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: July 15, 2019
For those considering Act 20/22 and for clients who have recently filed their applications:
The new “Incentives Code of Puerto Rico” has been approved by both the house and the senate and signed into law – it is now final as of 7/1/19. We have reviewed the language of the new law and are pleased to share the major changes to the current Act 20/22 program below. The most important thing to note is that based on the final bill, ALL OF THESE CHANGES WILL ONLY APPLY TO NEW ACT 20/22 APPLICATIONS SUBMITTED AFTER DECEMBER 31, 2019.
Therefore, if you are considering applying for Act 20 and/or Act 22, with your first year of residency/business operation as the 2020 tax year, you would need to apply for Act 20/22 by December 31, 2019 to fall into the current (more flexible, less restrictive, less expensive) Act 20/22 rules.
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. NOTE: under the current rules in effect through December 31, 2019, this amount is $5,000.
- 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. NOTE: under the current rules in effect through December 31, 2019, there is no real estate requirement. 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 must directly employ at least 1 full time employee. NOTE: under the current rules in effect through December 31, 2019, there is no employment requirement.
- Audit by OITE: Under the new law, the Office of Industrial Tax Exemption (“OITE”) will perform an independent audit of exempt Act 20 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 Act 20 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.