Business Operations in Puerto Rico offers background information on the relationship between Puerto Rico and the United States and provides a summary of the Puerto Rican legal system. Written by Francisco Hernández-Ruiz, Reichard & Escalera, this Portfolio discusses the main business laws applicable in Puerto Rico and analyzes tax laws affecting enterprises and individuals conducting business activities in Puerto Rico or receiving income from Puerto Rican sources.
This Portfolio begins with an overview of the regulations and processes governing business operations in Puerto Rico and examines the unique opportunities and obstacles to conducting business there, including civil law contracts, distributorship and sales representative agreements, bulk sale and fraudulent conveyances, leasing of personal property, real property transactions, and environmental regulations.
In addition to providing a general explanation of the Puerto Rican system of income taxation, Business Operations in Puerto Rico also considers other important taxes such as gift and estate tax, excise taxes, property taxes, as well as U.S. income tax.
The various Puerto Rico tax incentive laws and their interrelationship with the U.S. federal tax laws are also covered.
The Worksheets included in this Portfolio contain examples of various tax forms, forms relative to tax exemption applications, forms of the Annual Corporate Report, tax rates, and the English versions of certain tax laws.
Business Operations in Puerto Rico allows you to benefit from:
This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 100 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource library offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in Italy, Business Operations in Puerto Rico, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.
Detailed Analysis
I. Puerto Rico - The Country, People, Economy, and Government
A. The Country
B. The People
C. The Economy
D. The Government
1. Historical Background and Status
2. Representation in the United States Congress
3. Government Structure
4. Legal System
a. Judicial System
b. Laws
5. Applicability of Provisions of United States Constitution and Federal Laws in Puerto Rico
a. General
b. The Privileges and Immunities Clause
c. Commerce Clause
d. Interstate Commerce Act and Safety Appliance Act
e. Federal Labor Laws
f. Federal Admiralty and Maritime Law
g. Federal Environmental Laws
h. Federal Antitrust Laws
i. Bankruptcy Laws
j. Tax on Shipments into the United States
k. Federal Income Tax Laws
l. Federal Immigration Laws
m. Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act ("USA Patriot Act")
n. Extradition
II. Operating a Business in Puerto Rico
A. Foreign Investment Regulation
1. Opportunities
2. Incentives
B. Currency and Exchange Controls
C. Trade and Commerce Regulation
1. Imports and Exports
a. Licenses, Quotas, and Other Limitations
b. Customs Duties and Other Taxes
c. Records and Reports
2. General Regulation of Business
a. Monopolies
(1) Historical Background
(2) Puerto Rico Anti-Monopoly Act of 1964
b. Mergers and Acquisitions
c. Restrictive Trade Practices
d. Price Controls
e. Securities Regulations
3. Licensing and Franchising
a. Patents
b. Trademarks and Trade Names
c. Industrial Know-how
d. Trade Secrets
e. Copyrights
f. Franchises
g. Registration
D. Civil Law Contracts
E. Distributorship Agreements
1. General
2. Distributorship Agreements
3. Termination for Just Cause
4. Damages
5. Applicable Law and Venue
F. Sales Representative Agreements
G. Real Property Transactions
1. Meaning of Real Property
2. Deeds
3. Public Notaries
4. Transfer of Real Property
5. Rights and Limitations on Real Property
6. Registry of Property
7. Limitation on Accumulation of Land
H. Bulk Sales and Fraudulent Conveyances
1. Bulk Sales Act
2. Fraudulent Alienation of Commercial Establishments
3. Conveyances in Fraud of Creditors
I. Secured Transactions
J. Leasing of Personal Property
2. Seizure of Leased Property
3. Contents of Lease Agreement
4. Assignment of Lease
K. Environmental Regulations
1. Public Policy Environmental Act
a. Regulation of Environmental Quality Board for Process of Presentation, Evaluation, and Processing of Environmental Documents
b. Regulation for Control of Atmospheric Pollution
c. Puerto Rico Water Quality Standards Regulation
d. Regulation for Management of Non-Hazardous Solid Wastes
e. Regulation for the Control of Hazardous Waste
f. Underground Storage Tank Regulation
