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.

Tax Credits

Section 3000.01.- General Rules for the Granting of Tax Credits

(a) The Secretary of the DEDC is hereby authorized to prescribe in the Incentives Regulations the process for the granting of Tax Credits to specific programs and projects in order to maximize their economic impact, the Return on Investment, and yield thereof. Said Tax Credits shall be granted by means of an incentives agreement entered into between the DEDC and the Exempt Business.

(b) The process prescribed in the Incentives Regulations for the selection of projects shall include, but shall not be limited to, the following criteria:

(1) The order of receipt of duly-completed applications that meet all the established requirements;

(2) The availability of funds and financial commitments already made with Investors evidencing the project’s financial feasibility;

(3) Permits already obtained to start the proposed project or activity evidencing the project’s regulatory feasibility;

(4) The level of Tax Credit requested as a percentage of the corresponding investment or cost.

(5) The return on investment of the Tax Credit as a primary and essential criteria, as well as the business contribution to the revenues of the Government of Puerto Rico and the multiplier effect on jobs and income of the activity to be incentivized.

(6) The acquisition of Products Manufactured in Puerto Rico, as defined in this Code.

(c) Tax Exemption.- Any Tax Credit granted under this Chapter to an Exempt Business shall be exempt from income taxes. In addition, it shall be exempt from municipal taxes, including the tax on volume of business.

Section 3000.02.- Additional Rules for the Award, Sale, and Transfer of Tax Credits.-

(a) Tax credits granted under paragraph (a) of this Section shall be subject to the following:

1. Tax credits shall be granted to Exempt Businesses holding a Decree under this Code or under Prior Incentives Laws.

2. Tax credits may be used, with respect to the Taxable Year in question, against one hundred percent (100%) of the tax liability determined for said year in accordance with Subtitle A of the Puerto Rico Internal Revenue Code, including the alternate basic tax applicable to individuals and the alternate minimum tax applicable to corporations, as well as any other income tax imposed by this Code with respect to activities that led to the tax credit, or any other income tax imposed by a special law or combination thereof. In addition, tax credits may be used against the tax liability of any return other than past-due returns, including valid extensions, even if it is from a year before the granting of the tax credit.

3. The Exempt Business shall hold title to the tax credit. In the case of a Condo Hotel, and only for the purposes of the tax credits provided in Section 3010.01 of this Code, the Developer of a Condo Hotel may elect to apply for a tax credit for himself or reserve the tax credit to be claimed by the acquirer of a Condo Hotel unit.

4. Tax credits may be carried over until fully used. However, the Secretary of the DEDC shall be authorized to limit such credits carryover in the Incentives Regulations.

5. Tax credits are nonrefundable.

6. Except for the tax credits provided in Section 3020.01, tax credits or any part thereof issued in accordance with this Code, may be assigned, sold or otherwise transferred, without constituting a taxable event, under the Puerto Rico Internal Revenue Code and the “Municipal License Tax Act,” for the Exempt Business that assigns, sells, or transfers such credits or for the person acquiring such credits. Likewise, in the case of tax credits granted under Section 3010.01(a)(1) and 3010.01 (a)(2) of this Code, such credits may be assigned, sold or otherwise transferred solely by an Exempt Business upon the completion of the construction and development of the entire Tourist Project, and upon determining the total amount of the tax credit on tourist investment, through a certification to such effect issued by the Secretary of the DEDC. Any deduction admitted by the transferee of tax credits granted under the Puerto Rico Internal Revenue Code and the “Municipal License Tax Act.”

7. The basis of assets comprising the total investment generated by the tax credits shall be reduced by the amount taken as credit for such investment, but shall never be reduced to less than zero.

(b) The Secretary of the DEDC is hereby authorized to prescribe in the Incentives Regulations the process for the award of Tax Credits authorized in subsection (a) of this Section, which shall be subject to the same principles established in subsections (a) and (b) of Section 3000.01.

(c) The Secretary of the DEDC is hereby authorized to regulate the provisions of subsection (b) of this Section in the Incentives Regulations, as well as to impose any additional rules or limitations he deems appropriate with respect to the tax credits authorized in subsection (a) of this Section.

CHAPTER 1 – VISITOR ECONOMY TAX CREDITS

Section 3010.01.- Tax Credit for Eligible Tourist Investment

(a) Tax Credit for Tourist Investment.- Any Exempt Business under this Code or Prior Incentive Law may apply, subject to the Secretary of the DEDC’s approval, for a Tax Credit for Tourist Investment, at the election of the Exempt Business, equal to:

(1) Thirty percent (30%) of the Eligible Tourist Investment, as defined in this Code, made after the effective date of this Code.

