Aggressive Tax Incentives for Attracting Business
Puerto Rico offers a highly attractive incentives package that includes a fixed corporate income tax rate – one of the lowest in comparison with any U.S. jurisdiction – various tax exemptions and special deductions, training expenses reimbursement and special tax treatment for pioneer activities.
Act 73 of May 28, 2008, known as "Economic Incentives for the Development of Puerto Rico Act," makes industry operations in Puerto Rico highly profitable while stimulating additional economic development. Key provisions include:
- 4% or 8% fixed income tax rate
- 2% or 12% withholding tax on royalty payments
- "Pioneer" industries are subject to an income tax rate of 1% or 0% in cases where the intangible property was created or developed in Puerto Rico
- Minimum combined tax rate of 3% if at least 50% of the exempt business shareholders are residents of Puerto Rico
- Minimum combined tax rate of 1% for small or medium-size business (average gross income of $10 million or less during the previous three years)
The Tax Incentives – Act 73 also allows companies to take a tax credit on their corporate income tax return. Tax credits allow for:
- Job creation tax credit of $1,000, $2,500 or $5,000 depending on the physical location of the business operations
- 50% income tax credit of qualified R&D expenses
- 50% income tax credit for investment in machinery and equipment for the production of energy using renewable resources
- 25% income tax credit for the purchase of locally manufactured products
- Up to 10% credit to reduce the electric energy cost of the industrial exempt business
Municipal and Property Tax Incentives
- 90% exemption from personal and real property taxes
- 60% exemption from municipal license taxes (75% for small and medium-size businesses)
- 100% exemption from state and local sales and use tax on raw material
