SPOTLIGHT PROGRAMS

Act 60-2019: Act 60-2019, known as the Puerto Rico Incentives Code, was enacted in July of 2019 and compiles all existing tax incentive laws into one code.

Manufacturing Activities: Chapter 6 of Subtitle B outlines incentives available to manufacturing companies engaged in scientific research and development, recycling, hydroponics, value-added activities related to port operations, software development, renewable energy equipment, and aerospace research and development. A partial list includes:

• 4% income tax rate on income generated from the eligible activity
• 12% withholding tax rate on royalty payments, creditable against the 45%
• 100% tax exemption from income tax on distributions to shareholders, partners, or members
• 100% exemption from excise and sales and use taxes on certain raw materials, machinery & equipment
• 75% exemption on property taxes
• 75% exemption from municipal taxes, excise and other taxes to contractors and subcontractors, not including manufacturing lead time (MLT)
• 50% exemption from municipal taxes
• Tax credits available based on investments made on machinery and equipment and on payroll for full-time employees

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Export Services: Chapter 3 of Act 60-2019 outlines several tax incentives available to businesses engaged in eligible services in Puerto Rico. Eligible activities include R&D; advertising & public relations; a variety of consulting services; creative industries; production of engineering and architectural blueprints and designs; advanced professional services; shared services centers; commercial distribution of products manufacturing in Puerto Rico to outside markets; among others, but most be entirely export-oriented (i.e., no nexus in Puerto Rico). Benefits include:

• 4% income tax rate
• Property and municipal exemptions
• 100% exemption on dividends or profit distributions to shareholders, partners, or members
• 75% exemption from property taxes for businesses with a business volume of more than $3 million; and 100% exemption for five years for businesses with a business volume of less than $3 million, and 75% thereafter.

These incentives are “as-of-right,” provided by statute, but only if the project applies for and receives the 15-year tax exemption decree. Further, the company will be expected to comply with certain employment, investment, production and/or sales requirements.

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TAX EXEMPTIONS

Federal Opportunity Zone Incentives:  Approximately 95 percent of Puerto Rico is classified as a Federal Opportunity Zone. Investing in the Opportunity Zone offers three significant benefits: 1) Temporary deferral of income tax on gains invested in an Opportunity Fund; 2) Step-up basis for gains invested in an Opportunity Fund; and 3) Income tax exclusion of Opportunity Fund gains.

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International Financial and Insurance Entities: Additional industry-specific incentives are available for qualifying financial and insurance projects.  More information is available upon request.

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TAX CREDITS

Research and Development (R&D) Investment Credit: Puerto Rico offers a 50% transferable credit for eligible R&D activities.

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DIRECT FINANCIAL ASSISTANCE

The Puerto Rico Industrial Development Company (PRIDCO) Grants: PRIDCO, the economic development entity representing Puerto Rico, has discretionary ability to provide direct grant assistance for job creation and infrastructure improvement for preferred projects.

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JOB TRAINING

Reimbursable grants for on-the-job and customized job training are available for qualified projects. Training programs are administered via the federal Workforce Innovation and Opportunity Act (WIOA), but municipalities can provide support as well. Opportunities for partnering with organizations, such as the Puerto Rico Science Trust, may also offer assistance through grants and training partnerships.

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LOCAL INCENTIVES

Local Opportunity Zone Incentives:  Puerto Rico offers additional benefits to augment those available through federal legislation through Act 60-2019. These include: 18.5% tax on Opportunity Zone Fund income; 100% tax exemption on interest and dividends; 25% exemption with the possibility to incremented to 75% on patents, excise taxes, and other municipal taxes; 25% exemption with the possibility to incremented to 75% on municipal and state payments over property taxes; tax deferment on capital gains; credit priority system for Priority Projects; up to 25% tax credit for investment; and simplified project evaluation and permits

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Last Updated: May 2023