Puerto Rico Tax Incentives

Reforms and Incentives

Reforms & Incentives

IMPORTANT REFORMS

Two laws that provide for incredible incentives:

EXPORT SERVICES ACT (LAW 20):

The Export Services Act (Act 20 of 2012) provides for 4% maximum tax rate on income related to services for exportation provided by new domicile Puerto Rico businesses

It also sets a 0% tax rate on newly domiciled dividends or profit distributions from such businesses to Puerto Rico residents

Qualifying companies will get a decree for 20 years, renewable for an additional 10 years, guaranteeing these rates

Puerto Rico corporations pay no Federal Income Taxes on Puerto Rico source income

Download Law 20 PDF.

  1. This law applies to businesses in Puerto Rico that export their services outside of Puerto Rico on non-Puerto Rico specific matters
  2. The law provides for a corporate tax rate of 4% and 0% rate on dividends (no federal taxes apply up until and if the profits are repatriated to the US)
  3. The tax exemption is provided with a Tax Decree that guarantees the benefits for a 20 year period (which can be extended for an additional 10 years) regardless of whether the law is repealed sometime in the future
  4. The law is meant to bring all types of service providers to Puerto Rico (law firms, engineering firms, economists, research and development, and many other services) as well as back-office work for some non-service industries (like manufacturing) that can have intra-company support services provided from within Puerto Rico

INDIVIDUAL INVESTORS ACT (LAW 22):

The Individual Investors Act (Act 22 of 2012) provides incredible passive income tax benefits for new Puerto Rico residents

0% tax rate on interest and dividend income and short and long-term capital gains

Rates are guaranteed until 2036 through tax incentives decree

Puerto Rico residents pay no U.S. federal taxes on Puerto Rico source income

Download Law 22 PDF.

  1. This law applies to individuals rather than companies
  2. To qualify for this law, you must not have been a resident of PR for the 15 year window that preceded approval of the law (January 2012), and you must become a resident of PR after the law was approved (which you can do by living in PR for at least 183 days, same as the IRS establishes for federal residency requirements)
  3. The benefits that accrue to such individuals is 0% tax rate on all passive income taxes, including interest, dividends, capital gains (both long term and short term capital gains)
  4. Those benefits will be available to such individuals up until 2036
  5. The benefits are also guaranteed through a Tax Decree to protect those that move to PR to benefit from our incentives

 

Other Reforms

Tax Reform - Act 1 of 2011

  • Alleviates the tax burden on corporations and individuals, reinforces tax compliance, stimulates economic development and job creation and simplifies the tax system
  • Maximum corporate tax rate has been reduced from 41% to 30% with a further reduction to 25% after 2014
  • Average effective tax rate for individuals will be reduced by year 2016 to a maximum of 30%

International Insurance Center Act 399
Captive Insurance Companies

  • Provides a competitive environment for insurers and reinsurers to develop captive insurance companies in Puerto Rico
  • 4% corporate tax rates after $1.2 million less income exclusion
  • Exemption on dividends and profit distributions
  • Tax decree is effective for 15 years and renewable for two additional 15-year periods

Permits Reform - Act 161 of 2009

  • The permits request and approval process has been dramatically simplified
  • The permits request process can now be completed through one agency (previously 24)
  • Private sector professionals can now approve permits, reducing government bureaucracy
  • 80% of permits and 90% of the total volume of permits requested are now available online

Energy Reform - Acts 82 & 83 of 2011

  • The acts were enacted to help the island meet its target of 15% renewable energy production by 2020 and 20% by 2035
  • $290 MM will be invested in renewable energy projects over the next 10 years

Energy Fund (GEF)

  • A Renewable Portfolio Standard (RPS) requires the Island’s retail energy providers to produce or purchase a specified percentage of their electricity from renewable energy sources
  • Natural gas will make up approximately 72% of fuel mix by 2012 from a current 14%

Reorganization and Modernization of Executive Branch - Act 182 of 2009

  • Positions the government and its different agencies as a facilitator of social and economic development on the Island
  • Reduces government bureaucracy and operational costs while increasing efficiency for services provided to citizens
  • Currently, over 50 basic services, such as payment of electric and water bills and copies of birth certificates are offered online via www.pr.gov

 

Incentives

Manufacturing and Export Services

  • 4% income tax on industrial development income
  • 0% to 1% tax rate on income for pioneer or novel products manufactured in PR
  • Up to 50 percent tax credit on purchases of products manufactured or recycled in PR
  • Up to $5,000 for each job created during 1st year

Renewable Energy (Green Energy Fund)

  • Rebates of up to 60% of eligible costs for Tier 1 (0-100 kW) and up to 50% for Tier 2 (101 KW-1MW)
  • 60% refund on acquisition and installation costs incurred during the installation of renewable energy equipment for residential properties and small businesses (50% for other businesses)

International Banking Entities (IBEs)

  • 0% income tax
  • 0% on dividends or other distributions of profits on income over $250,000
  • 0% distributions in liquidation

Foreign Trade Zones (FTZ)

  • Largest non-contiguous FTZ system in the U.S.
  • Deferment of federal customs duties
  • Deferment of Puerto Rico excise taxes
  • 100% exemption on exports from the zone

Film and Creative Services

  • 40% tax credit on all payments to PR residents
  • 20% tax credit on all payments to Non-Resident Talent (including stunt doubles)
  • 25% tax credit on development or expansion costs of studios, laboratories, facilities for the international transmission of television images or other media and related infrastructure

Tourism and Hospitality

  • Facilitates the establishment of tourism related projects on the island
  • Tax credit of 10% of the total project cost
  • 100% exemption on municipal construction excise tax, taxes on imported goods and sales tax
  • 100% exemption on municipal licenses
  • 90% exemption on income tax and property tax

Agriculture

  • 100% exemption on taxes for agricultural equipment
  • 100% exemption on property taxes (land, buildings, vehicles, etc.)
  • 100% exemption on municipal taxes
  • 100% exemption on stamp payments

Housing Incentives for New Homes

  • 0 charges for stamps and vouchers to the buyer
  • 0 taxes on property during 5 years
  • 0% taxes on capital gains earned in selling of existing residential and commercial properties
  • 100% exemption on future capital gains tax for sellers who purchased new property during incentives window

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