(H. B. 1635)



(No. 60-2019)

(Approved July 1, 2019)


To adopt the “Puerto Rico Incentives Code” ; consolidate the dozens of existing decrees, incentives, subsidies, reimbursements, or tax or financial benefits; promote the environment, opportunities, and adequate tools to promote the sustainable economic development of Puerto Rico; establish the legal and administrative framework that shall govern the request, evaluation, granting or denial of incentives by the Government of Puerto Rico; promote the efficient and ongoing measuring of the costs and benefits of the incentives granted to maximize the impact of the investment of public funds; provide stability, reliability, and credibility to the Government of Puerto Rico in all that pertains to private investments; improve Puerto Rico’s economic competitiveness; add a new Section 5 to Act No. 135 of May 9, 1945, as amended, known as the “Air Carriers Tax Exemption”; amend Section 8 of Act No. 7 of March 4, 1955, as amended, known as the “Historic Zones Tax Exemption”; repeal Section 61.240 of Act No. 77 of June 19, 1957, as amended, known as the “Insurance Code of Puerto Rico”; amend Section 6 of Act No. 72 of June 21, 1962, as amended, known as the Puerto Rico Milk Industry Inc. Tax Exemption Act; amend Section 9 of Act No. 126 of June 28, 1966, as amended, known as the “Ocean Freight Shipping Act”; repeal Act No. 42 of June 19,1971, as amended, known as the “Agricultural Workers Annual Bonus Act”; amend Section 8 of Act No. 54 of June 21, 1971, as amended, known as the “Tax Exemption on Commercial Production of Flowers and Ornamental Plants”; amend Section 12 of Act No. 47 of June 26, 1987, as amended, known as the “Public and Private Sector Co -partnership for the New Housing Operation”; repeal Act No. 46 of August 5, 1989, as amended, known as the “Act to Establish the Wage Subsidy Program for Eligible Farmers”; repeal Act No. 225 -1995, as amended, known as the “Puerto Rico Agricultural Tax Incentives Act ”; amend Section 8 of Act No. 165-1996, as amended, known as the “Rental Housing Program for Low Income Elderly Persons”; add a new Section 7 t o Act No. 213-2000, as amended, known as the “Housing Units for the Elderly and Persons with Disabilities”; amend Section 2.3 of Act No. 140 -2001, as amended, known as the “Tax Credits for Investment in New Construction and Rehabilit ation of Rental Housing for Low- or Moderate-Income Families Act”; add a new Section 23 to Act No. 244-2003, as amended, known as the “ Act for the Creation of Assisted Living Housing Projects for the Elderly in Puerto Rico ”; repeal Act No. 325-2004, as amended, known as the “ Renewable Energy Development Act ”; repeal Act No. 464 -2004, as amended, known as the “JUVEMPLEO Program Act ”; repeal Act No. 26-2008, as amended, known as the “Agriculture and Food Technology Research and Development Financing Program Act ”; amend Sections 5 and 20 of Act No. 73-2008, as amended, known as the “ Economic Incentives Act for the Development of Puerto Rico ”; amend Section 15 of Act No. 74 -2010, as amended, known as the “Puerto Rico Tourism Development Act of 2010 ”; amend Section 3.6 of Act No. 83-2010, as amended, known as the “ Green Energy Incentives Act of Puerto Rico ”; amend Section 19 of Act No. 118 -2010, as amended, known as the “Municipal Economic and Tourist Development Incentives Act ”; repeal Act No. 159-2011, as amended, known as the “ Act to Provide Tax Incentives for Investments in Solid Waste Reduction, Disposal, and/or Treatment Facilities ”; amend Section 20 of Act No. 20 -2012, as amended, known as the “Act to Promote the Export of Services ”; amend Section 12 of Act No. 22 – 2012, as amended, known as the “Act to Promote the Relocation of Individual Investors to Puerto Rico”; amend Section 9.7 of Act No. 27-2011, as amended, known as the “ Puerto Rico Film Industry Economic Incentives Act ”; repeal Act No.1-2013, as amended, known as the “ Jobs Now Act ”; repeal Act No. 95-2013, as amended, known as the “ Business Incubators Intensive Program”; repeal Sections 5, 6, and 7 of Act No.73-2014, as amended; amend Section 17 of Act No. 135-2014, as amended, known as the “ Young Entrepreneurs Incentive and Financing Act”; repeal Sections 5, 6, and 7 of Act No.171 -2014, as amended; repeal Act No. 185-2014, as amended, known as the “ Private Equity Funds Act ”; repeal Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, and 13, renumber accordingly, and amend Section 115 of Act No. 187-2015, as amended, known as the “ Interagency Validation Portal for the Granting of Incentives for the Economic Development of Puerto Rico Act ”; amend Section 20 of Act No. 14-2017, as amended, known as the “Act to Incentivize the Retention and Return of Medical Professionals ”; amend Section 8 of Act No. 74 of June 21, 1956, as amended, known as the “ Puerto Rico Employment Security Act ”; amend Section 24 of Act No. 272 -2003, as amended, known as the “Commonwealth of Puerto Rico Room Occupancy Rate Tax Act ”; amend subsection (b) of Section 2 of Act No. 132-2010, as amended, known as the “Real Property Market Stimulus Act ”; amend Sections 1023.10, 1031.02, 1031.06, 1033.14, 1033.15, 1034.04, 1040.02, 1040.05, 1061.20, 1062.03, 1062.05, 1062.07, 1063.01, 1063.16, 1071.02, 1071.10; add a subchapter G to Chapter 7 of subtitle A, 1081.05, 1082.01, 1082.02, 1114.16, 4010.01, 4050.09, 6030.25, 6041.11, add a new Section 1115.11, and repeal Section 1033.12 of Act No. 1-2011, as amended, known as the “ Internal Revenue Code for a New Puerto Rico ”; in order to promote the incentives and a favorable regulatory environment to establish Qualified Opportunity Zones in Puerto Rico; repeal Act No. 21-2019, as amended, known as the “ Puerto Rico Economic Development and Opportunity Zones Act of 2019 ”; and for other related purposes.



