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July 22, 2019
Puerto Rico’s new Incentives Code includes various tax incentives for investments in opportunity zones
On 1 July 2019, the Governor of Puerto Rico signed into law Act 60, also known as the Puerto Rico Tax Incentives Code (Incentives Code), which consolidated dozens of tax decrees, incentives, subsidies and tax benefits in a single statute, including Act No. 21 of 14 May 2019, also known as the “Development of Opportunity Zones of Economic Development Act of Puerto Rico of 2019” (the Act). Through the enactment of the Incentives Code, the Act was repealed. However, most of the provisions of the Act establishing various tax incentives in Puerto Rico for investments in qualified opportunity zones were codified in the Incentives Code. For more information on the Act’s proposed bill, see EY Global Tax Alert, Puerto Rico’s Governor proposes tax incentives for Opportunity Zones, dated 5 February 2019.
The tax incentives for investments in qualified opportunity zones include preferential tax rates, transferable tax credits, and partial exemptions of property and municipal taxes. Generally, these incentives are available to an eligible business under the Act that complies with certain requirements, including being certified as a priority project. The eligible business is required to file an application to request the benefits, and if approved, it will be issued with a tax grant. A tax grant constitutes a contract between the parties. This Tax Alert highlights some of the tax incentives for opportunity zone projects under the Incentives Code, as well as a recent change related to when the list designating all the commercial activities and eligible businesses that are recognized as priority projects in a qualified opportunity zone will be issued.
The following tables summarize the tax incentives under the Incentives Code:
Approximately 95% of the territory of Puerto Rico is considered a qualified opportunity zone under the parameters established by the United States (US) Federal Government. The opportunity zone provisions under the Incentives Code are intended to align local tax statutes with the benefits afforded under the US Tax Cuts and Jobs Act of 2017. In addition to the preferential income tax treatment, the local statute provides for reductions in other local taxes and a transferable tax credit of up to 25% of cash contributed. These provisions, among other benefits like the expedited permitting process, are intended to make Puerto Rico’s market more appealing for investors looking to take advantage of opportunity zones.
The Act’s repeal affected the issuance of the list designating the commercial activities or eligible businesses by geographic area that will be recognized as priority projects in a qualified opportunity zone. Under the Act, a committee was supposed to issue the list by 13 July 2019. Under the provisions of the Incentives Code, this deadline has been pushed to 31 July 2019.
Government officials have stated that they are working on guidance related to statutory interpretation (i.e., resolution with list of priority projects within an opportunity zone) and administrative procedures (i.e., process for requesting a tax decree). We will continue monitoring the events and will issue updates as more information becomes available.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Puerto Rico LLC, State and Local Taxation Group, San Juan
Ernst & Young LLP (United States), State and Local Taxation Group, Miami