MANUFACTURING ACTIVITIES:  Act 73-2008 (Economic Incentives for the Development of Puerto Rico) provides a series of incentives available for qualified manufacturing activities, including production, scientific R&D, and software development.  A partial list includes:

• Corporate income tax rate – Reduced from 20-39% to 0-4% based on product manufactured and location of facility
• Real and personal property tax reductions – generally a 90% reduction
• Excise, sales and use tax exemptions on materials and machinery/equipment used in production
• Accelerated depreciation
• Job creation tax credits – equivalent to $1,000-$2,500 per new job based on facility location
• Tax credits for purchases of products made in Puerto Rico
• 50% R&D tax credit

These incentives are “as-of-right,” provided by statute, but only if the project applies for and receives the 15-year tax exemption decree. Further, the company will be expected to comply with certain employment, investment, production and/or sales requirements.

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EXPORT SERVICES: Act 20-2012 (Act to Promote the Exportation of Services or Export Services Act) provides tax incentives for export service operations exporting services.  Eligible activities include R&D; call centers, shared service centers; professional services; consulting; investment banking and financial services; and hospital and labor services, among others, but they must be entirely export-oriented (i.e., no nexus in Puerto Rico).

• Corporate income tax rate – Reduced to 3-4%
• Tax exemption on distributions from earnings and profits – 100% exemption
• Real and personal property tax exemption – 100% exemption initially, falling to 90% after five years
• Exemption from municipal license taxes – 60%

These incentives are “as-of-right,” provided by statute, but only if the project applies for and receives the 20-year tax exemption decree. Further, the company will be expected to comply with certain employment, investment, production and/or sales requirements.