Economic development and private capital investment are the cornerstones of the journey towards our economic recovery. In a little over two (2) years, this administration has made crucial decisions geared towards creating a better and more effective business and investment environments. Some of the most noteworthy are:

a)  The Labor Transformation, Act 4-2017;

b)  The Permit Reform, Act 19-2017;

c)  The DMO, Act 17-2017;

d)  The creation of Invest Puerto Rico,, Act No. 13-2017;

e)  The MEDICAL CANNABIS Act, Act 42-2017;

f)  The amendments made to Act 20 and Act No. 22, Act No. 43-2017, and Act No. 45-2017, respectively;

g)  The transformation of the Puerto Rico Electric Power System;

h)  The New Tax Model which reduces tax rates;

i)  The agreement with Chinese company Yingke to develop a cultural tourism center on the Island;

j)  The expansion of Puerto Rican company LinkActiv;

k)  The million-dollar investment made by the Italian company COPAN in Aguadilla;

l)  The expansion of Air Master in Barceloneta;

m)  The filming of the movie Primal whose production shall create 737 direct jobs and over 2,000 indirect jobs;

n)  The renewable energy agreements with Tesla;

0)  The arrival of cruise ships to the Port of Ponce;

p)  The Freedom of the Seas cruise choosing San Juan as its home port;

q)  The agreement with AirBNB to promote the Island;

r)  The Governor’s meetings with executives from Google, LinkedIn, Gap, Facebook, Uber, and other multinational companies to incentivize investments in Puerto Rico;

s)  The approval of Act 120-2018, which promotes the transformation of the Electric Power Authority;

t)  Over 6 Public-Private Partnerships which are well underway and ready to commence operations soon;

u)  The steady drop of Puerto Rico’s unemployment rate during the last few months;

v)  The construction of District Live! at the Convention Center District;

w)  The expansion of companies such as Pan Pepín, Rock Solid, Stryker, COPAN, and Sartorius;

x)  The arrival of Uber Eats to Puerto Rico;

y)  The approval of the New Tax Model which incentivizes the local economy and does justice to taxpayers; and

z)  The approval of the “Puerto Rico Economic Development and Opportunity Zones Act of 2019,” Act 21-2019.

