects, other than those listed in clauses (A), (B), and (C) of subparagraph (iv) of this paragraph (1), whose airing, distribution or exhibition outside of Puerto Rico is considered incidental or minimal or which are intended for use in Puerto Rico, fail to comply with the provisions of this paragraph; and

(iii) that Puerto Rico Production Expenditures are at least fifty thousand dollars ($50,000.00); provided, that in the case of Film Projects described in (B) and (C) of subparagraph (iv) of this paragraph (1), Puerto Rico Production Expenditures are at least twenty-five thousand dollars ($25,000.00).

(iv) For the purposes of this Code, the term “Film Project” means:

(A)  Feature films.

(B)  Short films.

(C)  Documentaries.

(D)  Television series, miniseries, and television programs similar in nature, including pilot episodes and those produced for digital distribution. Provided, further, that in all of these cases, the airing, distribution, or exhibition outside of Puerto Rico shall not be considered incidental or minimal.

(E) Commercials broadcast outside of our jurisdiction, including campaigns consisting of various advertisements; provided, that all of the campaign advertisements are included under a single contract or purchase order with aggregate Puerto Rico Production Expenditures of at least one hundred thousand dollars ($100,000.00), which individually meet all other requirements established in this subchapter, except for the minimum cost established in subparagraph (iii) of paragraph (1) of this subsection, and any other requirement prescribed by the Secretary of the DEDC in the Incentives Regulations or circular letter.

(F)  Video games.

(G)  Television programs, including but not limited to reality shows, talk shows, news programs, game shows as well as entertainment, comedy, and children’s programs and variety shows.

(H) The post-production of one or several Film Projects listed above; provided, that all Film Projects are included under a single contract or purchase order with aggregate Puerto Rico Production Expenditures of at least one hundred thousand dollars ($100,000.00), which individually meet all other requirements established in this Code, except for the minimum cost established in subparagraph (iii) of paragraph one (1) of this subsection, and any other requirement prescribed by the Secretary of the DEDC in the Incentives Regulations or circular letter.

(I)  Film Festivals.

(J)  Music videos.

(K) A Film Project does not include any of the following:

1. A production that primarily consists of religious or political advertising;

2. a production that includes pornographic material;

3. a radio program;

4. a production intended primarily to promote a product or service other than a commercial pursuant to clause (E) of subparagraph (iv) of this paragraph (1);

5. a production with the primary purpose of raising funds;

6. a production intended primarily for employee training or in-house corporate advertising or other similar production, or

7. any other project as prescribed by the Secretary of the DEDC in the Incentives Regulations or circular letter.

(v) A Film Project may:

(A) Use as source real images as well as animation or electronically generated images;

(B) use for its production any means currently available or that may be developed in the future, including, but not limited to: celluloid, tape, disc or paper. The medium may be magnetic, optic, ink or any other that is developed in the future. The form of recording and reproducing images and sound may be analog, digital or any other developed in the future; or

(C) be disseminated in any media, including electronic media.

(2) Studio Operators or Post-Production Studios that directly, or through an authorized grantee, as such term is defined, properly operate a Studio or Post-Production Studio as well as the components required to render the necessary services to satisfy the commercial needs of Film Projects.

(i) Any bona fide office, business or establishment and the equipment and machinery thereof, with the necessary capacity and skills to render commercial-scale services to a Studio Operator, shall be considered a strategic supplier, provided, that such services: (i) are directly related to the development, preproduction, production, postproduction, and distribution of a Film Project;

(ii) are indispensable for the Studio Operator to meet its obligations under paragraph (2) of subsection (a) of this Section; and

(iii) are repeatedly and exclusively rendered to a Studio Operator. A Person who renders services sporadically to a Studio Operator shall not be considered a strategic supplier.

(3) Strategic suppliers or Grantees authorized by the Secretary of the DEDC that meet the requirements established in subparagraph (i) of paragraph (2) of this subsection.

(i) Authorized suppliers or Grantees shall enjoy the same benefits available to the Studio Operator under its Grant as a Grantee directly engaged in such activity.