(i) The Exempt Business may use a portion of the Tax Credit of up to ten percent (10%) of its Eligible Tourist Investment in the year in which the Exempt Business secured the necessary financing for the total construction of the Tourism Project, and

(ii) the balance of the Tax Credit may be taken in three (3) installments: one third (1/3) of the Tax Credit balance for the year in which the Exempt Business receives its first paying guest, and the remaining balance, in equal portions, in the two subsequent (2) years. The Secretary of the DEDC may require a bond to guarantee the recovery of a ten percent (10%) advance if the Exempt Business does not carry out the proposed project.

(2) Forty (40%) percent of its Eligible Tourist Investment, as defined in this Code, made after the effective date of this Code. The Exempt Business may use its Tax Credit in three (3) installments: one third (1/3) of the Tax Credit commencing on the Eligible Business’s second year of operations, and the remaining balance in equal portions in the subsequent two (2) years.

(b) Maximum Amount of Tax Credit for Tourist Investment. The tax credit for tourist investment for each Tourism Project that shall be available to the Exempt Business may be of up to thirty percent (30%) of the Total Cost of the Tourism Project with respect to the Tax credits granted under subsection (a)(1) of this Section, or forty percent (40%) of the Total Cost of the Tourism Project with respect to the Tax credits granted under subsection (a)(2) of this Section, as determined by the Secretary of the DEDC.

(c) Any Eligible Tourist Investment made within a Taxable Year shall qualify for the Tax Credit for Eligible Tourist Investment provided in this Section.

(d) Adjustment to Basis and Recovery

(1) The basis of the Asset comprising any Eligible Tourist Investment shall be reduced by the amount of the Tax Credit claimed, but shall never be reduced to less than zero.

(2) The Exempt Business shall submit an annual report to the Secretary of the DEDC itemizing the total Eligible Tourist Investment in the Tourism Project made as of the date of the annual report. The Secretary of the DEDC shall prescribe in the Incentives Regulations the content of said annual report, including a reconciliation between the Tax Credit received and the total investment made during the year.

(3) Any Exempt Business claiming a Tax Credit under this Section shall apply for a certificate issued annually by the DEDC certifying the Eligible Tourist Investment. In the case of Condo Hotels, the operator of an integrated leasing program shall submit an annual report to the Secretary of the DEDC identifying the units that participate in the integrated leasing program. Said report shall state the participating units’ program starting dates, as well as the date or dates on which one or more units withdrew from the program. If a unit withdraws from the program before the expiration of the fifteen (15)-year period, the Investor shall owe as income taxes an amount equal to the tax credit for Tourist Investment taken by the investor with respect to said unit, multiplied by a fraction whose denominator shall be fifteen (15), and whose numerator shall be the balance of the fifteen (15)-year period as required by this Code. The amount owed as income taxes shall be paid in two (2) installments starting with the first Taxable Year following the date on which the unit is withdrawn from the integrated leasing program. For the purposes of this paragraph, if a Condo Hotel Investor fails to comply with any requirement set forth in the Grant given to him for such purposes, or if such grant is revoked for any reason, it shall be understood that said Investor no longer devotes the condo hotel unit(s) covered under said Grant to an integrated leasing program. In those cases in which a unit is withdrawn from the integrated leasing program to be devoted to any other Tourist Activity that is an exempt business under this Code for a period of not less than the time remaining to complete the fifteen (15)-year period under the integrated leasing program, the recovery of income tax shall not apply to the Investor. If this condition is not met, the subsequent acquirer of the unit shall be liable for any amount to be subsequently recovered as income taxes. Recovery shall not apply to the years during which the unit participated in an integrated leasing program and another Tourist Activity that is an Exempt Business under this Code.

(4) Notice of Commencement of Construction Works.- The Exempt Business shall notify the commencement date of the construction work object of the Tax Credit for Tourist Investment, through an affidavit within a period of ninety days from the commencement date of said work.

(5) Notice of Commencement of Operations.- The Exempt Business shall notify the commencement date of operations, through an affidavit within a period of ninety days from the commencement date of operations.

(e) The proceeds from the sale of a Tax Credit for Tourist Investment shall be applied in the following order: first, to repay any financing provided by any financial institution or government entity including, but not limited to, the Puerto Rico Tourism Company, its subsidiary, the Hotel Development Corporation, and the Economic Development Bank; second, to pay off other loans, if any, granted to the exempt business to defray the total cost of the project or any other expense or disbursement that is part of the total cost of the project; and third, to make distributions to the Exempt Business Investor.

(f) The credit for tourist investment may be assigned, sold or otherwise transferred solely by an Exempt Business Investor, unless said credit is pledged to the Government Development Bank, to any other agency of the Government of the Commonwealth of Puerto Rico, or any other lending institution, the credit for tourist investment granted to an investor for purposes of financing the eligible cost of the tourism project, the creditor of the pledge may sell, assign, or otherwise transfer such acquired credits through (i) the assignment of the credit by the Exempt Business as a Source of repayment for said financing or (ii) the enforcement of the pledge to a third party, if the pledge is enforceable.

