The Industrial Tax Incentives Act of 1998 (the “Tax Incentives Act”) was enacted to promote the creation and retention of employment through tax incentive decrees. The most important of these incentives is the establishment of a maximum corporate income tax rate of 7% on the industrial development income. This income is not further taxed, unless it is repatriated back to the U.S. mainland. Since, Puerto Rico is outside the U.S. federal tax jurisdiction, no federal income tax is applicable.

The Tax Incentives Act grants tax incentives to eligible companies in the manufacturing, export services (including Contact Centers), research and development projects, recycling activities, motion picture production and generation of renewable energy on a commercial scale.

Tax Incentives Act, section 2(d) (PDF)

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The act provides the option to choose the specific years to be covered by the agreement. The tax incentive period varies between 10 and 25 years, according to the industrial development zone were the exempted establishment is located. The available tax exemption periods are the following:

The interested company can apply at the Tax Exemption Office of the Department of State and the transaction should take no more than 110 days. The Tax Exemption Agreement is a contract and its terms must be fulfilled by both the company and the Commonwealth of Puerto Rico.

Click to View Industrial Tax Exemption Zone Map