(4) Infrastructure Projects that include the development or substantial expansion in Puerto Rico of Studios, laboratories, facilities for the international transmission of television images or other media, or other permanent facilities to carry out Film Projects, whether said projects avail themselves of the provisions of this Code, whose hard costs budget, as certified by the Auditor, exceeds five hundred thousand dollars ($500,000).

SUBCHAPTER B – TAX BENEFITS

Section 2092.01.- Income Tax.

In General.- The net income of a Grantee directly derived from the exploitation of eligible activities under this Chapter and covered under a Grant shall be subject to a four-percent (4%) preferential flat income tax rate, in lieu of any other tax, if any, provided by the Puerto Rico Internal Revenue Code or any other Puerto Rico law.

(b)[sic] Studio Operators.- A Studio Operator shall be subject to a four- percent (4%) preferential flat tax rate on its net income derived from the exploitation of activities covered under the Grant as provided in subsection (a)[sic] of this Section.

(c) Rental of Personal Property. Notwithstanding the provisions of the Puerto Rico Internal Revenue Code, this Code, or any other law of Puerto Rico, payments made after July 1, 2019, by the holder of a Grant issued under this Code or under Prior Incentives Laws to nonresident individuals, corporations, foreign partnerships or other foreign persons not engaged in trade or business in Puerto Rico on account of rental of personal property located in Puerto Rico or any interest thereon, including rental for using personal property in Puerto Rico, provided, that said property is used directly or indirectly in eligible activities under this Chapter, shall not be subject to income taxes, income tax withholding at the source, or the sales and use tax. Provided, however, that to enjoy the exemption granted in this subsection, the Grantee shall submit to the Department of the Treasury and the Secretary of the DEDC for approval a certification stating that the real property was not available in Puerto Rico to be used directly or indirectly in eligible activities under this Chapter.

(d) Special Tax for Foreign Persons.- A special twenty percent (20%) tax shall be imposed, collected, and paid, in lieu of any other tax provided in the Puerto Rico Internal Revenue Code, on the total amount received by any individual Foreign Person, or by an Entity hiring the services of a Foreign Person to render services in Puerto Rico in connection with a Film Project, and which constitutes wages, fringe benefits, per diems, or fees. In the event this twenty percent (20%) tax applies to an Entity hiring the services of a Qualified Nonresident, the portion of the payment received by the Entity that is subject to this special tax shall not be subject to the special twenty percent (20%) tax when paid by the Entity to the Foreign Person.

(1) Duty to Deduct and Withhold.- Any person who controls, receives, custodies, disposes, or pays the compensation amounts described in subsection (c) of this Section, shall deduct and withhold the twenty percent (20%) tax and shall pay the amount of said tax thus deducted and withheld at the Internal Revenue Collection Office of the Department of the Treasury, or deposit it in any of the banking institutions designated as depositaries of public funds authorized by the Secretary of the Treasury to receive said tax. The tax shall be paid or deposited on or before the fifteenth (15th) day of the month following the date on which the payment subject to the twenty percent (20%) withholding imposed by this subsection was made. The amounts subject to the deduction and withholding imposed by this subsection shall not be subject to the provisions of Section 1062.08 or 1062.11, of the Puerto Rico Internal Revenue Code, or any provision that substitutes it or that is contained in any other similar law.

(2) Failure to Withhold.- If the withholding agent, in violation of the provisions of paragraph (1) of subsection (c) of this Section, fails to withhold the twenty percent (20%) tax imposed by subsection (c) of this Section, the amount that should have been deducted and withheld —unless the person who received the income has satisfied his tax liability to the Secretary of the Treasury— shall be collected to the withholding agent, following the same procedure that would be used if it were a tax owed by the withholding agent. The Person who receives the payment shall be required to pay the tax not withheld by filing a return within the period provided in Section 1061.16 of the Puerto Rico Internal Revenue Code and the payment of the tax pursuant to the provisions of Section 1061.17 of the Puerto Rico Internal Revenue Code. Even if the person who receives the payment pays the appropriate tax, the withholding agent shall be subject to the penalties provided in paragraph (5) of this subsection.

(3) Tax Liability.- Any person who has the obligation to deduct and withhold the twenty percent (20%) tax imposed by subsection (c) of this Section, shall be liable to the Secretary of the Treasury for the payment of said tax and shall not be liable to any other person whatsoever for the amount of any payment thereof.