After hurricanes Irma and María, Puerto Rico’s economic situation, already greatly affected by our colonial status, worsened. After eight (8) difficult months of recovery, investors are once again placing their trust in Puerto Rico. The road to Puerto Rico’s reconstruction includes an appropriation of tens of billions in federal disaster relief funds, which shall contribute to our economy, but only temporarily. Therefore, we must seize the opportunities and promote our talents to the maximum extent. The aforementioned achievements serve as additional proof that we are headed in the right direction to restore our appeal as a jurisdiction for doing business. Thinking ahead, it is our duty to continue identifying more and better ways of attracting economic activity.

With the arrival of Puerto Rico’s reconstruction funds, the Island is open to do business and shall continue to promote economic development measures that allow Puerto Rico to become once again the bridge to the Americas.

Puerto Rico has a long history of granting incentives to stimulate investments and job creation. The use of various economic incentives has been a core aspect of the various economic development strategies that the Island has implemented throughout the last decades. For such purposes, throughout the years this Legislative Assembly has enacted many laws that have defined the Puerto Rico priorities at the time, however, these are not necessarily the priorities or needs of present-day Puerto Rico. The current economic and fiscal reality of Puerto Rico requires that the Government conduct a holistic review of all of its incentives in order to provide consistency, structure, and relevance to a series of strategies that, for one reason or another, do not have a common thread and in some instances are incompatible or inconsistent with one another.

Puerto Rico’s economy has contracted for eleven of the past twelve years and no significant changes are projected for this macroeconomic pattern, excluding the effects of Hurricane Maria and the relief funds that Puerto Rico shall receive from the United States in connection therewith. Undoubtedly, one of the tools available to the Government of Puerto Rico to counteract this economic contraction is to provide incentives to high-performance industries, whether local or foreign, whose activities primarily focus on the export of goods and services, as an incentive to bring new capital to Puerto Rico through such exports. Likewise, the subsequent increase in public debt and the precariousness of Puerto Rico’s fiscal situation make it imperative to evaluate the incentives that have been granted, historically, in order to determine which provide the most returns and which have a negative return. Such information shall provide Puerto Rico with the tools to redirect our limited resources towards those activities that truly stimulate our economy’s growth, raise our level of business competitiveness, promote export and outside investment in Puerto Rico, and create more well-paid jobs for our people.

The Plan for Puerto Rico contemplates a change of vision in the management of the incentives that Puerto Rico uses to promote economic activity, so we can adjust and redirect our efforts to correct the problems that past strategies have created. Creating a dynamic economic stimulus platform that is consistent with the fiscal and economic reality of Puerto Rico is critical for Puerto Rico’s economic development. For such reason and, consistent with the Plan for Puerto Rico, we are creating an Incentives Code to promote activities that contribute to the growth of Puerto Rico’s economy through investment, export, and job creation; responsibly streamline the application and approval process; and establish uniform processes to continuously regulate, measure, and evaluate the incentives granted thus ensuring compliance, transparency, and the attainment of the fiscal objectives for development. As stated in the Plan for Puerto Rico, the use of incentives must yield a benefit not only for the incentivized activity, but also for Puerto Rico in general. It is important for incentives to produce tangible benefits in order to generate funds for the Treasury as well as to avoid redundant activities, and to promote economic development in the broadest and most balanced and diversified manner as possible. Tax and economic incentives must focus on balancing outside capital investments strategically and wisely with our local business creation ecosystem so as to promote the continuous transfer of knowledge, processes, innovation, and technology between them.

