Tax Incentive

PUERTO RICO

An Overview

The Island of Puerto Rico was first “discovered” by Christopher Columbus during his second voyage to the “New World” in October 19, 1493. From its discovery in 1493 until the end of the Spanish – American War in 1898, Puerto Rico was a Spanish colony. After the Spanish – American War, Puerto Rico first became a U.S. territory, and in 1917, the U.S. Congress granted Puerto Ricans U.S. citizenship. In 1952, the Island became the Commonwealth of Puerto Rico according to the tenets of both the U.S. and the Commonwealth Constitutions. Today Puerto Rico functions much like any state in the Union. The U.S. dollar is the local currency. As citizens, Puerto Ricans serve in the U.S. Armed Forces where they have distinguished themselves. Federal laws apply in Puerto Rico. Together with the U.S. and Canada, Puerto Rico enjoys one of the most stable governments in the Americas. The U.S. federal government has jurisdiction over all the areas generally controlled by the federal government in any state, except in fiscal matters where Puerto Rico has fiscal autonomy. Residents of Puerto Rico and companies domiciled in this island do not pay Federal Income Taxes. However they do pay local income taxes which are quite similar to those of the United States (in fact, the local tax code is modeled after the U.S. Internal Revenue Code). U.S. Custom duties are applied on any products imported…

Everyday there is more evidence that points to Puerto Rico as a world-class investment destination. The implementation of structural reforms, economic programs, and an all-star lineup of incentives has positioned the island as one of the most competitive jurisdictions in the world. The time to invest, work, live, and play in Puerto Rico is now.

Puerto Rico: Quality of Life

Quick Facts

  • The U.S. federal government has jurisdiction over all the areas generally controlled by the federal government in any state, except in fiscal matters where Puerto Rico has fiscal autonomy.
  • Residents of Puerto Rico and companies domiciled in this island do not pay Federal Income Taxes. However they do pay local income taxes which are quite similar to those of the United States (in fact, the local tax code is modeled after the U.S. Internal Revenue Code).
  • U.S. Custom duties are applied on any products imported from foreign countries.
  • It should be noted, that with few exceptions, taxes paid to the Commonwealth of Puerto Rico can be deducted dollar for dollar from Federal Income Taxes.
  • The Judicial Branch in Puerto Rico also operates much as in any other state in the union with local courts having jurisdiction over local matters and federal courts over federal matters.
  • Other taxes paid in Puerto Rico are much the same as those paid in other states in the union.
  • Information on tax rates for corporations and individuals can be found on Appendix I of this Guide. More detailed and timely tax information can be obtained from the Department of Economic Development and Commerce web site at www.ddecpr.com or from the Department of the Treasury of the Commonwealth of Puerto Rico at www.hacienda.gobierno.pr.

Transportation and Communications

  • Puerto Rico enjoys a sophisticated, developed infrastructure.
  • The port of San Juan is the fourth largest commercial port in the Western Hemisphere and boasts a sophisticated container handling system for both roll-on / roll-off as well as lift-on / lift-off cargo ships.
  • The port of San Juan traditionally ranks as the first or second largest cruise ship port in the world.
  • Ponce is the second largest water port in the Island and enjoys a growing trade with vessels linking European and Caribbean ports as well as providing quick access via the Caribbean Sea to the Panama Canal and Asian ports of call.
  • Puerto Rico receives daily shipments from Miami, New Orleans, New York, Houston and other major stateside ports

INVEST IN PUERTO RICO

Here’s a brief summary of why The All-Star Island is also a stellar location for investment.

Top 10 Reasons to Invest in Puerto Rico

1. Strategic Location

Puerto Rico is strategically located between the Caribbean Sea and Atlantic Ocean, midway between North and South America, making it the perfect bridge between both continents. It’s a 2.5-hour direct flight away from Miami and a 3.5-hour direct flight away from New York. There are direct international flights to Caracas, Madrid, Frankfurt, London, and Panama City.

2.  Pro-Business Tax Climate

  • Puerto Rico offers the benefits of operating within a United States jurisdiction while providing the tax benefits of a foreign tax structure.
  • Puerto Rico’s maximum corporate taxes have been reduced to 30% with a further reduction to 25% in 2014.
  • Strategic industries in manufacturing activities and services as well as in export services enjoy a 4% fixed income tax rate. Pioneer activities receive a preferential tax rate of 0% to 1%.

3.  Aggressive Incentives (scroll down for list)

  • Several incentive acts have been approved to stimulate economic development and attract Foreign Direct Investment (FDI) in the following sectors: manufacturing, tourism, export services, insurance, financial services, agriculture, hospitality and hotel development, and renewable energy.
  • Puerto Rico was ranked among the top 15 Foreign Trade Zones by the US National Association of Foreign Trade Zones 2011 report.