CHAPTER 2 – MANUFACTURING TAX CREDITS

Section 3020.01.- Tax Credits for Entities Engaged in Manufacture

(a) Tax Credit for Purchases of Products Manufactured in Puerto Rico.-

(1) If an Exempt Business under this Code or under Prior Incentives Laws purchases Products Manufactured in Puerto Rico, including parts and accessories, or purchases or uses products converted into commercial articles made of recycled materials, or raw material made of recycled or recovered or refit materials by an Exempt Businesses holding a Decree under paragraph (8) of subsection (a) of Section 2061.01 of this Code or similar provisions in Prior Incentives Laws, it may claim a Tax Credit of up to twenty-five percent (25%) of the purchase of such products made during the Taxable Year. This Tax Credit shall be granted solely for purchases of products manufactured by businesses not related to said Exempt Business.

(2) The Secretary of the DEDC shall prescribe in the Incentives Regulations the rules for the granting of this Tax Credit.

(3) Any Exempt Business interested in claiming a Tax Credit under the provisions of this Section, shall request a certificate issued annually by the DEDC certifying the purchases eligible for the Tax Credit.

(4) Notwithstanding the provisions of subsection (b)(6) of Section 3000.02, tax credits granted under this Section shall be nontransferrable, except in the case of an exempt reorganization. The amount of the tax credit not used by an Exempt Business for a taxable year may be carried forward to subsequent tax years, until fully used. This credit shall not generate a refund.

(5) The credit provided in this subsection shall not be available to an Exempt Business holding decree under Prior Incentives Laws, and no credit shall be granted under this Section for the taxable year, if said exempt business claims any special deduction or similar credit under said prior incentives law for said taxable year.

CHAPTER 3. – TAX CREDIT FOR INVESTMENT IN RESEARCH AND DEVELOPMENT

Section 3030.01.- Tax Credit for Science and Technology

(a) Tax Credit for Investment in Research and Development.

(1) Any Exempt Business holding a Decree under this Code or under Prior Incentives Laws may claim, subject to the Secretary of the DEDC’s approval, a Tax Credit for investment of up to fifty percent (50%) of the Special Eligible Investment made in Puerto Rico within the Taxable Year, after the approval of this Code, subject to the limitations, terms, and conditions prescribed by the Secretary of the DEDC.

(2) Any Exempt Business interested in claiming a Tax Credit under the provisions of this subsection, shall request a certificate issued annually by the DEDC certifying that the research and development activities carried out in Puerto Rico are eligible for applying for the Tax Credit provided in paragraph (1) of this subsection. If the Secretary of the DEDC decides not to extend the term provided herein, evaluating on a case-by-case basis, takin into account the best economic and social interests of Puerto Rico, the request for said certificate shall be submitted on or before the due date for filing the income tax return for the Taxable Year in which the Eligible Investment was made, as provided in the Puerto Rico Internal Revenue Code, including any extension granted by the Secretary of the Treasury for the filing thereof. The certification shall include the amount of the Special Eligible Investment, which shall be duly supported upon the filing of Agreed Upon Procedures prepared by a Certified Public Accountant with a valid license in Puerto Rico, and the amount of the Tax Credit granted for each Taxable Year. Said certification shall be attached to the income tax return as a requirement for the granting of the claimed credit.

(3) For the purposes of the Tax Credit provided in this Section, the term “Special Eligible Investment” is defined in Section 1020.01 of this Code.

(4) Granting of Tax Credit.- The Tax Credit to be granted may be taken in two (2) or more installments: fifty percent (50%) of the Tax Credit may be taken in the Taxable Year in which the Special Eligible Investment is made and the balance in subsequent years until fully used.

(5) An amount equal to the Tax Credits received by an Exempt Business for a research and development activity shall be reinvested by the Exempt Business in research and development activities in Puerto Rico.

(6) Adjustment to Basis – The basis of any assets for which the Tax Credit provided in this subsection is claimed, shall be reduced by the amount of the Tax Credit claimed.

(7) The Exempt Business shall not apply for this Tax Credit in relation to a portion of the Special Eligible Investment on which it takes or has taken the deduction established in subsection (b) of Sections 2062.02 and 2072.02 of this Code or similar special deduction under Prior Incentives Laws. This Tax Credit shall not generate a refund.

(8) The Tax Credit provided in this subsection shall not be available to an Exempt Business holding decree under Prior Incentives Laws, and no credit shall be granted under this Section for the taxable year, if the exempt business claims any special deduction or credit under any Prior Incentives Law for said Taxable Year.