g. Underground Injection Control Regulation
h. Regulation for Control of Noise Pollution
2. Environmental Emergencies Fund Act
3. Act for Conservation, Development, and Use of Water Resources of Puerto Rico
4. Regulation for Appropriation, Use, Conservation, and Administration of Waters of Puerto Rico
5. The Puerto Rico Solid Waste Management Authority Act
L. Labor Matters
1. Constitutional Rights of Employees
2. Minimum Wage
a. Fair Labor Standards Act of 1938
b. Puerto Rico Minimum Wage, Vacation, and Sick Leave Act
3. Regular Hours and Overtime
a. General rule
b. Executives, Professionals, and Administrators
c. Interrelationship Between Overtime Pay Under the FLSA and the Puerto Rico Wage and Hour Laws
d. Settlement of Wage and Hour Cases
4. Day of Rest
5. Meal Period
6. Flexible Time
7. Employee Leaves
b. Vacation Leave
c. Sick Leave
d. Maternity Leave
e. Military Leave
f. Jury Leave
g. Family and Medical Leave
h. Other Miscellaneous Leaves
8. Payment of Wages
9. Deductions from the Paycheck
10. Annual Mandatory Bonus
11. Puerto Rico Anti-discrimination Laws
a. Act No. 100
b. Sexual Harassment
c. Discrimination Against Disabled Employees
12. Dismissal from Employment Without Just Cause
a. Modified Employment at Will
b. The Meaning of Just Cause
c. Temporary Employment Agreements
d. Probationary Period
e. Severance Pay
13. Dismissal for Jury Duty
14. Dismissal for Political Affiliation
15. Dismissal for Participation in Union Activities
16. Dismissal or Discrimination Against Employee for Filing Complaint or Giving Testimony Against Employer in Administrative or Judicial Proceedings
17. Dismissal for Refusal to Lift, Transport, or Bear Weight in Excess of Legally Established Limits
18. Dismissal for Instituting Claim Based on Violation of Working Hours and Working Days Provisions
19. Prior Notification of Closing of Operations
20. Consolidated Omnibus Budget Reconciliation Act of 1986
21. Posting Requirements
22. Regulation of Labor Relations
a. National Labor Relations Act
b. Puerto Rico Labor Relations Act
23. Wage Incentives for Small Businesses Operating in Urban Centers
24. Monitoring of Telephone Conversations, Requirement to Take a Polygraph Test, and Videotaping of Employees at Work
M. Financing the Business
1. Government Development Bank for Puerto Rico
2. Commercial Banks
3. Mortgage Banks
4. Specialized Institutions
5. Puerto Rico Industrial, Medical, Education, and Environmental Pollution-Control Facilities Financing Authority
6. Puerto Rico Industrial Development Company
7. Venture Capital
a. Venture Capital Funds
b. Angel Investors
c. Private Placement with Investment Banker
d. Initial Public Offerings
e. Real Estate Investment Trusts
f. Puerto Rico International Banks
III. Forms of Doing Business in Puerto Rico
A. Principal Business Entities
1. Sole Proprietorship
b. Separate Accounting Requirement
c. Losses of Sole Proprietorship - General Rule
d. Losses of Sole Proprietorship - Exceptions
(1) Losses of Principal Trade or Business
(2) Losses at the Start of the Trade or Business
(3) Losses of Special Partnerships and Special Corporations Owned by Employees
e. Gain on Sale of Sole Proprietorship
f. Protection of Name of Sole Proprietorship
g. Usury Laws
2. Corporations
3. Partnerships
4. Branch of Foreign Corporation
5. Other Entities
B. Corporations
1. Historical Background
2. Formation
a. Purpose Clause
(1) General
(2) Illegal Purposes
b. Corporate Name
c. Incorporators
d. Articles of Incorporation
e. Capital Stock
f. Incorporation Procedure
g. Costs of Incorporation
3. Operation
a. Right to Operate as a Puerto Rico Corporation
b. Changes to Certificate of Incorporation
(1) Certificate of Correction
(2) Amendment Prior to Receipt of Payments of Capital
(3) Amendment After Receipt of Payments
(4) Amendment to Change Resident Agent
(5) Resignation of Resident Agent
c. Increases and Reductions in Capital Stock
d. Acquisition of Corporate Stock
e. Corporate Officers
f. Directors
g. Shareholders
h. Books and Records
i. Annual Reports
j. Dividends
k. Reserves
4. Statutory Merger or Consolidation
5. Dissolution
6. Liquidation
7. Limited Liability
C. Special Types of Corporations
1. Professional Corporations
2. Close Corporations
3. Special Employee-owned Corporations
b. Members
c. Accounts and Funds
4. Foreign Corporation
a. Meaning of Foreign Corporation
b. Requirement to Register to Do Business
c. Doing Business in Puerto Rico
d. Consequences of Not Being Registered to Do Business
