Puerto Rico - Economic Development Incentives for Renewables

Summary

The 2008 Economic Incentives for the Development of Puerto Rico Act (EIA) provides a wide array of tax credits and incentives that enable local and foreign companies dedicated to certain business activities to operate within Puerto Rico.

Businesses dedicated to the production of energy for consumption in Puerto Rico through the use of renewable sources are eligible companies under the EIA of 2008. In addition, businesses devoted to assembling equipment used to generate energy from renewable resources are eligible. The main economic incentives include:

• 4% fixed income tax rate for 15 years.
• Tax credit equal to 50% of the cost of "machinery and equipment for the generation and efficient use of energy". (Note: according to the Puerto Rico Office of Industrial Tax Exemption, this particular credit is intended for use by companies engaged in manufacturing that want to produce their own power, not companies that produce energy for domestic consumption). Energy producers can apply for a similar credit through the Green Energy Fund program.
• Up to 50% credit of qualified research and development expenses.
• 90% exemption from real and personal property taxes for 15 years.

There are additional tax credits available, including tax credits for locating in a "low industrial development zone" or for purchasing products manufactured in Puerto Rico, among others.

To apply for the benefits under the EIA, eligible companies must complete an application and submit required documentation to the Office of Industrial Tax Exemption, whose Director will initiate required inter-agency communications, prepare a "Grant Project" for the Secretary of Development to review and subsequently determine to either grant or refuse the application.

The 2010 Puerto Rico Green Energy Incentives Act (GEI, Act No. 83) provides financial incentives through a special fund called Green Energy Fund. As a result, as of June 30, 2010, eligible "green energy" businesses will have to choose between the new incentives provided by the GEI or those provided via the EIA as described above. Businesses are not permitted to both.

Alternative Fixed Income Tax Rate

Act No. 52-2022 (ESP) added a new section for an alternative fixed income tax rate. Companies could choose a 10.5% fixed income tax rate for 30 years, in return for paying no other taxes. Companies can also receive one of the following tax breaks:

• If it employs at least 1,000 people, and it paid over $300 million in taxes the previous year, then in the current year 20% of its income is exempt from income tax
• If it employs at least 1,000 people, and it paid over $2.5 billion in taxes the previous year, then in the current year 67% of its income is exempt from income tax
• If it employs at least 1,000 people, and it paid over $7.5 billion in taxes the previous year, then in the current year 75% of its income is exempt from income tax
• If it employs at least 4,000 people, and 90% of its income went to taxes in the previous year, then in the current year 85% of its income is exempt from income tax.

The law notes that if the federal income tax becomes 15%, then the exemption under this section would also become 15%, and only one tax break option would be available:

• If it employs at least 100 people, and the three-year annual average income is greater than 20% of the average taxable purchases*, then in the current year 70% of its income is exempt from income tax.

*Purchases that would have been subject to excise tax, as the company does not pay other taxes under this section.

Companies can receive additional exemptions for royalties, rents, and license fees.