Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

November 10, 2022

Inflation Reduction Act does not trigger 15% income tax rate on industrial development income in Puerto Rico

In Informative Bulletin 22-11, the Puerto Rico Treasury Department (PRTD) has clarified that the 15% alternative minimum tax (CAMT) on the “adjusted financial statement income” of certain corporations enacted as part of the Inflation Reduction Act (IRA), P.L. 117-69, has not triggered the 15% income tax rate on industrial development income (IDI) in Puerto Rico.

Act 52-2022, recently enacted in Puerto Rico, allows taxpayers with tax decrees to elect to be subject to a 10.5% income tax rate on IDI if they are () engaged in manufacturing or other similar activities in Puerto Rico; and (ii) subject to the 4% excise tax. Under Act 52-2022, the 10.5% rate will increase to 15% if the United States amends the Internal Revenue Code (US IRC) to impose an income tax of at least 15% on the income of controlled foreign corporations (CFCs).

The IRA imposes the CAMT on the adjusted financial statement income of certain corporations for tax years beginning after 31 December 2022. Because the CAMT does not automatically apply in a tax year and is based on a corporation’s adjusted financial statement income, the PRTD clarified that the 15% CAMT will not activate the 15% income tax rate on IDI.  The Secretary of the PRTD provided other reasons to support the clarification made in IB 22-11, such as that the CAMT may be claimed as a credit in future years against regular tax.


Under Act 52-22, a 15% rate will apply to the taxpayer’s IDI, instead of the 10.5%, if the United States amends the US IRC to apply a corporate income tax rate of at least 15% to a CFC’s income. Companies evaluating the income-tax-rate election under Act 52-2022 were uncertain if the IRA’s CAMT provisions would affect the income tax rate on IDI in Puerto Rico (see EY Global Tax Alert, US IRS and Treasury intend to issue proposed regulations on application of the noncompulsory payment regulations to certain amended Puerto Rico tax decrees, dated 26 September 2022).  Informative Bulletin 22-11 makes it clear that the applicable rate remains 10.5%.   The question of applicable rate on IDI in Puerto Rico could be reopened in the future if the US enacts legislation imposing a minimum income tax of 15%. 


For additional information with respect to this Alert, please contact the following:

Ernst & Young Puerto Rico LLC, State and Local Taxation Group, San Juan


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more