e. Accounting Books and Records
f. Annual Report
5. Registered Investment Companies
b. Requirements for Qualification as Investment Company
c. Registration Requirement
d. Requirements for Registered Investment Companies
e. Taxation
6. Nonprofit Corporations
7. Other Corporations
D. Partnerships
1. Civil Partnerships
2. Commercial Partnerships
a. General Partnerships
b. Limited Partnerships
c. Classification of Partnerships as Civil or Commercial
3. Limited Liability Partnerships
b. Registration
c. Name
d. Limited Liability
E. Business Trusts
F. Special Treatment Entities
1. Corporations of Individuals
b. Corporation of Individuals Qualification Requirements
c. Non-Eligible Corporations
d. Husband and Wife as Shareholders
e. Trusts as Shareholders
f. Procedure for Electing Treatment as Corporation of Individuals
g. Time for Making Election - General Rule
h. Time for Making Election - New Corporations
i. Termination of Effectiveness of Election
j. Tax Elections That May Be Made by Corporations of Individuals
k. Taxation
2. Real Estate Investment Trusts
b. Real Estate Investment Trust Qualification Requirements
c. Income Tests
d. United States Real Estate Investment Trusts
3. Special Partnerships
a. Definition
b. Requirements
c. Election
e. Accounting Method
f. Accounting Year
g. Termination
h. Taxation
4. International Banking Entity
a. Background
b. International Banking Entity Qualification Requirements
c. Organization
d. Operations
G. Cooperatives
H. Limited Liability Company
IV. Principal Taxes
Introductory Material
A. Puerto Rico Income Tax
1. Background
2. Overview of Puerto Rico Income Tax
a. The Income Tax Formula
b. Due Date for Filing Income Tax Return
c. Income Taxation of Individuals
d. Information Returns
e. Income Taxation of Corporations and Partnerships
B. Gift and Estate Tax
2. Gift and Estate Tax Rates
3. Gift and Estate Tax Returns
4. Estate Tax Lien
C. Excise Tax
2. Articles Imported into or Manufactured in Puerto Rico
b. Articles Specifically Taxed
(1) Sugar
(2) Carbonated Beverages
(3) Hydraulic Cement
(4) Cigarettes
(5) Combustible Fuels
(6) Crude Oil, Products Partially Composed of Crude Oil, End Products Derived from Crude Oil, and Any Other Hydrocarbon Mix
(7) Special Excise Tax Based on Presidential Proclamations Imposed on the Importation and Production of Gasoline
(8) Special Excise Tax Based on Presidential Proclamations Imposed on the Importation of Crude Oils, Unfinished Oil Products, End Oil Products, and Hydrocarbon Mixtures
(9) Vehicles
c. Exemptions from Excise Tax on Specifically Taxed Articles
(1) Public Service Vehicles
(2) Vehicles for the Personal Use of Consuls
(3) Vehicles of Disabled Persons
(4) Certain Vehicles Acquired by Churches
(5) Vehicles to Be Donated to the Police
(6) Articles Used in Manufacture
(7) Articles in Transit and for Export
(8) Exemption in Relation to Returned Articles
(9) Exemption on Cigarettes Introduced by Tourists and Residents of Puerto Rico
(10) Articles Sold at Air and Maritime Terminal Stores to Persons Leaving Puerto Rico
(11) Vehicles Acquired by Nonprofit Charitable Organizations
(12) Articles Acquired by Government Agencies
(13) Articles Introduced by Persons in Government Service
(14) Exemption on Cigarettes
(15) Contaminated Gasoline, Diesel Oil and Gas Oil and Diesel Oil for Use Outside Puerto Rico
(16) Gasoline for Air and Marine Use
(17) Vehicles Propelled by Electric, Solar or Hydrogen Energy
(18) Vessels Used to Render Towing Services or Bunkering
d. Computation and Payment of Excise Tax
3. Excise Tax on Transactions
4. Licenses
D. Property Taxes
2. Property Tax Rates
3. Assessed Value of Property
4. Exemptions
5. Due Date for Payment of Property Taxes
E. Municipal License Tax
2. Exemptions
3. Municipal License Tax Rates
4. Due Date for Payment of Municipal License Taxes
F. Alcoholic Beverages Tax and License
G. Construction Tax
H. Payroll Taxes
1. Puerto Rico Income Tax Withholding
2. FICA Tax
3. Puerto Rico Unemployment Tax
4. Federal Unemployment Tax
5. Disability Benefits Tax
6. Workmen's Compensation
7. Chauffeur's Insurance
I. Room Occupancy Tax
J. Municipal Occupancy Tax
K. Sales and Use Tax
2. Definition of "Taxable Items"
a. Tangible Personal Property
(1) Meaning of Tangible Personal Property
(2) Exclusions from Tangible Personal Property
b. Combined Transactions
(1) Meaning of Combined Transactions
(2) Exclusions from Combined Transactions
c. Taxable Services
(1) Meaning of Taxable Services
(2) Excluded Services