4.  Legal System and Political Stability

  • Puerto Rico is part of the US free trade zones and customs system.
  • Puerto Rico’s banking system is regulated under US laws (FDIC).
  • Puerto Rico is under the protection of the Homeland Security Act
  • Puerto Rico is under the US legal framework and intellectual property protection.
  • Puerto Rico has access to US federal programs and funds

5.  Strong Business Ecosystem

  • The official languages are English and Spanish.
  • No passport is required for United States citizens.
  • The U.S. Dollar is the official currency.
  • There is full presence of international banks.
  • Sophisticated logistics capabilities and major couriers including UPS, FedEx, Crowley, and Horizon
  • Key suppliers provide support to life science, electronics, technology, and others.

6.  World-Class Infrastructure

  • 24,000 miles of highways and mass-transit system recognized by the U.S. Federal Transit Administration as the safest and most efficient in the United States.
  • Busiest airport in the Caribbean and state-of-the-art port facilities, including the 8th busiest port in the United States
  • Most technologically advanced convention center in the Caribbean and Latin America
  • Island-wide broadband service, undersea fiber optic cable, and a robust satellite system

7.  Global Competitiveness

  • The World Economic Forum’s (WEF) 2011-2012 Competitiveness Report ranked Puerto Rico 35 out of 142 countries in the world. Its 6-notch improvement was the largest among the top 35 positions.
  • The WEF’s 2012 Global Information Technology Report ranked Puerto Rico 36 out of 142 countries.

8. Low Cost of Doing Business

  • San Juan has the lowest cost of doing business among the largest cities in the United States.
  • It also has the lowest labor costs of any region under United States jurisdiction.
  • Hourly earnings in manufacturing average 65% to 80% of the U.S. average.

9.  Skilled Workforce

  • Highly educated, productive, and bilingual workforce
  • The University of Puerto Rico at Mayagüez, the premier engineering and science institution of the Caribbean and Latin America, ranks 1st in graduating Hispanic engineers and 2nd in graduating female engineers.

10. Superior Lifestyle

  • Average year-round temperature is 82ºF (28º)
  • San Juan’s quality of life and visitor experience ranked as the third-best among 35 top U.S. cities (ahead of Miami, New York City, Los Angeles, San Diego, and Honolulu) by Travel & Leisure magazine.
  • Culebra was ranked among the 25 best secret islands on Earth by Travel & Leisure magazine.
  • Over 23 golf courses designed by the likes of Robert Trent Jones, Greg Norman, and Tom Kite.

Incentives and Reforms by Industry

No matter the type of your business or investment, Puerto Rico offers a comprehensive, all-star set of incentives and reforms tailored to the nuances of your operation.

Manufacturing, Key Supplier Services, Research & Development

  • 4% income tax on industrial development income
  • 0% to 1% tax rate on income for pioneer or novel products manufactured in Puerto Rico
  • Up to 50% tax credit on purchases of products manufactured or recycled locally
  • Up to $5,000 for each job created during the first year

Export Services

  • 4% corporate tax rate, which may be reduced to 3%
  • 100% tax exemption on dividends from export services businesses
  • Decree of 20 years, renewable for an additional 10 years

Renewable Energy (Green Energy Fund)

  • Rebates of up to 60% of eligible costs for Tier 1 (0-100 kW) and up to 50% for Tier 2 (101 kW-1MW)
  • 60% refund on acquisition and installation costs incurred during the installation of renewable energy equipment for residential properties and small businesses (50% for other businesses).

International Financial Entities (IFE)

  • 4% income tax
  • 0% on dividends or other distributions of profits to non-Puerto Rico residents
  • 100% exemption on municipal taxes
  • 100% exemption on property taxes

Foreign Trade Zones (FTZ)

  • Largest non-contiguous FTZ system in the United States
  • Deferment of federal customs duties
  • Deferment of Puerto Rico excise taxes
  • 100% exemption of exports from the zone

Film and Creative Services

  • 40% tax credit on all payments to Puerto Rico residents
  • 20% tax credit on all payments to non-resident talent (including stunt doubles)
  • 25% tax credit on development or expansion costs of studios, laboratories, facilities for the international transmission of television images or other media and related infrastructure

Tourism and Hospitality

  • 10% tax credit on the total project cost
  • 100% exemption on municipal construction excise tax, taxes on imported goods, and sales tax
  • 100% exemption on municipal licenses
  • 90% exemption on income tax and property tax

Agriculture

  • 100% exemption on taxes for agricultural equipment
  • 100% exemption on property taxes (land, buildings, vehicles, etc.)
  • 100% exemption on municipal taxes
  • 100% exemption on stamp payments

Housing Incentives for New Homes

  • 0 charges for stamps and vouchers to the buyer
  • 0 taxes on property during 5 years
  • 0% taxes on capital gains earned in selling of existing residential and commercial properties