(4) Withholding Return.- Any person who has the obligation to deduct and withhold the twenty percent (20%) tax imposed by subsection (c) of this Section shall file a withholding return on or before February 28 of the year following the year in which the payment was made. Said return shall be filed with the Secretary of the Treasury and shall contain such information and be prepared in the manner prescribed by the Secretary of the Treasury through regulations. Any person who files the return required by this subsection shall not be required to file the declaration required under subsection (j) of Section 1062.08 of the Puerto Rico Internal Revenue Code.

(5) Penalties.- For the provisions regarding penalties and additions to the tax, see Section 6041.01 of Subtitle F of the Puerto Rico Internal Revenue Code.

(e) Tax Exemption on Distributions in Liquidation. – Distributions made by an Exempt Business holding a Grant under this Chapter to its shareholders or partners in a total or partial liquidation of the Exempt Business that are attributed to income derived from the exploitation of activities covered under the Grant shall be fully exempt from the payment of income taxes, including the alternative minimum tax and the alternate basic tax provided in the Puerto Rico Internal Revenue Code.

Section 2092.02.- Special Deductions for Businesses Engaged in the Film Industry.

(a) Duly authorized gifts from private persons to nonprofit entities for the production of Film Projects such as feature films, short films, documentaries, film festivals or educational activities directed at training and development of the Film Industry.

(1) To enjoy this special deduction, gifts shall not exceed one hundred thousand dollars ($100,000.00) per Film Project. Private persons may deduct gifts from the income tax return up to twenty-five percent (25%) of their total tax liability in Puerto Rico. No donor may have a liaison with the Film Project or receive any benefit for the production. The Secretary of Economic Development and Commerce shall prescribe by regulations the additional conditions of the program.

Section 2092.03.- Tax on Real or Personal Property.

Real or personal property devoted to film activities covered by a Grant that would otherwise be subject to taxation, shall be entitled to a seventy-five percent (75%) exemption from all municipal and state taxes on real or personal property. Real or personal property taxes shall be assessed, imposed, notified, and administered pursuant to the provisions of Act No. 83-1991, as amended, known as the “Municipal Property Tax Act of 1991,” or any future law in effect on the date in which the tax is assessed and imposed.

Section 2092.04.- Municipal License Taxes and Other Municipal Taxes:

(a) No Grantee shall be subject to municipal license taxes, excise taxes, and other municipal income taxes imposed by a municipal ordinance, as of the effective date of the Grant.

(b) Every Grantee as well as its contractors or subcontractors shall enjoy a seventy-five percent (75%) exemption from any tax, liens, license, excise tax, rate, or tariff for the construction of works to be used in activities covered under the Grant within a municipality, imposed by any ordinance of any municipality, as of the effective date of the Grant. The contractors or subcontractors who work for a Grantee shall determine their volume of business for municipal license tax purposes, by deducting the payments they are required to make to subcontractors under the prime contract entered into with the Grantee. Subcontractors, who, in turn, use other subcontractors within the same project, shall also deduct the corresponding payments in the determination of their volume of business. A contractor or subcontractor may deduct the payments described in the preceding paragraph from their respective volumes of business only if the contractor or subcontractor certifies, through an affidavit, that he did not include in the contract entered into for the works or services to be rendered with respect to the Grantee, an item equal to the municipal license tax resulting from the volume of business deducted pursuant to this Section.

Section 2092.05.- State Excise Taxes and Sales and Use Tax

(a) Products for use and consumption introduced or acquired directly by a Grantee to be used exclusively in film industry activities covered under a Grant are hereby exempt from the payment of the excise taxes imposed by Subtitle D of the Puerto Rico Internal Revenue Code, insofar as they remain in Puerto Rico temporarily.

Section 2092.06.- Tax Exemption Periods.

(a) Commencement of the Exemption.- The tax benefits granted under this Subchapter shall be effective on the date established in the Grant.

(b) Grants issued in connection with Film Projects may be effective prior to the filing of the application for Grant and the effective term thereof shall be equal to the life of the project, including the exploitation thereof, as prescribed by the Secretary of the DEDC through the Incentives Regulations. Grants issued to Studio Operators shall be valid for fifteen (15) years.