In accordance with our programmatic commitment, the Department of Economic Development and Commerce of Puerto Rico (hereinafter, the DEDC) took on the task of analyzing the current laws, economic principles, methodology, and results of all the economic incentives granted in Puerto Rico while taking into account the most recent data available. The analysis revealed that, at present, there are approximately seventy-six (76) laws or programs that promote investment through the granting of incentives. Fifty-eight (58) of those laws or programs stimulate economic activity, and eighteen (18) address social needs. According to the available data, those programs identified as economic programs represent a total fiscal cost of over $7.462 billion, of which eighty-one percent (81%) are considered opportunity costs.¹

The fiscal costs attributable to the granting of economic development incentives comprise:

a)  Opportunity Costs: Revenues the Government stops receiving on account of preferential rates granted on taxable income, therefore, the Government does not include them in the budget.

b)  Refunds and Subsidies- The money granted for activities that stimulate the economy such as job creation, investments in infrastructure, and utility payments.

c)  Tax Credit- A contribution in the form of a credit granted to an Exempt Business or an Eligible Person to foster their businesses’ growth subject to the limits and terms established in this Code and the Incentives Regulations, and granted upon the execution of an incentives agreement.

d)  Special Deductions- The deductions included in the income tax returns for investments in machinery, Renewable Energy or other related operating costs, as provided by law.

e)  Municipal Exemptions- The exclusions from the payment of property taxes, municipal license taxes, and the Sales and Use Tax (SUT) granted to municipalities, as provided by law.

¹ It is worth noting that the study conducted by the DEDC did not include the Return on Investment analysis for the incentives directed at addressing social causes because their purpose is not economic return. Such incentives include those that promote the construction of affordable housing, the arts, and culture, among others.

Even though the granting of incentives has been a positive experience in general, the Government believes that the incentives program may be maximized by consolidating all of the different incentives offered to the various sectors, provided in our current economic incentives laws, in order to more effectively further its mission of economic development. We have taken on the task of rethinking Puerto Rico’s economic incentives system and redesigning it from the ground up so that our incentives align with our needs, take into account our limitations, and maximize our potential. This Incentives Code is the result of such efforts and, for the first time in our history, Puerto Rico has a document that encompasses all of the economic stimulus programs available on the Island. Contrary to the arbitrary efforts made in the past to grant incentives, the Plan for Puerto Rico, taking into account the results of a series of in-depth analyses conducted on the effectiveness of such incentives.[sic] Furthermore, the effectiveness and return of the economic incentives shall be under a continuous and thorough evaluation. To such effect, it is imperative that our new Incentives Code includes a streamlined and pragmatic model to support the continuous improvement of the economic development strategy, and the ability to identify emerging risks and opportunities.

Therefore, we propose an Incentives Code that rationalizes and consolidates the dozens of decrees, incentives, subsidies, refunds, and tax or financial benefits that Puerto Rico offers, as well as the adjustment and limitation of our offerings to those we are able to factually and economically prove that shall have a favorable macroeconomic impact on the Island. The purpose of the Incentives Code is to foster the appropriate environment and opportunities as well as to provide the tools to promote Puerto Rico’s sustainable economic development. This new code shall establish the legal and administrative framework which shall govern the incentives application, evaluation, and granting or denial process by the Government of Puerto Rico; it shall provide stability, certainty, and credibility for all types of private investments in Puerto Rico; and shall serve as a promotional tool for investing in the Island. By virtue thereof, this Code grants incentives that: “should not be interpreted as the former tax exemptions which were privileges, for which reason their restrictive interpretation was beneficial to the public interest. On the contrary, [ …] should be [liberally] interpreted in consonance with their creative purpose.” Textile Dye Works Inc. v. Secretary of Treasury 95 DPR 708, 713 (1968). See also, Pfizer Pharm V. Mun. de Vega Baja , 182 DPR 267, 286 (2011). This Code also maintains the governing principle that the incentives herein provided: “[are] not a grace, in the old sense of the phrase, conferred by the Government of Puerto Rico, but it is an instrument utilized in Puerto Rico to promote industrial development and productive investment […]” Id. Likewise, this Legislative Assembly wants to clarify that the tax exemptions granted by this Incentives Code are considered a contract between the Government of Puerto Rico, the Exempt Business, and its shareholders, partners, or owners, hence, general contract rules apply thereto. Therefore, “the principle of party autonomy applies thereto, and the parties may establish the covenants, clauses, and conditions deemed convenient, provided that they are not contrary to law, morals, or public order.” [Translation supplied] Pfizer Pharm. V. Mun. de Vega Baja, supra , page 283. In this sense, the Incentives Code shall be very valuable and useful for entities such as Invest Puerto Rico, Inc. and the Puerto Rico Destination Marketing Organization (DMO) which shall be responsible for, among other things, attracting capital to achieve economic development.

