At the Corporate Level: a) 50% tax credit for eligible investments in research and development, clinical trials, toxicology tests, and others under Act. No. 73 of 2008 (“Act 73”); b) 4% fixed income tax rate available for eligible laboratories engaged in scientific or industrial research and development activities and other businesses engaged in eligible activities under Act 73; c) 1% fixed income tax rate for innovative firms introducing "pioneer" activities or operations in Puerto Rico by businesses engaged in eligible activities under Act 73, and a 0% fixed income tax rate to the extent that the “pioneer” activities or operations are a result of research and development efforts that took place in Puerto Rico; d) A reduction of 0.5% in the fixed income tax rate, when the business is located in an industrial area of low or intermediate development (as determined by the Office of Industrial Tax Exemption) under Act 73; e) 100% tax exemption from taxation in Puerto Rico for all dividends under Act 73; and f) 4% fixed income tax rate and a 100% tax exemption on dividend distributions under Act No. 20 of 2012 (“Act 20”) for firms providing export services, such as environmental, technological, scientific, information technology, or engineering consulting services. Eligible businesses may also qualify for a 3% fixed income tax rate in the case of services considered strategic that essentially focus on exporting their services.
At the University Level: a) The Trust provides support programs for local universities seeking to recruit and retain accomplished scientists with the research expertise and leadership capabilities to attract other top researchers in strategic areas that can contribute significantly to Puerto Rico's economic development; and b) The Trust also helps local universities acquire the facilities and equipment that will help develop their capacity to compete for more advanced research grants.
At the Multi-Sectoral Level: a) The Trust is establishing a Technology Transfer Program that will help local researchers from academia and the private sector accelerate the commercialization of their innovative technology developed in Puerto Rico. This program will be an effective and cost beneficial collaboration for research institutions partnering with the Trust for the provision of technology transfer services; and b) The Puerto Rico Science District, currently under construction, has been designed to spur the development of Puerto Rico's knowledge economy. This state-of-the-art enclave located in San Juan should serve as a magnet for attracting top researchers to Puerto Rico by integrating high-tech research and development facilities, commercial laboratories, incubators, and training facilities; and c) The Trust has sponsored initiatives to compile databases that will assist with the identification and connection of key researchers, on and off-island, that may be interested in conducting advanced research in Puerto Rico.
Tax Exemption Decree: To benefit from Act 73, Act 20 and Act 22, an eligible business or individual needs to submit an application with the Office of Industrial Tax Exemption to obtain a tax exemption decree signed by the Secretary of Economic Development and Commerce of Puerto Rico, which will provide full detail of tax rates and conditions mandated by the Acts. This tax exemption decree will be considered a contract between the Government of Puerto Rico and the eligible business or individual. Once the eligible business or individual obtains the tax exemption decree, the benefits granted will be secured during the term of the tax exemption decree, irrespective of any changes in the applicable Puerto Rico tax laws. Under Act 73, an eligible business can qualify for a 15-year tax exemption decree. Under Act 20, the tax exemption decree shall have a term of 20 years, with a possible 10-year extension. Under Act 22, the term of the tax exemption decree will be until December 31, 2035.
Puerto Rico Income Taxes: An exempt business operating in Puerto Rico under Act 73 or Act 20 by means of a Puerto Rico entity, as well as any resident of Puerto Rico that qualifies under Act 22, should not be subject to any taxes (such as a dividend tax, tollgate tax or other similar taxes) on income from eligible activities in Puerto Rico, other than the Puerto Rico fixed income tax rate established in the tax exemption decree, regardless of whether said income is distributed or retained by the entity. Upon repatriation, the distributed income would be subject to the tax imposed by the jurisdiction in which the owners of the Puerto Rico entity reside, if any.
research & development incentives
The Government of Puerto Rico and the Puerto Rico Science, Technology and Research Trust (the “Trust”), in collaboration with industry and the academic community, have taken a number of measures to help create an environment conducive to stimulating competitive research. Specifics on these initiatives follow:
At the Researcher/Scientist Level: a) Section 1031.02(a)(26) of the Puerto Rico Internal Revenue Code of 2011 (the “Code”), as amended, provides that eligible researchers/scientists residing in Puerto Rico will benefit from a 100% income tax exemption on income generated for services rendered to the University of Puerto Rico or other institutions of higher education in relation to certain eligible scientific investigations. Such exemption will be limited to an amount equal to the maximum salary amount established by the National Institutes of Health for researchers receiving grants under their programs; b) Section 1031.02(a)(27) of the Code provides that up to $250,000 of the compensation received by eligible researchers/scientists residing in Puerto Rico and conducting an investigation within the Puerto Rico Science District created by Act No. 208 of 2011 (“Act 208”) will be exempt from Puerto Rico income taxes; c) The Trust provides for applicants for Small Business Innovation Research Grants (SBIR) to receive grants of up to $5,000 for application assistance, as well Phase I & II Matching Grants; d) With the assistance of the Trust and subject to availability, researchers with locally developed technology can receive a package of patent / intellectual property support, prototype development, incubator support and matchmaking to potential funding sources as part of the Trust’s In-kind Business Assistance Program; and e) 100% tax exemption on Puerto Rico income taxes for interest, dividends and short-term and long-term capital gains generated while being a Puerto Rico resident for all new bona-fide residents of Puerto Rico that have not been Puerto Rico residents for the 15-year period preceding the approval of Act No. 22 of 2012 (“Act 22”) in January of 2012.