Act 14 Puerto Rico Tax Benefits Benefits for Medical Professionals

Thanks to recent legislation signed by the governor of Puerto Rico in early 2017, medical care in PR just received a positive boost. The intent of Act 14 is to secure first-rate health services for PR residents by providing tax incentives designed to draw health professionals to the island as new residents. The governor of PR, Ricardo Rosselló, signed into law Act 14 with an effective date of April 22, 2017.

Act 14 Benefits for Qualified Physicians

Act 14 offers excellent opportunities for medical professionals classified as Qualified Physicians, allowing them to establish thriving and successful practices while receiving tax exemptions for 15 years (with the possibility of extending those exemptions another 15 years). Furthermore, Act 14 establishes a broad definition for Qualified Physicians, accepting professionals working on a full-time basis (100 hours per month) who are authorized to practice medicine, podiatry, or any specialty in odontology. Medical residents attending an accredited program in PR are also considered to be Qualified Physicians.

Tax benefits for Act 14 Qualified Physicians:

• Income earned from medical services is subject to a flat 4% income tax rate.
• Up to $250,000 of corporate dividends are exempt from income tax.
• Qualified physicians can contribute up to 25% of net income (after tax) to retirement plans.

Requesting an Act 14 Tax Exemption Grant

Non-residents may submit a request for a tax exemption grant, along with appropriate fees, through the Office of Industrial Tax Exemption (OITE). The request is evaluated by OITE, the Department of Health of Puerto Rico, and the Secretary of the Treasury. If the grant is approved, the petitioner pays a $1,000 acceptance fee.

Applicants should understand that there are several factors which will influence the decision to issue a tax exemption grant, including:

• The anticipated economic impact of approving the grant.
• The specialty the Qualified Physician practices (or is studying, in the case of residency students).
• The current and expected need for certain medical specialties in PR.
• The geographic location in which the Qualified Physician proposes to practice (for general practitioners, geographic location and demand weigh heavily).

Community Service Commitment

An additional requirement that Qualified Physicians must meet is to perform a minimum of 180 hours of community service each year. Many options for providing community service are available, such as:

• Giving assistance as a professor at medical schools, university hospitals, or to residency students.
• Providing medical services in areas lacking specialized services, as determined by the Physicians Chapter of Puerto Rico (CMPR) and the Department of Health of Puerto Rico (DSPR).
• Being available on call at hospitals designated by CMPR and DSPR.
• Conducting public community health seminars or training and continuing education for medical professionals and students in PR.
• Delivering medical services to areas identified as disadvantaged by CMPR and DSPR.
• Committing to a services contract with the Government Health Plan of Puerto Rico (for this service, the Qualified Physician can be compensated, working as either an employee or independent contractor).

Ongoing Compliance

Qualified Physicians must comply with the terms and conditions of the tax exemption grant, as follows:

• Provide full-time services in medicine, podiatry, or any specialized area of orthodontics.
• Remain a resident of PR.
• Obey all tax laws related to the grant.
• Perform a minimum of 180 hours of community service annually.
• Follow any other or new requirements imposed by Act 14.

For those medical professionals contemplating the opportunity offered through Act 14, time is of the essence. This is because any request for a tax exemption grant must be submitted by April 22, 2019 (within two years of the effective date of Act 14).

Contact us for more information.

Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the “Materials”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.