The Incentives Code of Puerto Rico, Act 60-2019 provides a myriad of tax incentives to foster Tourism Development in its islands. These incentives include:
4% preferential income tax rate on eligible tourism development income.
100% exemption on dividend distributions of earnings and profits from income related to tourism development income.
Up to 100% exemption on excise and sales and use tax for articles acquired and used in selected activities.
75% exemption on personal and real property taxes for property used on eligible activities; exemption on construction excise taxes applicable to the business that applies and obtains the incentive (the Exempt Business) as well as contractors and subcontractors.
50% exemption from municipal license and other municipal taxes on income derived from tourism development.
Transferrable Tax Credits
The Incentives Code also avails Transferrable Tax Credits on eligible investments. There are two ways one can capitalize from tourism tax credits:
1) Strategy A (1):
a. Amount of tax credits – Your business could get up to 30% of the total tourist investment made after the effective date. Additionally, you also have the option to use 10% of the tax credit the year you obtain financing.
b. Timing of installments – You receive the tax credits in 3 installments. First, you 1/3 of the balance the year the business receives its first paying guest. Then, you receive the remaining balance proportionately in the next 2 years.
2) Strategy A (2):
a. Amount of tax credits – You could get up to 40% of the total investment made after effective date.
b. Timing of installments – You could also receive the tax credits in 3 installments. However, you receive 1/3 of the balance on the business’ second year of operations.
There are three ways you could use the credits:
Repay financing from any financing institutions or government entity.
Pay off any other loans used for the project.
Make distributions to the exempt business investor.
Incentives are available for activities beyond hotel development including:
Hotels and condo hotels (minimum 15 rooms)
Hostels or Paradores
Time-shares and vacation clubs
Bed and Breakfasts (up to 25 rooms)
Sustainable and ecotourism
eSports and Fantasy Leagues
Thematic parks and golf courses
To be eligible for benefits under Act 60, the business must hold a grant issued by the Department of Economic Development and Commerce (DDEC).
First, the business requests a pre-application conference with the Tourism Office prior to filing the application
Submit pre-application with the Tourism Office and propose the project and its details
Submit an agreed-upon procedures report (AUP) certifying the project’s total cost
Submit the formal application through the Department of Economic Development and commerce of Puerto Rico’s business portal
Submit an Annual Report.
Ordinary applications can be generated using the standard formats available at the Single Business Portal of the Government of Puerto Rico. Other applications may require negotiations with the DDEC and consultations with other government agencies, such as the Department of Treasury or Hacienda.
About the authors
Jesus Daniel Mattei is Founder and Managing Member at Rockelis Partners in San Juan, Puerto Rico, where Sergio Zahra is Financial Analyst.