On July 1, 2019, the Governor of Puerto Rico, Ricardo Rosselló, signed into law Act 60-2019, also known as the “Puerto Rico Incentives Code” (the “Code”). The Code offers a different vision on incentives by focusing on the Return on Investment (“ROI”) of said incentives. Also, the Code captures almost all Puerto Rico tax incentive laws under one code, with an emphasis on activities that contribute to economic growth through investment, innovation, export, and job creation. Finally, the Code looks to establish an efficient process for the granting and supervision of the tax incentives offered in it.
Below you will find a summary of particular changes made by the Code to some of the most requested incentive laws. Specifics and changes to other laws affected by the Code will be the subject of additional publications.
The Office of Incentives for Businesses in Puerto Rico (“OIBPR”) will be created under the Department of Economic Development and Commerce. This new office will substitute the Office of Industrial Tax Exemption and will be responsible for the administration of all incentive applications under the Code.
The Code creates new incentives like the Difficult Recruitment Professional Incentive and the Students Loan Repayment Program to complement some of the eligible activities included in the Code.
The local Qualified Opportunity Zones program will now be governed by the provisions of the Code.
Tax rate benefits are reduced from 60% to 50% at the municipal level and from 90% to 75% at the property tax level on activities similar to the ones covered by Act 20-2012 and Act 73-2008.
New eligible activities are included in the Code like Blockchain activities, Recorded Live Event activities and Combined Heat and Power activities.
An employment requirement is included in the Code for activities similar to the ones covered by Act 20-2012 and Act 73-2008. Now an Exempt Business with a business volume of more than three million dollars must have at least 1 full-time employee for service export activities similar to the ones covered by Act 20-2012 and 3 full-time employees for manufacturing activities similar to the ones covered by Act 73-2008.
The employment requirement must be met on or before the end of an 18-month staggered phase-in period.
The Exempt Business will have a period of ninety (90) days to hire a new employee if it becomes non-compliant with the employment requirement set in its grant.
The Qualified Promoter Program receives various changes in the Code like the inclusion of Invest Puerto Rico Inc. in the evaluation process, the reduction of the benefit from 75% to amounts up to 50% (of the funds paid to the Economic Incentives Fund by the New Business in Puerto Rico) and the reduction of the incentive duration from 15 years to 10 years.
The Code now requires individual investors that relocate to Puerto Rico to make charitable donations to promote the economy of the island. The donation increases from $5,000 to $10,000 a year.
The Code states that the donations must be divided into 50% allocations between one of the entities specified in a list that would be provided by the Legislature and 50% to the charitable entity that the grantee determines.
The Code requires all individual investors that relocate to Puerto Rico to purchase a home in Puerto Rico. The home must be the Grantee’s primary residence and it can’t be leased or rented during the year.
Eligible Physicians residing in Puerto Rico and Eligible Physicians residing outside of Puerto Rico now have an extended deadline of September 30, 2019, and June 30, 2020, respectively, to apply for the tax benefits offered under the Code’s provisions.
The Code adds Dentists to the list of Eligible Physicians able to apply for a decree and receive a preferential tax treatment. Dentists have a deadline of June 30, 2020, to apply for the tax benefits offered under the Code’s provisions.
Tax credits now are limited to credits for Purchases of Products Manufactured in Puerto Rico and Investment in Research and Development for activities similar to the ones covered by Act 73-2008.
The ROI of the tax credit is now included as a primary and essential criterion for its granting.
Changes established in the Incentives Code are prospective and do not affect companies or individuals with existing decrees, credits, or incentives. Individuals or entities who have a signed decree, have a contract with the PR Government based on a set of terms and conditions that can’t be modified incurring in a breach of the contract.
If you are a company or individual who is in the process of obtaining a decree you can choose between the Acts that were effective before the Code was approved or those that are created by the Code.
Next Steps:
The Code instructs the OIBPR to receive new applications under the different past tax incentive laws under the corresponding sections of the Code, after various points in time. For example:
Eligible cases filed previously under Act 73-2008 will now be filed under Section 2061.01 of the Code, after January 1, 2020.
Eligible cases filed previously under Act 20-2012 will now be filed under Section 2031.01 of the Code, after December 31, 2019.
Eligible cases filed previously under Act 22-2012 will now be filed under Section 2021.01 of the Code, after December 31, 2019.
Eligible cases filed previously under Act 14-2017 will now be filed under Section 2021.03 of the Code, from the date of approval of the Code.
If you are in need of additional orientation, need answer to questions or require help filing an incentive application please contact us at incentives@upwindpr.com