Puerto Rico offers a variety of tax incentives for different industries
From the exportation of services to the manufacturing industry, investors can find tax incentives that will help to create or expand their businesses and obtain a competitive advantage over competitors in other jurisdictions.
The following are the main tax incentive that the Puerto Rico government offers:
Act 83 – Green Energy Incentives Act
Act 83-2010, The Green Energy Incentives Act, is intended to diversify energy sources, ensuring the Island’s energy source remains sustainable and affordable. The Act provides the following benefits:
- 4% fixed income rate with a withholding tax on royalty payments of 12%
- 100% tax-exempt distributions
- 90% exemption on real property taxes and 100% on personal property taxes
- 60% exemption on the municipal license tax
- 100% exemption from state excise tax and sales and use taxes for raw materials and machinery and equipment used in the production of Green Energy among others
Act 74 – Tourism Development Act of Puerto Rico
Act 74-2010, Tourism Development Act of Puerto Rico, is intended to facilitate the establishment of tourism projects on the island. The natural beauty of the Caribbean island combined with a tax incentives package, offers hotel developers a competitive advantage over other destinations in the world. The Act provides the following benefits:
- 90% exemption on income tax
- 90% exemption on property tax
- 100% exemption on municipal licenses
- 100% exemption on municipal construction excise tax
- 100% exemption on taxes on imported goods and sales tax
- Tax credit of 10% of the total project cost, or 50% of cash from investors (whichever is lowest)
Act 73 – Economic Incentives Act for the Development of Puerto Rico
Act 73-2008, The Economic Incentives Act for the Development of Puerto Rico, is intended to help the manufacturing industry in Puerto Rico to become more profitable. Not only backed by a tax incentive program, Puerto Rico also offers a highly specialized workforce and the benefits of being under the United States jurisdiction. The Act provides the following benefits:
- 4% income tax on industrial development income
- 0% to 1% tax rate on income for pioneer or novelty products manufactured in Puerto Rico
- Up to 50% tax credit on purchases of products manufactured or recycled in Puerto Rico
- Up to $5,000 for each job created during the first year of operation
- Up to 50% tax credit on research and development activities
Act 20 – The Export Services Act
Act 20-2012, The Export Services Act, is intended to promote the exportation of services. Act 20-2012 promotes local and foreign service providers to expand their operations by exporting services from Puerto Rico. The act provides the following benefits:
- 4% corporate tax rate
- 100% tax-exempt dividends
- 60% exemption on municipal taxes
- No federal taxes on Puerto Rico source income
Act 20 – Act 22 – The Individual Investors Tax Act
Act 22-2012, The Individual Investors Tax Act, is intended to promote the relocation of individual investors to Puerto Rico, providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after the individual becomes a bona fide resident of Puerto Rico. To become a new bona fide resident of Puerto Rico, an individual must have physical presence in the Island for at least 183 days of the year and must not have been a resident of Puerto Rico for the 15 years prior to the Act’s effective date. The act provides the following benefits:
- 0% tax on dividend and interest income
- 0% tax on short-and-long term capital gains
- 0% federal taxes on Puerto Rico source income
Act 273 – The International Financial Center Regulatory Act
Act 273-2012, The International Financial Center Regulatory Act, is intended to make Puerto Rico an international banking and financial center. Benefits are available for new banking and financial activity in Puerto Rico that is done for clients outside of Puerto Rico. The act provides the following benefits:
- 4% corporate tax rate
- 6% fixed tax rate on dividend or profit distributions made out to the International Finance Entity's (IFE's) shareholders or partners, who are residents of Puerto Rico
- 100% tax exemption from real and personal property taxes on the assets, tangible and intangible, owned by an IFE
- 100% tax exemption from the gross receipts tax assessed by municipalities on the volume of business derived by the IFE