The incentives evaluation conducted when this Incentives Code was being drafted, as well as any evaluations to be conducted in the future, were and shall be conducted according to the governing principle that the most relevant aspects for said evaluation are the economic principles proposed or defined by the Government, and the activities and industries that should be incentivized to ensure Puerto Rico’s economic growth. The Incentives Code shall enable the Government to achieve the fundamental goal of implementing development initiatives by creating favorable conditions for competitiveness and innovation, and by supporting emerging industries and technologies that promote sustainability, through incentives that encourage training, operational improvement, sustainable economic development, and job creation, and are attuned to Puerto Rico’s fiscal reality and the global competitive environment. The Incentives Code shall also facilitate the process of establishing uniform rules to apply for, process, and grant incentives while eliminating government investments in certain activities that are not competitive or productive.

The Incentives Code shall enable us to standardize the types of incentives granted at present and minimize risky incentives that, have historically resulted in losses or have adversely affected the economy of Puerto Rico. The Incentives Code recognizes that promoting the efficient and continuous assessment of the costs and benefits of incentives is essential to determine the money invested vis-à-vis the money received by the Treasury. For such reason, the new Incentives Code shall also include provisions to measure the Return on Investment (ROI) and to keep data on such returns per economic sector up to date.

The Incentives Code shall facilitate the analysis of our incentives to determine the desirability of maintaining, modifying, or discontinuing any incentive that has proven to be obsolete or that has yielded a negative return. Furthermore, the analysis shall allow us to determine which incentives can yield a positive return based on concrete data, whether government resources should be redirected towards other industries to maximize returns and stimulate productivity, and shall even allow us to identify the need to create new incentive mechanisms. New incentives shall be evaluated and approved through the mechanisms and processes established in the regulations adopted by the DEDC based on thorough analyses which enable informed decisions. This structure shall allow us to improve processes, analyze incentives based on the ROI and economic priorities, and to determine, within a reasonable term, whether it is desirable to continue granting the incentive.

Consistent with the foregoing, an incentives evaluation model shall also be created, pursuant to the needs of Puerto Rico’s economy, in order to measure the efficacy of the program based on the annual reports submitted by beneficiaries. The analysis of the reports shall allow us to improve the stimulus programs and shall guarantee that the incentives are granted and used to maximize the economic impact on the Island. Likewise, the evaluation shall make it easier to oversee compliance with the terms and conditions of the incentives granted, including risk assessment and the return on investment of such economic stimuli, in accordance with the public policy on economic development. Another change introduced in the Incentives Code were the rigorous safeguards established to impose defined penalties for noncompliance with any of the terms and conditions of the incentives agreement, including the duty to submit annual reports.

As an important element to ensure transparency and that the rules are strictly enforced, a single office shall be designated to oversee the aspects pertaining to compliance. To such effect, the Tax Exemption Office, now the Incentives Office, shall become part of the DEDC and shall assume other responsibilities pursuant to the new Incentives Code.

The new Incentives Code shall be divided into sections, based on the particular characteristics to address the various sectors of the economy (manufacturing; exports; visitor economy; creative industries; finances; investments and insurance; infrastructure; and agroindustry) and to further strategic activities. For such reasons, that it is hereby proposed that those funds granted as incentives in categories or subcategories and that have a negative return be reassigned, when possible, to activities within the same category that yield positive returns.