(3) Special Rules to Leases
d. Admission Rights
(1) Meaning of Admission Rights
(2) Exclusions from Admissions Rights
3. Exemptions from the Sales and Use Tax
4. Taxpayer
5. Source of Income
6. Registration Requirement
7. Credit for Payment of Sales Tax on the Purchase of an Article Resold to Another Merchant
8. Credit for Bad Debts
9. Credit for Excess Sales Tax Payments
10. Deduction for the Return of Taxable Items
11. Record Keeping Requirement
12. Filing Requirements
13. Payment of the Sales and Use Tax
L. United States Income Tax
2. Individuals Residing in Puerto Rico
3. Puerto Rico Corporations
4. United States Corporations
b. Temporary Dividends Received Deduction
V. Taxation of Domestic Corporations
A. Meaning of Domestic Corporation
B. Corporate Income Tax
1. Taxation of Worldwide Income
2. Tax Accounting
b. Tax Accounting Periods
(2) Special Rules Regarding 52-53 Week Taxable Year
(3) Calendar Year
(4) Change of Taxable Year
c. Tax Accounting Methods
(2) Cash Receipt and Disbursement Method
(3) Accrual Method
(4) Installment Method
(5) Long-term Contracts
(6) Hybrid Methods
(7) Change of Accounting Method
d. Inventories
(2) Methods of Inventory
(3) Valuation of Inventories
e. Reserves
3. Calculation of Gross Income
a. Gross Income
b. Exclusions from Gross Income
c. Capital Gains
(2) Realized Gain
(3) Capital Assets
(4) Capital Gains and Losses
(5) Taxation of Capital Gains
d. Nonrecognition Transactions
(1) Like-kind Exchanges
(2) Involuntary Conversions
e. Earnings Derived Under a Grant of Tax Exemption
f. Rental Income for Property Used by Special Employee-owned Corporations
g. Income from Certain Agricultural Activities
h. Dividend Income
(2) Dividends from Puerto Rico Industrial Development Income
(3) Distributions Made Under the Puerto Rico Tax Incentives Act of 1998
i. Income Derived Under the Tourism Development Act of 1993
j. Income Derived by Exempt Hospital Units
k. Income from Corporations Operating a College, Academy, or School for the Teaching of the Fine Arts
l. Income from the Production of Flowers and Ornamental Plants
4. Business Expenses
b. Organizational Expenses
c. Travel and Entertainment Expenses
d. Interest and Royalties
e. Taxes
f. Depreciation and Depletion
g. Obsolescence
h. Charitable Contributions
i. Capital Losses
j. Casualty Losses
k. Reserve Accounts
l. Bad Debts
m. Worthless Bonds and Similar Obligations; Worthless Stock and Right to Acquire Stock
n. Inventory Write-downs
o. Rents
p. Salaries and Wages
q. Other Miscellaneous Deductions
5. Capital Expenditures
6. Loss Carryovers
a. Net Operating Loss
b. Capital Loss Carryover
7. Tax Credits
a. Foreign Tax Credit
b. Investment Tax Credits
(1) Tourism Investment Tax Credit
(2) Agricultural Tax Credit
(3) Solid Waste Disposal Investment Credit
(4) Capital Investment Fund Credit
c. Purchase Credits
(1) Tax Credit for Purchase of Products Manufactured in Puerto Rico by Manufacturers Operating Under Grant
(2) Tax Credit for Purchase of Products Manufactured in Puerto Rico by Businesses Not Operating Under Grant
(3) Tax Credit for Purchase of Puerto Rico Agricultural Products
(4) Tax Credit for the Purchase of an Automobile Propelled by Alternative or Mixed Power
d. Other Credits
8. Tax Rates and Calculation of Taxable Income
a. Corporate Income Tax Rates
b. Elimination of the Graduated Tax Rates Benefit
c. Special Tax Rate for Certain Interest Income
d. Alternative Minimum Tax
9. Assessment and Filing
a. Assessment of Corporate Income Tax
b. Corporate Income Tax Return
c. Declaration of Estimated Tax
d. Personal Property Tax Return
e. Volume of Business Tax Return
f. Corporation Annual Report
g. Excise Tax Returns
h. Consolidated Returns
10. Withholding
a. Puerto Rico Corporations and Partnerships and Foreign Corporations and Partnerships Engaged in Trade or Business in Puerto Rico
b. Indemnification Payments
c. Payments for Services Rendered
11. Corporate Transactions
a. Funding the Corporation
b. Reorganizations in General
c. Mergers, Consolidations, and Type B and C Reorganizations
d. Type D Reorganizations
e. Type E and F Reorganizations
f. Liquidations
g. Acquisition of Stock with Step-up in Basis of Assets of Acquired Corporation
12. Advance Ruling
VI. Taxation of Foreign Corporations
A. Meaning of Foreign Corporation
B. Background on Use of Foreign Corporations in Puerto Rico
C. Foreign Corporations Engaged in Trade or Business in Puerto Rico
1. Engaged in Trade or Business
2. Taxation of Foreign Corporations Engaged in Trade or Business in Puerto Rico
