Business Operations Puerto Rico (Portfolio 7320)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. In this Portfolio, our expert authors offer background information on the relationship between Puerto Rico and the United States and a summary of the Puerto Rico legal system. 

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The Business Operations in Puerto Rico Portfolio discusses, in general, 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.


The various Puerto Rico tax incentive laws and their interrelationship with the United States federal tax laws are also covered.

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Edgar Ríos-Méndez is one of Pietrantoni, Méndez & Álvarez LLC's tax capital members and his practice focuses on international tax matters, inbound and outbound corporate reorganizations, registered investment companies, structured investment vehicles and other complex federal, international and Puerto Rico tax law matters. He has been active in some of the major Puerto Rico tourism related projects with respect to the negotiation of tax incentive grants and the sale of tourism investment tax credits. In the Puerto Rico industrial tax incentive area, Edgarhas assisted clients in the industrial and service sectors and in recent times has actively participated in the negotiation of tax incentives for clients in the financial services industry. He has requested private letter rulings and negotiated closing agreements with the Puerto Rico Treasury Department for the firm's clients. Edgar has acted as tax counsel in the structuring of financing transactions with borrowers located in Puerto Rico, the Baltic region, Eastern Europe and Asia.


Credentials / Edgar received his B.A., Xavier University (Cincinnati, OH, 1993); J.D. University of Puerto Rico School of Law (1997); LL.M. (Taxation), New York University Law School (1999). 


Jeanelle Alemar-Escabí is an associate of the tax practice group of Pietrantoni, Méndez & Álvarez LLC. Before joining the firm, Jeanelle served as tax advisor for the Secretary of the Puerto Rico Treasury Department from 2001 to 2004. Her practice includes advising clients on federal and state income tax issues, corporate taxation, and the design and implementation of corporate reorganizations. Also, she advises clients as to local taxation issues such as property, municipal license, excise, and sales and use taxes. She has assisted in the negotiation of tax exemption grants and tax credits under various Puerto Rico Tax Incentives laws. Jeanelle is also a Certified Public Accountant, member of the American Institute of Certified Public Accountants and a Notary Public.


Credentials / Jeanelle received her B.S.B.A., University of Puerto Rico (Mayaguez, 2001); J.D. University of Puerto Rico School of Law (2006); LL.M. (Taxation), Georgetown University Law Center (Washington, D.C., 2008). 


Detailed Analysis


A. The Country

B. The People

C. The Economy

D. The Government

1. Historical Background

2. Current Status

3. Representation in the U. S. Congress

4. Government Structure

5. Legal System

a. Judicial System

b. Laws

6. Applicability of Provisions of the U. S. 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. Federal Income Tax Laws

k. Federal Immigration Laws


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. 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

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

4. Day of Rest

5. Meal Period

6. Flexible Time

7. Employee Leave

a. General

b. Vacation Leave

c. Sick Leave

d. Maternity Leave

e. Military Leave

f. Jury Leave

g. Family and Medical Leave

h. Other Miscellaneous Leave

8. Payment of Wages

9. Deductions from Paycheck

10. Annual Bonus

11. Puerto Rico Anti–Discrimination Laws

a. Act No. 100

b. Sexual Harassment

c. Discrimination Against Disabled

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

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


A. Principal Business Entities

1. Sole Proprietorship

a. General

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 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

a. General

6. Liquidation

7. Limited Liability

C. Special Types of Corporations

1. Professional Corporations

2. Close Corporations

3. Special Employee–Owned Corporations

a. General

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

a. General

b. Requirements for Qualification as Investment Company

c. Registration Requirement

d. Requirements for Registered Investment Companies

e. Taxation

6. Non–Profit 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

a. General

b. Registration

c. Name

d. Limited Liability

e. Taxation

E. Business Trusts

F. Special Treatment Entities

1. Corporations of Individuals

a. General

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

a. General

b. Real Estate Investment Trust Qualification Requirements

c. Income Tests

d. Taxation

3. Special Partnerships

a. Definition

b. Requirements

c. Election

d. Limited Liability

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

e. Taxation

G. Cooperatives

H. Limited Liability Companies


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

1. General

2. Gift and Estate Tax Rates

3. Gift and Estate Tax Returns

4. Estate Tax Lien

C. Excise Tax

1. General

2. Articles Imported into or Manufactured in Puerto Rico

a. General

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. Articles Exempted from Excise Taxes

d. Excise Taxes on the Remaining Articles

3. Excise Tax on Transactions

4. License Fees

D. Property Taxes

1. General

2. Property Tax Rates

3. Assessed Value of Property

4. Due Date for Payment of Property Taxes

E. Municipal License Tax

1. General

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. Chauffeurs' Insurance

I. Room Occupancy Tax

J. United States Income Tax

1. General

2. Individuals Residing in Puerto Rico

3. Puerto Rico Corporations

4. United States Corporations

a. General

b. Temporary Dividends Received Deduction

(1) General Rule

(2) Election of Temporary Dividends Received Deduction

(3) Limitations


A. Meaning of Domestic Corporation

B. Corporate Income Tax

1. Taxation of Worldwide Income

2. Tax Accounting

a. General

b. Tax Accounting Periods

(1) General

(2) Special Rules Regarding 52–53 Week Taxable Year

(3) Calendar Year

(4) Change of Taxable Year

c. Tax Accounting Methods

(1) General

(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

(1) General

(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

(1) General

(2) Realized Gain

(3) Capital Assets

(4) Capital Gains and Losses

(5) Taxation of Capital Gains

d. Non–Recognition 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

(1) General

(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

a. General

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

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. 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