The New Incentives Code amends the eligibility and benefits granted prospectively to various economic activities. The companies that operate in accordance with the terms of the decree granted shall not be affected. Some incentives shall remain unaltered, for example, export companies and companies that are key suppliers for exporters, foreign investors, and cruise ship industry incentives, while others have been eliminated, standardized, or amended to yield better returns on public investments.

Furthermore, the Incentives Code proposes to include therein all the laws and programs of a social nature in order to ensure that they are part of the oversight process so as to provide transparency to the use of these subsidies and to assess their impact on Puerto Rico.

The Incentives Code defines and imposes oversight responsibilities and accountability in connection with the incentives program by requiring the DEDC to publish annual reports with data on the expenses and benefits of all incentive programs. The report shall make it easier to evaluate the incentives in order to determine which programs should be modified, expanded, or rethought to maximize their impact on the economy, and to align them with the strategic development plan.

This annual report shall also improve the Government of Puerto Rico’s transparency pertaining to the use of its fiscal resources.

Another of the Government’s priorities in adopting a new Incentives Code is to facilitate the transition so that most of the process is automated and centered on a system that enables the various users, such as proponents, service providers, agencies, and other interested parties, to have access to public information and conduct transactions efficiently.

The Incentives Code also formally incorporates the participation of the private sector into the process through the creation of the concepts of Qualified Promoter and Certified Professional who shall assist the Government in attracting companies to the Island and facilitating the application and compliance processes. Lastly, in order to achieve the purposes of the new Incentives Code, it is imperative to provide for a proper transition with precise change management guidelines for each government body that enforces this particular law as well as for current and future beneficiaries.

Some of the changes made to our economic incentives in the new Incentives Code include organizing exemptions by industry segments and sectors to allow for various incentive laws to be grouped together under a single category in as far as such laws stimulate for those sectors, as stated hereinbelow:

  1. Individuals
  2. Export (Goods and Services)
  3. Financial and Insurance Services
  4. Visitor Economy
  5. Manufacturing, including Research and Development
  6. Infrastructure
  7. Agriculture
  8. Creative Industries
  9. Entrepreneurship
  10. Others

Furthermore, tax rates are conformed across industries to the extent possible in order to provide a series of tax benefits that, as a general rule, shall apply to all sectors thus providing a simple guide on what is offered and to whom. Additional benefits are established for small- and medium-sized businesses (SMBs) and for Exempt Businesses established in Vieques and Culebra.

In the agricultural sector, the Secretary of Agriculture is incorporated in the granting of agricultural incentives. Also, original benefits such as wage incentives and agricultural worker bonus are kept.

Recognizing a recent and emerging industry worldwide, commodities, coins, and any digital assets based on blockchain technology shall be eligible for the incentive applicable to the capital gains of Resident Individual Investors (former Act No. 22).

The Incentives Code also incorporates the tax credit mechanism, which credits shall be distributed by the Secretary of the DEDC to maximize the returns of the incentives subject to the sound administration parameters prescribed by regulations. This Code in no way limits the power of the State to grant tax credits, to which deference was given in Section 208(b)(1) of PROMESA. Likewise, this Legislative Assembly reserves the power to establish additional controls, besides those provided herein, for the use of tax credits that have an impact on the General Fund.

Moreover, the tax exemption period under the decree is standardized so that all decrees shall be valid for fifteen (15) years, and may be renegotiated for an additional fifteen (15)-year period. The use of decrees for all tax exemption benefits is incorporated as well, including Act No. 185, the “Private Equity Funds Act,” among others.

The authority to grant decrees and adopt regulations under the Incentives Code is centralized in the DEDC, providing that fiscal and tax matters shall be addressed in conjunction with the Department of the Treasury. All of the changes established in this Code are of a prospective nature and shall not affect the businesses or individuals holding decrees, credits, or incentives granted prior to its approval.

In addition, the Incentives Code includes the My Future Account so as to fulfill the commitment made in the Plan for Puerto Rico. Through this new program, the Administration shall open an account with one thousand dollars ($1,000) for each kindergarten student in the public education system. This account shall allow children to build savings which they shall receive upon graduating from high school. The funds may be used to start a college education or a business, among others. The purpose of this mechanisms is to continue the fight against social inequality and school dropout rates as well as to promote academic achievement. My Future Account is consistent with the Fiscal Plan certified by the Financial Oversight Board pursuant to PROMESA, which clearly directs the development of initiatives that promote education, which represents the Island’s future, and investments with the highest positive return therefor.

