Tax incentives in Puerto Rico

A DLA Piper handbook

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Panorama

Panorama

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For more than 60 years, Puerto Rico has used its unique territorial framework to enact numerous tax incentives programs that have served as its main economic development tool.

Puerto Rico is a territory of the United States, and the majority of US laws apply in Puerto Rico. However, Puerto Rico also possesses the authority to establish its own tax system.

For US federal income tax purposes, income derived in Puerto Rico and income tax paid to Puerto Rico are generally treated in the same manner as income derived in and taxes paid to a foreign country.  The combination of these factors has permitted Puerto Rico to offer investors from the US and all parts of the world a unique business and legal environment.

The Puerto Rico Incentives Code recognizes the importance of direct foreign investment and places the Commonwealth on par with the most competitive global jurisdictions for technology and high-added-value industries.

Until the enactment of Act 60-2019, PR’s incentives program was covered in multiple pieces of legislation that had been put in place over many years.  Act 60-2019, also known as the Puerto Rico Incentives Code (PR-IC), was created to update and combine within one piece of legislation a number of these incentives programs, while adding even more new economic development initiatives.

The PR-IC covers a variety of targeted economic activities that are considered essential to Puerto Rico’s economic development in such areas as manufacturing, tourism, international banking, international insurance, private equity funds, green energy, infrastructure and export services. Thus, the PR-IC now serves as the centerpiece of Puerto Rico’s incentives program for economic development – a recognition of the importance of direct foreign investment, placing the Commonwealth on par with the most competitive global jurisdictions for technology and high-added-value industries.

In this handbook, we highlight some of the tax incentives available under the PR-IC for certain targeted activities that may apply for and obtain a tax decree (Decree) to enjoy these incentives, including certain requirements applicable to each type of Decree.  Our summary does not cover all the activities that may be eligible for tax benefits under the PR-IC, as mentioned in Section XVI below.

We also provide an overview of certain tax benefits available for investments in Qualified Opportunity Zones as well as the general tax treatment of Public Private Partnerships.