Opportunity Zones For Puerto Rico & U.S. Territories

Why Puerto Rico Opportunity Zones?

Most Opportunity Zone communities face systemic challenges, including poverty, unemployment, public safety, and overall economic decline. These are the barriers to business formation and investment that the Opportunity Zones incentive is designed to overcome. Success will require mutual understanding by all stakeholders of the unique challenges, assets, and opportunities present in their community.

Without the Opportunity Zones incentive, some investors might shy away from these communities. With the incentive, investors will scrutinize every opportunity carefully and pose a series of hard-edged business questions: Is this community a place where reinvested capital can be preserved safely during the required holding period? Is it a place with the opportunity to achieve additional capital gains that can be sheltered from future taxation?

A clear understanding of a community’s needs and assets will allow local leaders to highlight promising investment opportunities and ensure that the investments made align with the community’s highest priorities.

To attract more investments to Qualified Opportunity Zones in Puerto Rico, Act 21-2019, known as the Act for the Development of Opportunity Zones of 2019 (PR-QOZ Act), was enacted on May 14, 2019 (now part of the Act 60 of July 1, 2019 – Puerto Rico Incentives Code). As a local counterpart to the U.S. QOZ provisions, the PR-QOZ Act provides for additional incentives for investment in Puerto Rico. Final PR OZ Regulations were issued in October 2020. Additionally, Amended the PR Internal Revenue Code to provide the same federal tax incentives in the local tax jurisdiction for PR taxpayers with capital gains that invest in a QOF (that invest only in PR).

Local Opportunity Zone Tax Benefits For Priority Projects.

Some of the additional benefits provided by the Puerto Rico OZ Law for Priority Projects

18.5% FLAT INCOME TAX RATE ON INCOME DERIVED FROM ELIGIBLE ACTIVITIES BY AN EXEMPT BUSINESS.

100% TAX EXEMPTION ON DIVIDEND DISTRIBUTIONS FROM EARNINGS AND PROFITS GENERATED FROM ELIGIBLE ACTIVITIES.

100% TAX EXEMPTION ON SUBSEQUENT DIVIDEND DISTRIBUTIONS.

100% EXEMPTION FROM TAX FOR INTEREST INCOME RECEIVED ON BONDS, PROMISSORY NOTES OR OTHER OBLIGATIONS OF AN ELIGIBLE BUSINESS FOR THE DEVELOPMENT, CONSTRUCTION OR REHABILITATION OF, OR IMPROVEMENTS TO AN ELIGIBLE BUSINESS.

18.5% WITHHOLDING TAX RATE ON ROYALTIES, RENTS AND LICENSE FEES PAID BY THE EXEMPT BUSINESS TO A NON-RESIDENT INDIVIDUAL OR ENTITIES NOT ENGAGED IN TRADE OR BUSINESS IN P.R.

25% EXEMPTION ON I) MUNICIPAL LICENSE TAX, II) PERSONAL PROPERTY TAX, III) REAL PROPERTY TAX, AND IV) MUNICIPAL CONSTRUCTION EXCISE TAX (MAY BE INCREASED BY THE MUNICIPALITY UP TO 75%).

UP TO 25% TRANSFERRABLE INVESTMENT CREDIT BASED ON THE CASH INVESTMENT CONTRIBUTED IN THE QOF.

15 YEARS EXEMPTION PERIOD WITH FLEXIBLE EXEMPTION.

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Puerto Rico Tax Incentives For Opportunity Zones

The Incentives Code consolidates the tax incentives formerly granted under separate incentives laws, such as Act 73-2008 (manufacturing); Act 83-2010 (renewable energy); and Act 21-2019 (development of Opportunity Zones), among others. An eligible business must request and obtain a tax exemption grant under the Incentives Code to benefit from the tax incentives afforded by such Act. To the extent Portfolio Companies in the sustainable and renewable energy and manufacturing industry and have a grant of tax exemption under the Incentives Code, its net income associated to the activities covered under the Incentives Code generally would be subject to a corporate income tax rate of 4%, while Portfolio Companies with a grant of tax exemption as Priority Projects will be subject to a corporate tax of 18.5%. If Portfolio Companies do not operate under the Incentives Code, they would be subject to a corporate income tax rate of up to 37.5%, and if organized under a State of the U.S., they would also be subject to a 10% branch profit tax.

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