Act 14 incentivizes the retention and return of medical professionals hopes to keep and return some doctors to Puerto Rico by offering them tax incentives. In order to establish a rate of contribution on income and dividends accrued in medical practice to doctors residing in Puerto Rico, the law hopes attract and encourage the Puerto Rican medical class and to remain in Puerto Rico. As of July 11, 2017, Act 14 can be combined with the telemedicine components of the Act 20 tax incentive program.
Act 20 primarily promotes the export of services. Act 20 accomplishes this by offering attractive tax incentives to companies at fixed rate of 4%, with minimal requirements that establish and expand the export services industry on the island. The act includes a 100% exemption on real property taxes for the first 5 years, with a 75% exemption thereafter. The Act 20 tax incentive is guaranteed for a minimum of 20 years. One key change to the act, passed in 2019, is that businesses with more than $3 million in actual or projected revenue must directly employ at least one full-time employee, which may be the business owner. In addition, creative industries and network, cloud computers, and blockchain income are now covered explicitly under Act 20.
Act 73 is known as the Puerto Rico Economic Incentives for Development Act. Act 73 was established to provide an efficient business environment, and to provide opportunities for the development of local industry. Act 73 offers an attractive contributory proposal to attract foreign direct investment and to promote the economic and social development of Puerto Rico.
Act 74 incentivizes tourism development, and is offered through the Puerto Rico Tourism Company. The benefits granted under Act 74 law are valid for 10 years from the time that the eligibility of the tourism project is established and can be extended to apply to the operational phase for an additional 10 years. Act 74 is most commonly used by large hotel projects, but a variety of projects can qualify.
Act 83, the “Puerto Rico Green Energy Incentives Act”, groups and reforms existing incentives for renewable energy sources, including economic incentives, tax exemptions and tax credits, and created the $290 million Green Energy Fund. Act 83 provides the following tax exemptions:
- 4% fixed income tax rate on income derived from the production of energy in Puerto Rico;
- 12% fixed income tax rate, withheld at source, on royalties paid to foreign entities with respect to intangible property used in the exempt business;
- 100% tax exemption on dividend distributions and benefits received from Green Energy Income (“GEI”);
- 4% fixed income tax rate on gains derived from the sale of ownership interests or substantially all the assets of the exempt business, in lieu of any other Puerto Rico income tax imposed on such gains;
- 90% tax exemption from real and personal property taxes;
- 60% tax exemption on municipal license taxes, with the first 3 semesters being 100% exempt;
- 100% tax exemption on municipal construction taxes;
- 100% tax exemption on excise taxes and sales and use tax on renewable energy equipment; and,
- Accelerated depreciation: 100% first-year bonus depreciation, with ability to carry over to subsequent tax years until exhausted.
Act 83 provides various tax credits, such as:
- 25% tax credit against the GEI on purchases of products manufactured in Puerto Rico;
- 35% tax credit on purchases of products manufactured in Puerto Rico made from recycled materials;
- Tax credit for job creation during the first year of operations that ranges from $1,000 per job created in an industrial area of intermediate development (as determined by the Office of Industrial Tax Exemption) to $2,500 for jobs created in an industrial area of low development. In the case of businesses established in the municipalities of Vieques and Culebra, this tax credit is $5,000 per job. High industrial development zones will receive no tax credit for job creation;
- 50% tax credit on eligible research and development activity costs; and
- 12% tax credit for royalties paid to foreign entities with respect to intangible property used in the exempt business.
The Young Entrepreneurs Act helps enable young adults within the ages of 16 to 35 to start companies in Puerto Rico. The subsections of this Act grants a 100% tax exemption on both personal and corporate income for individuals (from ages 16 to 26 making under $40,000) and new business (from ages 16 to 35 who own businesses with revenues of up to $500,000 annually).
Act 273 regulates the organization and operation of international financial institutions authorized by the Office of the Commissioner of Financial Institutions to operate in Puerto Rico, and grants tax exemption decrees, among other benefits. The export of services is an economic activity that has been identified as one of the key pieces for the economic development of Puerto Rico and financial services employ the largest number of people per business under the tax incentives. The IFE tax incentive is generally used by international banks, investment funds, hedge funds and family offices.
Act 399 allows entities to organize a captive insurance in Puerto Rico. International insurers may incorporate a holding company for the interest in another company. Tax exemptions for insurers that qualify for an international insurer license are 100% exempt on all income (including liquidation and dissolution of its operations in PR) derived by the international insurer or international insurer holding company. Also, 100% tax exemption on municipal license tax, property tax, dividends, and distributions to its shareholders. Moreover, interest, dividends or distributions paid to foreign entities or non-residents, not engaged in business in Puerto Rico are tax free. Captive insurance in Puerto Rico facilitates business through alternative risk management strategies and as a vehicle to enter Latin America and US markets. Integrated insurance plans and segregated assets plans serving high net worth individual markets are the focus of most companies using this tax incentive.
