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act 60 puerto rico tax incentives

On July 1, 2019, the Governor of Puerto Rico signed into law the Incentives Code of Puerto Rico also referred to as the Act 60 of 2019. Essentially, this is a compilation of incentives laws previously active in the Island, including the Act 20 and Act 22. Some of their postulates have been replaced, some still in effect. To cut it short, a comprehensive modification of the existing Trade and Tax Code has come to be seen in Puerto Rico.

Incentives Code Changes

The Incentives Code facilitates the investors with a much improved and accommodating tax framework. A 75% exemption on property tax for all incentives has been announced. Moreover, personal and real property holders will enjoy a 100% exemption in property tax for Construction in Process that paves the way for an outstanding opportunity for the Investors to grasp their share as they will not acquire similar tax exemptions anywhere else in the region.

Individual exporters are also eligible to take tax grants that were previously available to organizations only. Besides this, a new public sector owned Business Incentives Office has been established, which is responsible for evaluating and supervising incentives applications and decrees granted.

In addition to granting benefits at the state level, Act 60 also provides benefits at the local level. Exempt businesses shall enjoy a 25 % exemption on the municipal license tax, the real property tax, and the personal property tax. It also grants the municipalities of the Island the authority to increase these 25 % exemptions up to 75 % through the issuing of municipal ordinances. An exemption of 25 % on construction excise taxes is also available.

Prior to Act 60, Investors had complaints against the complicated administrative organization in theIsland, we believe their concerns have been addressed through this new incentive law.

Only 4 % Income tax on the eligible activities of an exempt business promises progress even for small investors. The new standard Exemption period is 15 years which is extendable to a total of 30 years upon a request by the assignee. Those exempt businesses that have a valid Grant under Act 60 will have the option to select the exact taxable years that will be covered under such Grant.

ACT 60 in Puerto Rico

DDEC and ACT 60

After the option is selected, the respective business must inform the Secretary of the Department of Economic Development and Commerce (“DDEC”) or the Puerto Rico Secretary of Treasury before the due date of the Income Tax Return for such tax year goes past.

It’s been declared compulsory that an eligible business of an annual volume of more than $3,000,000 shall maintain at least 1 employee provided it is an Exports Services assignee and 3 employees provided it is an Industrial Services assignee. No more employment requirements except for this.

Only 2% Income tax rate for the Export businesses having gross income of more than $3,000,000 OR those located on the islands of Vieques and Culebra. They shall also receive a 100% exemption on property and municipal taxes for the first 5 years.

ACT 60 Requirements

A golden opportunity for the entrepreneurs is knocking the door to make roots of their business in Puerto Rico as the Act 60 introduces the concept of “Difficult Recruiting Professional.” They are the professionals from new residents which are not easy to hire in terms of their rates, scarcity etc. No doubt, Regulatory body decides who is a difficult recruiting professional and who is not. Salaries paid to any of the Act defined difficult recruiting professional (in the excess of $100,000) by any assignee business shall be exempt from all kinds of income taxes including alternative basic taxes.

Only requirements for the Difficult Recruiting Professionals for being eligible to apply for these incentives are:

  • He / She must be a full time employee.
  • He / She must not be a holder of the tax decrees issued under the formerly active Act 22.  

Additionally, He / She can also apply for the benefits entitled under the provisions of the Act 60, but in this case, taxes are applicable on passive income (Interests, Net Capital Gains etc.)

Dental surgeons shall be considered qualified Doctors as well. Medical students on internship to be able to apply for the grants. Qualified doctors have to complete at least 60 hours of community service under the supervision of the Secretary of DDEC.

Agricultural Benefits

Agricultural workers also have a new market to offer them the salaries worthy of their efforts. There shall be a wages subsidy of at least $5.25 for them. A $165 annual bonus OR a solid 4 % of their annual income from agriculture work (whichever is greater will be afforded, up to a maximum amount of $235.)

To avail themselves of these incentives, Agricultural workers have to complete a quota of working in the agricultural sector for at least 200 hours in a period of 12 months.

ACT 60 Real Estate, Manufacturing, Film, and Tourism

With the Act 60 enacted, a step forward towards better transparency in the transactions has been taken. A more binding supervision of the authority will ensure a better adherence to the rules thus leading to a better quality of the operations in the island.

A handsome rate of 18.5 % for the withholding of tax payments issued by the exempt business to a foreign establishment not engaged in a trade or business in Puerto Rico. Moreover, a time period of 15 years as Expiration Time of a Grant and a 100% exemption on municipal license fee for tourism development, a 100 % tax free dividends distribution from exempt income opens the door to a lot of interest particularly in Real Estate, Manufacturing, Film Industry and Tourism sectors.

All the rights acquired through a decree issued prior to July 1, 2019 shall be respected by the Government. Existing assignees that would like to claim the benefits of the newly enacted Code will have to request a conversion to the authorities. From January 1, 2020 onwards, all grants shall be provided subject to the new Code. But applications filed before December 31, 2019 could still be processed under the provisions of previously governing acts.