(1) Indemnification Payments

(2) 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


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

1. General

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 Percent 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


A. General

B. Branch Profit Tax

C. Subsidiary v. Branch



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

a. General

b. Losses

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


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. Alternative Minimum Tax

3. Capital Gains

G. Assessment and Filing of Income Tax Return

1. Assessment of Income Tax

2. Filing of Income Tax Return


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

1. Taxable Income Subject to Puerto Rico Income Tax

2. Deductions

3. Withholding

4. Returns

C. Taxation of Nonresident Aliens Engaged in Trade or Business in Puerto Rico

1. Engaged in Trade or Business

2. Taxable Income Subject to Puerto Rico Income Tax

3. Deductions

4. Returns


A. Estate Tax

1. Liable Persons

2. Territorial Scope

3. Taxable Base

a. Gross Estate

(1) General

(2) Community Property

(3) Life Insurance

b. Deductions Based on Transferred Property or Transferee

(1) General

(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

1. Liable Persons

2. Territorial Scope

3. Taxable Gift Amount

a. General

b. Deductions Based on the Transferred Property or the Transferee

c. Annual Exclusion

d. Gift Tax Rates


A. Foreign Tax Credits

B. Tax Treaties


A. Historical Background

B. Industrial Tax Incentive Acts

1. Background

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. Overview of Tax Benefits Under Tax Incentives Act of 1998

a. Puerto Rico Tax Benefits

b. United States Income Tax Considerations

c. Consideration of Foreign Tax Laws

3. Grant of Industrial Incentives

a. Nature of Grant of Industrial Tax Incentives

b. Application for Industrial Tax Incentives Grant

c. Procedure for Obtaining Grant of Tax Incentives

4. Tax Incentive Periods

5. Qualifying Businesses

a. General

b. Qualifying Manufacturing Activities

c. Designated Products

d. Contract Manufacturing

e. Property Devoted to Industrial Development

f. Qualifying Recycling Activities

g. Qualifying Service Industries

h. Designated Services

6. Income Tax Benefits

a. Low Flat Income Tax Rate

b. Additional Alternative Election

(1) One Hundred Percent Exemption on First $100,000 of Industrial Development Income

(2) Fifteen Percent Payroll Deduction

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. Additional Training Expense Deduction

f. Additional Research and Development Deduction

g. Current Deduction for Expenses Incurred in Purchase, Acquisition or Construction of Buildings, Structures, Machinery and Equipment

h. Current Deduction for Expenses Incurred in Remodeling or Repairing of Buildings, Structures, Machinery, and Equipment

i. Credit for Purchases of Products Made in Puerto Rico

j. Credit for Purchases of Products or Raw Materials Made from Recyclable Materials Produced by Exempt Businesses in Puerto Rico

k. Credit for Losses of Parent

l. Dividend Distributions

m. Tax Credit to Individual Shareholders

n. Reduced Withholding Tax on Payment of Royalties

o. Exemption on Interest from Loans of $50,000 or Less

p. Liquidation of Exempt Business

q. Sale or Exchange of Stock of Exempt Business

r. Tax Credit for Investment in Closing Exempt Business

s. Partial Credit for the Payment of Royalties and License Fees

7. Property Tax Benefits

a. Property Tax

b. Property Tax Exemption

(1) First Year – One Hundred Percent Exemption

(2) 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

(3) Remaining Years – Ninety Percent Exemption

(4) Exemption During Expansion Period

(5) Exemption on Certain Intangibles

(6) Exemption on Certain Stock, Bonds and Other Securities

(7) Exemption for Securities Evidencing 2(j) Investments

8. Municipal License Tax Benefits

a. Municipal License Tax

b. Municipal License Tax Exemption

(1) One Hundred Percent Exemption – During First Three Semesters

(2) 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

(3) Exemption for Remaining Period

(4) One Hundred Percent Exemption on Income From 2(j) Investments

9. Municipal Construction Tax Benefits

10. Excise Tax Benefits

a. Excise Tax Exemption Under Puerto Rico Code

b. Excise Tax Exemption Under Tax Incentives Act of 1998

c. Procedures for Claiming Excise Tax Exemption

d. Manufacturer's Excise Tax

e. Exemption in Relation to Machinery and Equipment to Comply with Environmental Requirements

f. Exemption in Relation to Machinery and Equipment Necessary in Operation of Call Center or Network Operating in Puerto Rico

11. Renegotiation of Tax Incentive Grants

a. Requirements for Renegotiation of Grant

b. Tax Rate of Renegotiated Grant

12. Extension of Tax Incentive Grant

a. Requirements for Extension of Tax Incentive Grant

b. Term of Extension

c. Application for Extension of Tax Exemption Period

d. Tax Rates During Extended Period

13. Successor Exempt Business

14. Special Filing Requirements for Exempt Businesses

15. Special Partnerships

C. Tourism Tax Incentives

1. Background

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 Paid to Financial Institutions in Relation to Financing of Projects for Development of Tourism

D. Agricultural Tax Incentives

1. Historical Background

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

1. Background

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

1. Background

2. Property Tax Incentive

3. Applying for Air Carrier Tax Incentives

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

1. General

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

1. Background

2. Eligible Film Projects

3. Eligible Infrastructure Projects

4. Tax Incentives Offered to Film Entities Engaged in Eligible Film Projects and/or Infrastructure Projects

a. Income Tax

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

1. General

2. Institutions for Teaching of Fine Arts

3. Sale of Literary and Artistic Work

4. Commercial Production of Flowers and Ornamental Plants


Working Papers

Item Description Sheet

Worksheet 1 Real Property Tax Rates

Worksheet 2 Estate and Gift Tax Rate