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.
- This law applies to businesses in Puerto Rico that export their services outside of Puerto Rico on non-Puerto Rico specific matters
- 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)
- 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the benefits for a 20 year period (which can be extended for an additional 10 years) regardless of whether the law is repealed sometime in the future
- 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.
- This law applies to individuals rather than companies
- 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)
- 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)
- Those benefits will be available to such individuals up until 2036
- 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