3. Determination of Taxable Net Income of Foreign Corporations Engaged in Trade or Business in Puerto Rico
D. Foreign Corporations Not Engaged in Trade or Business in Puerto Rico
2. Tax Jurisdiction
3. Source of Income Rules
a. Interest
b. Dividends
c. Personal Services
d. Rents and Royalties
e. Sale of Real Property
f. Sale of Personal Property
g. Distribution from Liquidation of Puerto Rico Corporation
h. Distribution from the Liquidation of Foreign Corporation
i. Insurance Premiums
4. Real Property Income Option
5. Exceptions to 10% Tax on Dividends
a. Dividends from Industrial Development Income Derived Under Puerto Rico Tax Incentives Act of 1998
b. Dividends from Industrial Development Income Derived Under Puerto Rico Tax Incentives Act of 1987 and Puerto Rico Industrial Incentives Act of 1978
6. Method of Taxation
a. Foreign Corporations Engaged in Trade or Business in Puerto Rico
b. Foreign Corporations Not Engaged in Trade or Business in Puerto Rico
VII. Taxation of a Branch
A. General
B. Branch Profit Tax
C. Subsidiary v. Branch
VIII. Taxation of Partnerships
IX. Taxation of Other Business Entities
A. Corporation of Individuals
1. Taxation of Corporation of Individuals
2. Taxation of Shareholders
a. In General
b. Losses
c. Adjustments to Basis of Shareholder's Stock
d. Adjustment to Basis of Debts of Corporation of Individuals Owed to Its Shareholders
e. Distributions by Corporations of Individuals
3. Midstream Conversion into Corporation of Individuals
a. Income Recapture
b. Built-in Gain Recognition
4. Distributions Made After Termination of Corporation of Individuals Status
5. Withholding on Distributive Share
B. Special Partnerships
1. Taxation of Special Partnerships
2. Transfer of Property into Special Partnership
3. Taxation of Partners of Special Partnership
4. Adjustments to Basis of Partner's Interest in Special Partnership
5. Basis of Property Contributed to Special Partnership
6. Distributions to Partners by Special Partnership
7. Basis of Property Received in Distribution
8. Withholding on Distributive Share
C. Special Employee-owned Corporations
1. Determination of Income and Loss of Special Employee-owned Corporation
2. Taxation of Special Employee-owned Corporation
3. Taxation of Regular and Special Members
4. Exemption for Interest Derived from Bonds and Obligations for the Financing of the Development of the Objectives of a Special Employee-owned Corporation
D. Registered Investment Companies
1. Taxation of Registered Investment Companies
2. Taxation of Shareholders of Registered Investment Company
E. Real Estate Investment Trusts
1. Taxation of Real Estate Investment Trusts
2. Taxation of Beneficiaries of Real Estate Investment Trusts
F. Limited Liability Companies
2. Taxation of an LLC
X. Taxation of Individuals - Residents
A. Scope of Taxation
B. Residence
C. Determination of Gross Income
1. Gross Income
2. Exclusions from Gross Income
D. Deductions, Personal Exemptions, Exemptions for Dependents, and Credits
1. Types of Deductions
2. Deductions from Gross Income
3. Standard Deduction
4. Itemized Deductions
5. Additional Deductions from Adjusted Gross Income
6. Deductions for Personal Exemptions
7. Deductions for Dependents Exemptions
E. Withholding
1. Indemnification Payments
2. Payments for Services Rendered
3. Dividends
F. Rates and Calculation of Taxable Income
1. Regular Individual Income Tax Rates
2. Special Individual Income Tax Rates
b. Interest Derived from Accounts with Banking Institutions
c. Interest Derived from Individual Retirement Accounts
d. Interest Derived from Certain Qualified Bonds, Notes, and Mortgages
e. Withholding and Filing Requirements
3. Employee Tax Credit
Content
4. Alternative Minimum Tax
5. Capital Gains
G. Assessment and Filing of Income Tax Return
1. Assessment of Income Tax
2. Filing of Income Tax Return
XI. Taxation of Nonresidents
A. Nonresident United States Citizens
1. Taxable Income Subject to Puerto Rico Income Tax
2. Deductions
3. Withholding
4. Returns
B. Nonresident Aliens Not Engaged in Trade or Business in Puerto Rico
C. Taxation of Nonresident Aliens Engaged in Trade or Business in Puerto Rico
2. Taxable Income Subject to Puerto Rico Income Tax
3. Deductions
XII. Taxation of Retirement Plans
B. Qualified Retirement Plans
1. Pension Plans
2. Profit-sharing Plans
3. Stock Bonus Plans
4. Cash or Deferred Contribution Arrangements
5. Plans of Self-Employed Individuals
C. Qualification Requirements