CHAPTER 4. –

Section 3040.01.- Reserved.

CHAPTER 5. – TAX CREDIT FOR CREATIVE INDUSTRIES

Section 3050.01.- Tax Credit for Creative Industries

(a) Granting of Tax Credit.- Pursuant to this Section, Grantees engaged in Film Projects may apply for a Tax Credit with respect to Puerto Rico Production Expenditures.

(b) Subject to the limitations, terms, and conditions set forth in this Section, the Tax Credit shall be available to Grantees at the beginning of the activities covered by the Grant in case of Film Projects, as certified by the Secretary of the DEDC. Once the requirements of this Section are met, the Secretary of the DEDC shall authorize the amount of the Tax Credit approved.

(c) Amount of Tax Credit.-

(1) In the case of Film Projects, the Tax Credit available in this Section shall be:

(i) Up to forty percent (40%) of the amounts certified by an Auditor as disbursed in connection with Puerto Rico Production Expenditures, without including payments made to Foreign Persons; and

(ii) Up to twenty percent (20%) of the amounts certified by an Auditor as disbursed in connection with Puerto Rico Production Expenditures, consisting of payments made to Foreign Persons; and

(iii) Up to fifteen percent (15%) of the amounts certified by an Auditor as disbursed in connection with Puerto Rico Production Expenditures, without including payments made to Foreign Persons, in feature films, television series, or documentaries in which a Domestic Producer is in charge of the Film Project and the director, cinematographer, editor, production designer, post- production supervisor, or line producer are Domestic Persons, up to a maximum of four million dollars ($4,000,000) of Tax Credit per Film Project under this item.

(2) In the case of Film Projects, the Tax Credit approved may be used in two (2) or more installments. Fifty percent (50%) of the Tax Credit may be used in the Taxable Year during which the activities covered by the Decree begin, subject to the posting of a Bond acceptable to the Secretary of the DEDC or Auditor’s Certification as provided in subsection (d) of this Section, and the balance of said Tax Credit in subsequent years.

(3) Tax Credits granted under this subsection (c) for payments made to Domestic Persons shall never exceed fifty-five percent (55%) of the total Puerto Rico Production Expenditures, without including payments made to a Foreign Person.

(d) Bond or Auditor’s Certification and Tax Credit Available – In case of Film Projects, up to fifty percent (50%) of the Tax Credit as described in subsection (a) of this Section, shall be available in the Taxable Year in which the Grantee posts a Bond acceptable to the Secretary of the DEDC or the Auditor certifies to the Secretary of the DEDC that fifty percent (50%) or more of the Puerto Rico Production Expenditures have been disbursed, the Exempt Business has commenced the operations covered by the Grant, and the Secretary of the DEDC determines that all other applicable provisions of this Code have been complied with.

(e) The remaining fifty percent (50%) of the Tax Credit approved shall be available in the Taxable Year in which the Auditor certifies to the Secretary of the DEDC that all Puerto Rico Production Expenditures have been paid.

(f) The Certification of the Tax Credit described in subsection (d) of this Section shall be issued within thirty (30) days after the receipt of the Auditor’s Certification. The thirty (30)-day period shall not be tolled if the Secretary of the DEDC requires additional information. However, if the thirty (30)-day period is tolled and the information required has been furnished, the Secretary of the DEDC shall issue the Certification of the Tax Credit within the remainder of the thirty (30)- day period from the receipt of the Auditor’s Certification; provided, that the Secretary of the DEDC has been provided with all the necessary documents to evaluate the case.

(g) Tax Exemption –Tax Credits granted under this Section to an Exempt Business shall be exempt from income taxes as provided in the Puerto Rico Internal Revenue Code. In addition, Tax Credits shall be exempt from municipal taxes including the volume of business tax (municipal license tax).

(h) Tax Credits may be granted multi-annually to a Grantee through competitive bidding, as prescribed by the Secretary of the DEDC in the Incentives Regulations.

(i) Every Grantee shall pay to the Secretary of the DEDC, by means of internal revenue vouchers from the Department of the Treasury, an amount equal to one percent (1%) of the Puerto Rico Production Expenditures that qualify for such Tax Credit as prescribed by the Secretary of the DEDC in the Incentives Regulations, up to a limit of two hundred fifty thousand dollars ($250,000). Said revenues shall be deposited in the Economic Incentives Fund created by virtue of this Code. The Secretary of the DEDC may use such funds to promote the development of the film industry as determined, or to defray any expense incurred in the promotion or administration of the Film Industry Development Program.

(j) Film Projects shall not apply for additional Tax Credits or tax credits once a Tax Credit or tax credit is granted, subject to the maximum amount established in the Grant.

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