Tourism Tax Exemptions and Incentives
The Tourism Development Act of 2010 (the “2010 TDA”) sets forth the public
policy regarding the Puerto Rico tourism industry. In general, the 2010 TDA
traces, but improves, the tax incentives regime of its predecessor legislation,
the Tourism Development Act of 1993 (“1993 TDA”). Among the tax exempt eligible
touristic activities are ownership and administration of hotels, condohotels,
vacation clubs, touristic marinas and thematic parks. New eligible activities
are described further below.
A. Income -
- Tourism Activities conducted in Vieques and Culebra – 100% exemption on (i)
tourism development income and (ii) dividends, profits and liquidating
- Tourism Activities conducted in locations other than Vieques and Culebra –
90% exemption on (i) tourism development income and (ii) dividends, profits and
- Distributions out of tourism development income are taxed just once and they
retained their nature and exempt character.
- Sale of stock or ownership interest in a tourism business - 100% (Vieques and
Culebra) 90% (other locations) if certain conditions are met.
- Additional exemptions – 100% exemption from the alternative minimum tax,
additional tax on corporations/partnerships, and the alternate basic tax on
- Withholding tax and fixed tax on Royalties - 12% withholding tax on royalty
payments made to foreign entities not engaged in trade or business in Puerto
Rico for the local use of intellectual property related to touristic activities.
Reduced 2.9% withholding tax on such royalties made to: (i) any entity or person
not engaged in a trade or business in Puerto Rico that owns directly 50% of more
of stock or ownership interest of the paying tourism business (a “Related
Nonresident Person”); (ii) any entity or person not engaged in a trade or
business in Puerto Rico that owns directly 80% of more of stock or ownership
interest of a Related Nonresident Person (a “Controlling Holder”); or (iii) any
entity or person not engaged in a trade or business in Puerto Rico which is 80%
held (directly or indirectly) by a Related Nonresident Person or a Controlling
Exemption on certain interest - 100% exemption from income and municipal
license tax (“patente”) on interest, charges and other proceeds with respect to
bond, notes and other obligations of a tourism business for the development,
construction, improvement or rehabilitation of a tourism business under the 2010
TDA, provided certain requirements are satisfied.
B. Property Taxes – 90% exemption from municipal and state property (personal
and real) taxes on properties dedicated to a touristic activity.
C. Municipal License Tax and other municipal taxes - New tourism businesses are
100% exempt from patente, excise and other municipal taxes with respect to their
tourism development income, transactions, or events (or on the use) imposed by
any municipal ordinance. The exemption for existing businesses is 90%.
D. Excise and Sales and Uses taxes – Up to 100% exemption on excise taxes, sales
and uses taxes imposed by the PR IRC with respect to articles acquired or used
by an exempt business related to a touristic activity. This exemption extends to
articles acquired by a contractor or subcontractor to be used solely and
exclusively by an exempt business in construction works related to a touristic
E. Construction Excise Taxes – 100% exemption from any tax, imposition, fee,
license, excise, rate or tariffs levied by any ordinance for the construction of
works to be dedicated to a tourist activity. This exemption also applies to
contractors and subcontractors of an exempt business.
F. Volume of Business of Contractor and
Subcontractor - For municipal license
tax (patente) purposes, contractors and subcontractors that perform works for an
exempt tourism business will determine their volume of business by deducting
payments that they are obligated to make to subcontractors under the principal
contract with the exempt business. This rule applies as well to subcontractors
that employ other subcontractors. Certain certification requirements must be
G. Tax Credits - 50% of the tourism investment but not exceeding 10% of the
total cost of the tourism project. The 2010 TDA provides a list of the
expenditures counted toward the total cost of the project.
H. Exemption periods - 10 years. The exemption period may be extended for 10
additional years provided that the Tourism Company determines that the exemption
is essential for the tourism industry based on the particular facts of the case,
the nature of the facilities, the number of employees and reinvestment in the
exempt business, among other factors.
I. Renegotiation of Concession – An exempt business under the 1993 TDA or its
predecessor act may request a renegotiation of its tourism concession to enjoy
the benefit of the 2010 TDA inasmuch as (i) it complies with the requirements of
the 2010 TDA, including undertaking a substantial renovation; (ii) the Tourism
Company determines that the renegotiation is in the best social and economic
interest of Puerto Rico, subject to prior consent of the Treasury Department;
and (iii) it surrenders the existing tourism concession.
New touristic activities –
The 2010 TDA includes the following new activities:
(i) agro-accommodation - accommodation facilities established in an agricultural
exploitation with the purpose of lodging sojourners for contemplating nature
and/or participating in activities related to agricultural or craft operations.
(ii) agro-tourism – a group of activities specifically organized by a bona fide
farmer complementary to its principal activities, to which the tourists are
invited, and constitute “other services” for payment.
(iii) nautical tourism – a group of services provided to tourists in contact
with the water, including but not limited to: renting or chartering to tourists
nautical tourism vessels for leisure, recreation or educational purposes,
including excursions, renting small crafts, jet skis, sailboats or similar
vessels to guests of a hotel, condohotel, vacation club and the like exempt
businesses, and the operation of an integrated renting program of vessels.
(iv) medical tourism - medical facilities or installations accredited and
certified in Puerto Rico that provide accommodations to patients and their
companions that travel to Puerto Rico from other places with the intention of
getting medical care and treatment.
All marinas in Vieques and Culebra will be deemed tourist marinas.