Puerto Rico Tax Incentives Code (Act 60-2019): Export of Goods and Services Businesses

On July 1st, 2019, the Governor of Puerto Rico signed into law the Act No. 60-2019: Puerto Rico’s Tax Incentives Code.  This code consolidates, simplifies, and modifies all incentives available for certain individuals and entity’s in Puerto Rico. Also note that some incentives remain unchanged, while others were eliminated or altered to increase the return on public investment. Several notes and a recap of it is as follows:

The Objectives of this new Tax Incentive Code

  • This new tax incentive conde consolidates, considers, and extend in a single tax code most of Puerto Rico’s previous tax incentives available.
  • It redesigns the incentives structure in order for those to be in accordance to Puerto Rico needs.
  • Provides guidance and respective tools for the government to measure performance and validate incentives effectiveness
  • Develops and promotes Puerto Rico’s economy by creating a single development tool 
  • Update Puerto Rico most common and most successful tax incentives including emerging industries

Tax Incentives Code Principles

  • To measure and facilitate the Return of Investment (ROI) analysis of these tax incentives
  • Avoid duplicity of incentives or rules
  • Promote reciprocity with other jurisdictions
  • Transparency among decrees
  • Facilitate the process of evaluation of new incentives by considering the Secretary of Economic Department and related agencies

Eligible Businesses and Activities – Export of Good and Services

An Eligible Business will be considered to qualify for the benefits of this Section, any Person with a bona fide office or establishment located in Puerto Rico that carries out or may carry out the following service activities, inside or outside of Puerto Rico, which, in turn, are considered Export Services or Promoter Services:

  • investigation and development;
  • advertising and public relations;
  • economic, environmental, technological, scientific, managerial, marketing, human resources, IT and auditing consulting;
  • advice on matters related to any industry or business;
  • Creative Industries as defined by Section 1020.09 of this Code, including the sale of ticket offices outside of Puerto Rico or the sale of ticket offices that are purchased by tourists in Puerto Rico, as well as income related to the transmission or sale of rights to a recording for audiences outside of Puerto Rico, of shows and musical productions and events of eSports and Fantasy Leagues to be held in Puerto Rico.
  • production of construction plans, engineering and architecture services, and project management;
  • professional services, such as legal, tax and accounting services;
  • centralized management services that include, but are not limited to, strategic management, planning, distribution, logistics, and budgetary services, which are carried out at the parent company or similar regional offices by an Entity that is dedicated to the provision of such services. The strategic and organizational process planning, distribution and logistics services for people outside of Puerto Rico will also be eligible;
  • electronic information processing center;
  • development of computer programs;
  • the distribution of physical form, in the cyber network, by cloud computing, or as part of a blockchain network and the income from licensing, program subscriptions or service charges;
  • voice, video, audio, and data telecommunication to people located outside of Puerto Rico;
  • call center (call centers);
  • shared services center that includes, but is not limited to, accounting, finance, contributions, auditing, marketing, engineering, quality control, human resources, communications, electronic data processing, and other centralized management services;
  • educational and training services;
  • hospital and laboratory services, including Medical Tourism services and telemedicine facilities;
  • investment banking and other financial services that include, but are not limited to, services of: 
    • asset management; 
    • management of alternative investments; (
    • management of activities related to private capital investments; 
    • management of hedge funds or high-risk funds; 
    • management of capital funds (pools of capital); 
    • administration of trusts that serve to convert different groups of assets into securities; and 
    • escrow account services, provided that foreigners provide such services;
  • marketing centers that are mainly dedicated to providing, through lease charges, services or other charges, space and services such as: secretarial, translation and information processing services, communications, marketing services, telemarketing and other services consulting companies outside of Puerto Rico, including export and marketing companies, aggregate and commercial consulates, government agencies responsible for foreign trade, barter and product and service exhibition centers; 
  • any other service that the Secretary of the DDEC, in consultation with the Secretary of the Treasury, determines that it should be treated as an eligible service because it is understood that such treatment is in the best interest and for the economic and social welfare of Puerto Rico, taking into account the demand that could exist for those services outside of Puerto Rico, the total jobs that will be created, the payroll, the investment that the proponent would make in Puerto Rico, or any other factor that deserves special consideration.

Income Taxes – Export of Good and Services

  • 4% fix income tax rate applicable to exempt income generated by exempt businesses
  • 0% taxes on distributions
  • 75% exemption on property tax for all incentives
  • 50% exemption on municipal taxes, such as municipal license and construction excise taxes
  • Flexible Exemption
    • Exempt Businesses will have the option of choosing the specific tax years to be covered under their Decrees regarding their Exempt Income
    • This requires a notification to the DDEC Secretary together with the Treasury Department no later than the date set forth in the Internal Revenue Code to pay their Income tax return for said Tax Year, including extensions granted for this purpose. 
    • In other words, “if there are several years where you have lost, you could request that the exemption be extended that number of years where you do not use it.” 
    • This will extend incentive’s benefits for the set of years agreed and approved by the Secretary 

Additional general rules and regulations

  • Employment rules for  business with real or projected top line revenue of $3,000,000 or more
    • The entity shall maintain at least 1 employee if it is an export of service grantee (previously Act 20-2012)
    • The entity shall maintain at least 3 employees if it is an industrial incentive grantee (previously Act 73-2008)
    • All other eligible businesses are not subject to this requirement
  • Terms are granted for 15 years, with options to extend 15 additional years (30 years total)
  • Decree acceptance and related Chapter will be consider public information. In other words your company’s name and under what kind of tax incentive is will be publicly available (no personal information will be published)
  • Act 60-2019 effectiveness is July 1st, 2019. Now, its benefits can be claimed and applied for from January 1st, 2020.
  • All applications processed before December 31st 2019 will be grandfathered, unless the applicant explicitly request Act 60 of 2019 terms and rights.
  • As of the effectiveness date of the Act 60 grant, this could be either the date of submittal or the date of commencement of operations once the decree has been granted. 
  • Commencement date can be extended up to 5 years upon approval.

Special Rules

  • Doing business from Vieques and Culebra
    • 2% fix income tax rate (first 5 years) applicable to exempt income generated by exempt businesses
    • 4% fix income tax rate (after year 5) applicable to exempt income generated by exempt businesses
    • 100% exemption on property tax for all incentives (first 5 years)
    • 75% exemption on property tax for all incentives (after year 5)
    • 100% exemption on municipal taxes, such as municipal license and construction excise taxes (first 5 years)
    • 50% exemption on municipal taxes, such as municipal license and construction excise taxes (after year 5)

Act 60-2019 additional considerations and notes related to previous grants

  • Terms are granted for 15 years, with options to extend 15 additional years (30 years total)
  • Decree acceptance and related Chapter will be consider public information. In other words your company’s name and under what kind of tax incentive is will be publicly available (no personal information will be published)
  • Act 60-2019 effectiveness is July 1st, 2019. Now, its benefits can be claimed and applied for from January 1st, 2020.
  • All applications processed before December 31st 2019 will be grandfathered, unless the applicant explicitly request Act 60 of 2019 terms and rights.

If you need more information, don’t hesitate and give us a call right away. Our phone number is 787-473-8985. Or reach out to our info@bonnllc.com.

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