(c) A Studio Operator holding a Grant shall have the option to choose the specific taxable years to be covered as to their income taxes, municipal license taxes, or property taxes when so notified to the Secretary of the Treasury, the Municipality or the CRIM, as applicable, and the Secretary of the DEDC not later than the due date prescribed by law for filing their income tax return for such Taxable Year, declaration of volume of business or personal property tax return, including any extensions granted therefor. In the case of real property taxes, the CRIM shall be notified within sixty (60) days before January first (1st) of the Fiscal Year in which such option is to be exercised. Once a Studio Operator opts for this benefit, the exemption period corresponding to such operator shall be extended for the number of taxable years in which such exemption was not enjoyed under the Grant.

(d) Grants issued under the provisions of this Chapter shall be transferable, subject to prior authorization of the Secretary of the DEDC.

Section 2092.07.- Tax Basis.

The tax basis of an investment made by a Grantee shall be determined pursuant to the provisions of the Puerto Rico Internal Revenue Code, except that said basis shall be reduced dollar for dollar, but never below zero, by the amount of the Tax Credit received by the Grantee.

Section 2092.08.- Other Tax Benefits.

(a) Any judicial, public or private deed, petition or document related to the recordation, entry, 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 of Puerto Rico executed in connection with parcels of land located within the Creative Industries Development Districts shall be exempt from the payment of internal revenue, legal aid and notarial assistance stamps, and Property Registry of Puerto Rico presentation and recordation vouchers including, but not limited to, internal revenue, legal assistance or any other stamp taxes 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 of Puerto Rico. In each case, the exemption shall be subject to the prior approval of the Secretary of the DEDC. The approval of the Secretary of the DEDC shall be evidenced by a certification issued by him, a copy of which (i) must be delivered to the notary, Property Registrar of Puerto Rico, Court of Law, or any other Entity before which the exemptions provided herein are being claimed, and (ii) shall accompany any deed or document filed with the Property Registry of Puerto Rico. The persons and entities included in this paragraph are hereby authorized to rely on the certification issued by the Secretary of the DEDC, which shall be presumed final and binding for all legal purposes.

(b) The term “real property or contractual right that has access to the Property Registry of Puerto Rico” used in the subsection (a) of this Section, includes all real property rights or personal rights which currently have or may in the future have access to the Property Registry of Puerto Rico including, without limitation: (A) Easements, whether legal, real or personal or equitable easements; (B) constitution of horizontal property, timeshare, vacation club, or Condo hotel property regimes; (C) surface or construction rights, and any other acknowledgement of construction or certification of completion of construction or improvement, the registration of which is requested in the Puerto Rico Registry of Property; (D) leases; (E) mortgages; (F) purchases; (G) exchanges; (H) gifts; (I) rights of first offer, refusal, and repurchase and annuities; (J) private water rights; (K) administrative grants; (L) options to purchase, and (M) use restrictions and conditions.

SUBCHAPTER C – REQUIREMENTS FOR GRANTING EXEMPTIONS

Section 2093.01.- Grant Application Requirements.

(a) Any person who has established or intends to establish an Eligible

Business in Puerto Rico under this Chapter, may apply for the benefits of this Chapter upon filing an application with the Secretary of the DEDC, as provided in Subtitle F of this Code.

(b) Any person may apply for the benefits of this Code; provided, that he meets the eligibility requirements of Subchapter A of this Chapter, and any other criteria prescribed by the Secretary of the DEDC in the Incentives Regulations, administrative order, circular letter or any other general communication, including as an evaluation criteria, the contribution to be made by the Eligible Business to the economic development of Puerto Rico.

SUBCHAPTER D – SPECIAL PROVISIONS

Section 2094.01.- Establishment of Creative Industries Development Districts.

(a) The Secretary of the DEDC shall designate parcels of land (whether adjoining or not) as “Creative Industries Development Districts.” Such geographic areas shall consist of real property or properties devoted to the development, construction, and operation of Studios and other related developments consistent with the purposes and the provisions of this Code, regardless of the owner thereof. In those cases where the owner of a parcel is a private person or municipality it may only be designated as a Creative Industries Development District with the consent of said owner or municipality.