D. Investment Limitations
E. Contributions to the Pension Trust Fund
F. Taxation of Employees in Relation to Contributions to and Distributions from the Trust of a Qualified Retirement Plan
1. Contributions to a Qualified Retirement Plan
2. Distributions from a Qualified Retirement Plan
XIII. Estate and Gift Tax
A. Estate Tax
1. Liable Persons
2. Territorial Scope
3. Taxable Base
a. Gross Estate
(2) Community Property
(3) Life Insurance
b. Deductions Based on Transferred Property or Transferee
(2) Property Located in Puerto Rico
(3) Property Passing to Surviving Spouse
(4) Eligible Investments
(5) Deductions for Charitable Bequests
(6) Agricultural Exemption
c. Deductions Based on Expenses and Liabilities
d. Fixed Exemption
4. Estate Tax Rates
5. Estate Tax Lien
B. Gift Tax
3. Taxable Gift Amount
b. Deductions Based on the Transferred Property or the Transferee
c. Annual Exclusion
d. Gift Tax Rates
XIV. Avoidance of Double Taxation
A. Foreign Tax Credits
B. Tax Treaties
XV. Tax Incentives
A. Historical Background
B. Industrial Tax Incentive Acts
a. Distributions Under the Industrial Incentives Act of 1963
b. Distributions under Puerto Rico Industrial Incentives Act of 1978
c. Distributions Under Puerto Rico Tax Incentives Act of 1987
2. Tax Incentives Act of 1998
b. Tax Incentive Periods
c. Qualifying Businesses
(1) Introduction
(2) List of Qualifying Businesses
d. Income Tax Benefits
(1) Low Flat Income Tax Rate and Exemptions
(a) General Rules
(b) Additional Alternative Election
(c) One Hundred Percent Exemption for Exempted Businesses Located in Vieques and Culebra
(d) One Hundred Percent Exemption for Income Derived from § 2(j) Investments
(e) Distributions and Sale or Exchange of Stock or Assets
(f) Liquidation
(g) Reduced Withholding Tax on Payment of Royalties
(h) Exemption with Respect to Interest from Loans of $50,000 or Less
(2) Special Deductions
(a) Additional Training Expense Deduction
(b) Additional Research and Development Deduction
(c) Current Deduction for Expenses Incurred in Purchase, Acquisition or Construction of Buildings, Structures, Machinery and Equipment
(d) Current Deduction for Expenses Incurred in Remodeling or Repairing Buildings, Structures, Machinery and Equipment
(e) Net Operating Losses
(f) Deduction for Losses in Investment in an Exempt Business
(3) Tax Credits
(a) Credit for Purchases of Products Made in Puerto Rico
(b) Credit for Purchases of Products or Raw Materials Made from Recyclable Materials Produced by Exempt Businesses in Puerto Rico
(c) Credit for Losses of Parent
(d) Tax Credit to Individual Shareholders
(e) Tax Credit for Investment in Closing Exempt Business
(f) Partial Credit for the Payment of Royalties and License Fees
e. Property Tax Benefits
(1) Property Tax Rates
(2) Property Tax Exemption
(a) First Year - One Hundred Percent Exemption
(b) First Five Years - Central or Regional Headquarters Deriving Industrial Development Income from Central and South America or from North, Central and South America or from Global Markets
(c) Remaining Years - Ninety Percent Exemption
(d) Exemption During Expansion Period
(e) Exemption for Certain Intangibles
(f) Exemption forCertain Stock, Bonds, and Other Securities
(g) Exemption for Securities Evidencing § 2(j) Investments
f. Municipal License Tax Benefits
(1) Municipal License Tax
(2) Municipal License Tax Exemption
(a) One Hundred Percent Exemption - During First Three Semesters
(b) One Hundred Percent Exemption - First Five Years of Centralor Regional Headquarters Deriving Industrial Development Income from Central and South America or from North, Central, and South America, or from Global Markets
(c) Exemption for Remaining Period
(d) One Hundred Percent Exemption for Income from § 2(j) Investments
g. Municipal Construction Tax Benefits
h. Excise Tax Benefits
(1) Excise Tax Exemptions Under the Puerto Rico Code
(2) Excise Tax Exemption Under TIA-1998
(3) Procedures for Claiming Excise Tax Exemption
(4) Manufacturer's Excise Tax
(5) Exemption in Relation to Machinery and Equipment to Comply with Environmental Requirements
(6) Exemption in Relation to Machinery and Equipment Necessary in Operation of Call Center or Network Operating in Puerto Rico
3. Economic Incentives for the Development of Puerto Rico Act
a. Background Information in Relation to the Economic Incentives for the Development of Puerto Rico Act
(2) United States Income Tax Considerations
(3) Foreign Tax Law Considerations
