• July 24, 2017
  • Recent Amendments to various Tax Incentives Acts in Puerto Rico.

    The Government of Puerto Rico has been promoting the benefits of doing business in Puerto Rico under various tax incentives statutes, such as Acts 20, 22 and 73 and has recently made some revisions to enhance and further promote the exportation of services by both local and foreign business, and attract more foreign investors to Puerto Rico. On July 11, 2017, the Governor of Puerto Rico enacted various laws which amend Act 20 of 2012 (export services), Act 73-2008 (manufacturing) and Act 22 of 2012 (foreign investors).

    Changes to Act 20-2012.

    Eligible Services.

    Article 3(k) of Act 20 was amended to include medical and laboratory services, as well as medical tourism services and telemedicine facilities, as Eligible Services for export under Act 20-2012. In order for telemedicine services to qualify, at least thirty percent (30%) of the contracted physicians of the eligible business must be Puerto Rico residents.

    In addition, the definition of what constitutes an “international trading company” for Act 20-2012 purposes was broadened to allow for eighty percent (80%) of international trading company’s gross income to be derived from trading activities as well as from any other eligible export service as defined under Act 20-2012. The original definition required the company to derive 80% of its gross income solely from trading activities in order to qualify as an eligible business.

    Employment Requirement.

    A minimum employment requirement of five (5) or more persons was required for a business to be eligible for the Act 20-2012 tax benefits. Under the recent amendment, there is no fixed employment requirement. The Secretary Economic Development and Commerce (the “Secretary”) was empowered to establish, by means of regulations or administrative orders, the evaluation criteria for the approval of Act 20-2012 Tax Grants, which will include: (i) job creation, (ii) capital investment, and (iii) direct or indirect contributions to Puerto Rico’s economy.

    The Secretary was also granted considerable discretion to require that, in the event a Petitioner should require employees or independent contractors for its operations, it hires Puerto Rico residents or entities engaged in trade or business in Puerto Rico for said operations.

    Businesses with approved tax exemption decrees or with pending tax exemption applications under Act 20-2012, that have already hired direct employees may not dismiss such employees in light of the amendments.

    Changes to Act 73-2008.

    With the purpose of economic growth and to benefit small and medium size businesses, Section 2 of Act 73-2008 was amended to provide that any business which undertakes scientific or industrial research and development for the development of new products, services or industrial processes, as well as for the improvement of existing products through basic or applied research, will be considered an Eligible Business.

    Section 5 of Act 73-2008 was amended to expand the definition of “eligible investment” eligible for tax credits to include proceeds from a federal grant, aid or financing.

    Changes to Act 22-2012

    The Grantee’s Exempt Annual Report for the first year as a bona fide resident of Puerto Rico must explain in detail his/her compliance with the terms and conditions of the Tax Grant during the previous year, including evidence of filing Form 8898 with the U.S. Internal Revenue Service.

    In addition, Grantees are now obligated to contribute at least five thousand dollars ($5,000) annually to a non-profit entity operating in Puerto Rico that is duly certified under Section 1101.01(a)(2) of the 2011 Puerto Rico Internal Revenue Code, as amended. Understandably, the non-profit entity cannot be controlled by the Grantee.