(b) Parcels of land designated or to be designated as part of the Creative Industries Development Districts owned by the Government of Puerto Rico may be transferred upon such consideration and in accordance with the terms and/or conditions established by the owner of the parcels and the Secretary of the DEDC. Notwithstanding the foregoing, the Transfer of the property shall not be a prerequisite to its designation as Creative Industries Development District. Any law, rule, regulation, policy, norm or guideline limiting the terms or conditions for the Transfer of such parcels beyond those terms and conditions that would ordinarily apply to transactions between Private persons shall not apply Transfers contemplated in this paragraph. The Secretary of the DEDC may impose on the Transfer of real property that is part of the Creative Industries Development Districts such conditions as he deems consistent with furthering the development, construction, expansion, and/or operation of Creative Industries Development Districts and furthering the purposes of this Code.

(c) Upon establishment of the Creative Industries Development Districts, the Secretary of the DEDC, together with the President of the Puerto Rico Planning Board, in accordance with the provisions of the “Organic Act of the Puerto Rico Planning Board,” Act No. 75 of June 24, 1975, as amended, and Act No 81-1991, as amended, known as the “Autonomous Municipalities Act of 1991,” shall promulgate and adopt a joint zoning regulation that shall apply to the development, zoning, and use of the lands designated by the Secretary of the DEDC as Creative Industries Development Districts. Any development, zoning, and use of the lands designated as Creative Industries Development Districts shall be governed solely by such joint zoning regulation and shall not be subject to any other law, rule, regulation, policy, norm, or guideline issued by the Puerto Rico Planning Board or the municipalities with jurisdiction over the designated parcel(s) pursuant to Act No 81-1991, as amended, known as the “Autonomous Municipalities Act of 1991.”

(d) The parcels of land comprising all or any part of the Creative Industries Development Districts may be encumbered by such restrictive covenants, governance systems, rules, or regulations, and architectural, design, and construction guidelines as the Secretary of the DEDC from time to time may prescribe, and any such restrictive covenants, systems, rules, regulations, and guidelines may be amended, cancelled or modified at any time and from time to time with the approval of the Secretary of the DEDC.

(e) The Secretary of the DEDC shall have authority to: (i) impose regular, general or special charges, quotas or fees against any and all parcels in the Creative Industries Development Districts, and (ii) impose and collect fees upon the Transfer of any real property interest in the Creative Industries Development Districts or upon the construction of any improvements in the Creative Industries Development Districts, to pay for the construction of improvements and infrastructure in common areas, maintenance and repairs to common areas, landscaping, security, signage, lighting and the rendering of common services; provided, however, that such charges, quotas or fees shall not constitute the imposition of a tax. This subsection shall not apply to properties owned by a Municipality.

(f) A legal lien is hereby created to secure the collection of taxes and fees imposed and/or assessed upon parcels of land in the Creative Industries Development Districts. This lien shall have priority over any other lien, except for the lien securing outstanding transferred tax debts as provided by Act No. 21-1997, as amended, known as the “Tax Debt Sale Act”; the lien in favor of the CRIM securing the collection of real property taxes; the lien securing the collection of taxes under Act No. 207-1998, as amended, known as the “Puerto Rico Tourism Development Districts Act of 1998”; the lien securing the collection of the special tax on properties located within a business improvement district or a residential improvement zone authorized by Act No. 81-1991, as amended, known as the “Autonomous Municipalities Act of 1991”; and any other lien securing the payment of taxes used to fund public infrastructure. After the first Transfer of any parcel of land in the Creative Industries Development Districts, a voluntary transferee shall be jointly and severally liable for any unpaid taxes and fees at the time. The voluntary transferee shall have the right to be reimbursed by the seller any amount paid to satisfy any unpaid taxes and fees through and including the day of the closing of the Transfer in question. This subsection shall not apply to properties owned by a Municipality.

(g) The Secretary of the DEDC may enter into agreements for the development and operation of the Creative Industries Development Districts with any Person and may impose any conditions he deems consistent with furthering the development, construction, expansion, or operation of the Creative Industries Development Districts and furthering the purposes of this Code.

(h) The Secretary of the DEDC shall have authority to certify any Transfer’s compliance with the rules, requirements, and/or obligations set forth in this Section.

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