b. Tax Incentive Period
(a) General Rule
(b) Alternative Tax Rates
(e) Distribution, Sale, or Exchange of Stock or Assets
(g) Novel Pioneer Industries
(h) Exempted Businesses Located in Low or Intermediate Industrial Development Zone
(i) Special Limitations
(a) Current Deduction for Investment in Buildings, Structures, Machinery and Equipment
(b) Current Deduction for Expenses Incurred in Remodeling or Repairing of Buildings, Structures, Machinery, and Equipment
(c) Net Operating Loss
(c) Credit for the Creation of Employment
(d) Investment in Research and Development, Clinical Tests, Toxicology Tests, Infrastructure, Renewable Energy, and Intangible Property
(e) Investment in Machinery and Equipment for the Efficient Production and Use of Electric Power
(f) Credit to Reduce the Cost of Energy
(g) Credit for Investment in the Transfer of Technology
(h) Credit for Investment in Strategic Projects
(i) Credit for Industrial Investment
(b) First Five Years Exemption for Real Property Owned by Eligible Service Business of Corporate Headquarters
(e) One Hundred Percent Exemption for § 2(j) Investments
(3) Self-Assessment Method
(a) One Hundred Percent Exemption - for First Three Semesters
(b) Ninety Percent Exemption - Businesses Located in Vieques or Culebra
(d) One Hundred Percent Exemption on Income from § 2(j) Investments
(e) Seventy Five Percent Exemption for Small and Medium-Sized Businesses
(3) Municipal Construction Tax Benefits
g. Excise and Sales and Use Tax Benefits
C. Tourism Tax Incentives
2. Application for Tourism Decree
3. Procedure for Obtaining Tourism Decree
4. Exemption Period
5. Eligible Tourism-Related Activities
6. Income Tax Benefits
a. Percentage of Exemption
b. Applicable Tax Rates
c. Sale of Shares of Business Operating Under Tourism Decree
d. Other Income Tax-Related Exemptions
e. Commencement of Exemption Period
f. Deduction for Net Losses
g. Option with Respect to Effectiveness of Tourism Decree
h. Tourism Investment Credit
i. Losses in Tourist-Related Investments
7. Property Tax Benefits
8. Municipal License Tax Benefits
9. Municipal Construction Tax Benefits
10. Excise Tax Benefits
11. Renegotiation of Tourism Decree
12. Extension of Tourism Decree
13. Tourism Venture Capital Funds
a. Requirements for Tourism Venture Capital Funds
b. Taxation of Tourist Venture Capital Funds
c. Taxation of Investors in Tourist Venture Capital Funds
d. Timeshare Associations and Vacation Clubs
e. Associations of Property Owners in Tourist Improvement District
14. Tax Exemption with Respect to Charges and Interest Paid to Financial Institutions in Relation to Financing of Projects for Development of Tourism
15. Cruise Ships Incentives
a. Destination Incentive
b. Frequent Home Port Visits Incentive
c. Time in Puerto Rico Incentives for Ships in Transit
d. Passenger Volume Incentive per Corporation
e. Incentives for Goods
D. Agricultural Tax Incentives
2. Agricultural Tax Incentives
a. Income Tax
b. Property Tax Exemption
c. Municipal License Tax Exemption
d. Excise Tax Exemption
e. Agricultural Tax Credits
(1) Amount of Tax Credit
(2) Requirements of a Qualified Investment
(3) Adjustments to Base of Agricultural Investment
(4) Sale of Agricultural Tax Credit
(5) Sale of Eligible Investment or Share in Eligible Fund
f. Matching Grants
E. Tax Incentives for Hospital Facilities
2. Hospital Facilities Tax Incentives
a. Income Tax Incentives
b. Property Tax Incentives
c. Excise Tax Incentives
d. Municipal Tax Incentives
3. Period of Tax Exemption
4. Application Procedure for Hospital Facilities Tax Exemption
F. Tax Incentives for Air Carriers
2. Property Tax Incentive
3. Applying for Air Carrier Tax Incentives
4. Extension of Exemption on All Property
G. Tax Incentive Relating to Treatment and Disposal of Solid Waste
1. Investment Tax Credit
2. Distribution of Tax Credit
3. Reduction in Base
4. Sale or Other Disposition of Eligible Investment
5. Transfer of Tax Credit
6. Other Tax Incentives for Certain Recycling Activities
H. Foreign Trade Zones
2. Federal Tax Benefits
3. Puerto Rico Excise Tax
4. Puerto Rico Property Tax
5. Municipal License Tax
6. Puerto Rico Income Tax
I. Tax Incentives for Film Industry
2. Eligible Film Projects
3. Eligible Infrastructure Projects
4. Tax Incentives Offered to Film Entities Engaged in Eligible Film Projects and/or Infrastructure Projects
b. Property Taxes
c. Municipal License Tax
d. Municipal Construction Tax
e. Excise Tax
f. Hotel Occupancy Tax
