Changes to Act 20/22 – New Incentives Code of Puerto Rico for Jan 1, 2020
- Posted: July 15, 2019
- Posted by: Travis Lynk
- Last Reviewed: March 6, 2020
As of January 1, 2020, Act 20 and 22 have been replaced by Act 60, which brings with it some changes to the requirements. We have reviewed the language of the new law and are pleased to share the major changes to the Act 20 and 22 program below.
Chapter 2 – Individuals (Previously known as Act 22)
- Annual charitable donation: Under the new law, grantees will need to make a $10,000 annual charitable donation – $5,000 of that donation will go to a government-approved list of charities and $5,000 may go to any Puerto Rican charity of your choice.
- Real estate requirement: Under the new law, grantees must purchase – within two years of obtaining the decree – real estate property in Puerto Rico, which shall be the grantee’s primary residence throughout the validity of the decree. Based on our interpretation, this purchased real estate property cannot be rented out.
- Crypto and other crypto-assets: Under the new law, cryptocurrencies and other crypto-assets are explicitly included as eligible for tax exemption.
Chapter 3 – Exportation of Goods and Services (Previously known as Act 20)
- Employee requirement: Under the new law, exempt businesses that generate an annual business volume of at least $3,000,000 must also directly employ at least one full-time employee. The employee must be a Puerto Rican resident and directly participate in the business activities pertinent to the decree.
- Audit by OITE: Under the new law, the Office of Industrial Tax Exemption (“OITE”) will perform an independent audit of exempt businesses at least every two years. Please note: it is unclear if this will apply to prior Act 20’s established prior to the new incentive code..
- Blockchain: Under the new law, Blockchain-related services are specifically included as an eligible business activity.
- Reduction of property taxes: Under the new law, exempt businesses will enjoy a seventy-five percent (75%) exemption on the municipal and state property taxes during the validity of the decree. Businesses that qualify as “Small and Medium Businesses” (“PYMES”, as its Spanish acronym) will also enjoy 100% exemption on municipal and state property taxes during their first 5 years of operation.
- Reduction of municipal taxes: Under the new law, the exempt businesses will enjoy a fifty percent (50%) exception on municipal contributions or municipal patents applicable to eligible services provided by the businesses during the validity of the decree.
- Validity of the decrees: Under the new law, the initial decree is granted for a term of 15 years and may be extended for an additional 15 years.
- DDEC Annual Report: Under the new law, The Department of Economic Development and Commerce of Puerto Rico (“DDEC”, as its Spanish acronym) will publish a yearly report on all of the tax incentives requested and granted. The report will include the name of the business and principal shareholders, the date the decree was granted, name of the municipality where the business operates, number of jobs created by the business, etc. Please note: it is unclear if this will apply to decrees established prior to the new incentive code..
Disclaimer: This list is not exhaustive. The information in this email should not be construed as, and should not be relied upon for, legal or tax advice. An attorney should be contacted for advice on specific legal issues.