5. Tax Incentives for Investors and Lessors of Property to Film Entities
a. Investment Tax Credit
(1) Film Project Tax Credits
(2) Infrastructure Tax Credits
b. Transfer of Shares or Interest Issued by Film Entity
c. Exemption from Income Tax on Rent Derived from Leasing of Property to Film Entity
6. Application for Film Entity License
J. Tax Incentives for Construction and Rehabilitation of Social Interest Housing and Middle Class Housing under Public and Private Sector Co-partnership Program
1. Public and Private Sector Co-partnership Program
2. Tax Benefits
3. Low or Moderate Income Family
4. Procedure
K. Tax Credit for Investment in Housing Infrastructure
1. Infrastructure Tax Credits
2. Adjustment to Amount of Investment in Infrastructure
3. Meaning of Infrastructure
4. Amount of Infrastructure Tax Credits Available
5. Transfer of Infrastructure Tax Credit
6. Transfer of Ownership Interest
7. Procedure
L. Tax Credit for Investment in New Construction or Rehabilitation of Housing Units for Leasing to Low and Moderate Income Families
1. Tax Credit for Construction and Rehabilitation of Housing Facilities for Low and Moderate Income Families
2. Total Construction and Rehabilitation Tax Credits Available
3. Basis of Housing Units
4. Transfer of Tax Credit
5. Transfer of Ownership Interest
6. Procedure
M. Tax Incentives for Promoting Major League Games
1. Special Income Tax Rate for Players, Managers, Referees, Technical Personnel, and Others
2. Withholding
3. Exclusion from Gross Income
4. Excise Tax Exemption
5. Exemption from Tax on Admissions to Public Shows
N. Gifts to the "Patronato del Palacio de Santa Catalina"
O. Tax Incentives for Development of Geographical Zones
1. Historical Zones Exemption
2. Theater District in Santurce
3. Rio Piedras Ward
4. Tax Incentives with Respect to Development of Cantera
5. Tax Incentives for Development of Area of Castañer
6. District of World Commerce of the Americas
7. Revitalization of Urban Centers
a. Income Tax Exemption for Interest on Loans
b. Tax Credit for Qualified Investments in Constructions in Designated Urban Centers
c. Special Deduction of 5% of the Payroll of New Employees
d. Special Deduction of 15% of the Payroll of the Employees of Businesses Transferred to a Designated Urban Center
e. Tax Credit for Investments in Infrastructure
f. Tax Exemption for the Construction of Parking Structures
g. Accelerated Depreciation
8. Tax Incentives for the Rehabilitation and Development of Santurce
P. Other Miscellaneous Tax Incentives
2. Institutions for Teaching of Fine Arts
3. Sale of Literary and Artistic Work
4. Commercial Production of Flowers and Ornamental Plants
Working Papers
Table of Worksheets
Worksheet 1 Corporation Income Tax Return
Worksheet 2 Partnership Income Tax Return
Worksheet 3 Schedules and Forms Accompanying Corporation and Partnership Tax Returns
Worksheet 4 Income Tax Return for Exempt Businesses Under the Puerto Rico Incentives Programs
Worksheet 5 Estimated Tax Declaration
Worksheet 6 Nonresident Annual Return for Income Tax Withheld at Source
Worksheet 7 Foreign Corporations and Partnership Tax on Dividend Equivalent Amount and Effectively Connected Interest (Branch Profits Tax)
Worksheet 8 Estate Tax Return of Nonresident or United States Citizen Resident of Puerto Rico
Worksheet 9 Application for Manufacturer Excise Tax Identification Number
Worksheet 10 Summary of the Informative Returns
Worksheet 11 Annual Reconciliation Statement of Income Subject to Withholding
Worksheet 12 Request for Extension of Time to File the Income Tax Return
Worksheet 13 Withholding Tax Exemption Certificate
Worksheet 14 Application for Merchants' Registration Certificate and Exemption Certificate
Worksheet 15 Certificate of Authorization to do Business as a Foreign Corporation
Worksheet 16 Corporation Annual Report: Profitable
Worksheet 17 Corporate Annual Report: Nonprofit
Worksheet 18 Application for Registration of a Limited Liability Partnership
Worksheet 19 Application for Industrial Tax Exemption Under the Economic Incentives Act for the Development of Puerto Rico (Act No. 73 of May 23, 2008)
Worksheet 20 Real Property Tax Rates
Worksheet 21 Estate and Gift Tax Rates
Bibliography
OFFICIAL
Books:
Tax Services
Cases: Puerto Rico
Treasury Rulings: United States
Cases: United States
UNOFFICIAL
Articles:
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1953
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1959
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