The Code also includes a loan repayment program for medical, veterinary, and dentistry students as well as those engaged in medical science research so that they remain in Puerto Rico after completing their education. This initiative seeks to encourage that these health professionals remain on the Island after completing their education. Thus, the DEDC may subsidize the student loans taken out by said physicians; provided, that they remain in Puerto Rico and establish their practice on the Island. With this measure, we also seek to slow the exodus of physicians and specialists that Puerto Rico has been experiencing for years.

This Code is approved with the conviction that it shall improve Puerto Rico’s economic competitiveness. The Code shall create a simple, streamlined, and efficient process that focuses on the client, and shall earn the trust of the people and the private sector by having a transparent process for the granting of incentives. Likewise, the incentives offered shall be continuously reviewed in order to identify those that are not cost-effective and to strengthen those that have proven to have an impact and which generate a return on investment for the Treasury. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. We keep working nonstop to place Puerto Rico as a world-class jurisdiction for doing business.

Our people remain hopeful and optimistic, even though there are many obstacles to overcome on the road to full recovery. The road to economic recovery has been mapped out. This administration shall stay committed to Puerto Rico in order to guide it to a full economic recovery. This is our goal and we are moving forward. We are confident that the actions we have taken shall help Puerto Rico rise up stronger than ever.



Section 1000.01.- Title

This Code, divided in Subtitles, Chapters, Subchapters, and Sections, shall be known and cited as the “Puerto Rico Incentives Code.”


Section 1000.02.- Classification of Provisions

The provisions of this Act are hereby classified and designated as follows:

Subtitle A- General Provisions

Subtitle B- Economic Development Incentives

Subtitle C- Tax Credits

Subtitle D- Subsidies and Other Programs

Subtitle E- Funds for the Granting of Benefits

Subtitle F- Administrative Provisions


Section 1000.03.- Governing Principles of the Incentives Code

(a) Return on Investment- As used in this Code, the term Return on Investment refers to the ratio between the net benefit and the cost of granting the Incentive. The foregoing includes the result of the total benefits minus the total costs, divided by the total costs. The benefits taken into consideration include: a) direct payroll taxes; b) indirect and induced payroll taxes; c) Sales and Use Taxes on direct and indirect economic activity; and d) taxes on consumption by nonresidents. The costs used in the formula include: a) credits; b) investments; c) subsidies; and d) opportunity costs related to income tax exemptions. These calculations vary per industry, and the multipliers by type of production and type of employment according to the tables of the North American Industry Classification System (NAICS). The DEDC shall consider different types of investments that shall be implemented through the Incentives Regulations by using the Return on Investment (ROI) formula as well as other factors that help assess the effectiveness of such incentives including, but not limited to, the following factors:

(i) The various Treasury income sources generated by the activity;

(ii) The total sum of the tax and economic benefits granted;

(iii) The direct, indirect, and induced effects based on the official multipliers provided or endorsed by the Planning Board;

(iv) Local purchases, including the purchase of Products Manufactured in Puerto Rico; and

(v) An analysis of the benefits attributable to incremental economic activity rather than to sustainable economic activity by aggregate demand.

(b) Annual Report on the Effectiveness of Incentives- The DEDC shall analyze the effectiveness of the incentives and other economic development tools used during the previous Fiscal Year of the Government of Puerto Rico and shall submit a copy of such report to the Governor of Puerto Rico before April 1 of each calendar year. Furthermore, the DEDC shall file a copy of the aforementioned report with the Office of the Clerk of the House of Representatives and the Office of the Secretary of the Senate.

(c) To Prevent Regulatory Duplication- In such cases where the activities or transactions of an Exempt Business are allowed by this Code, and are subject to federal legislation or regulations, the Secretary of the DEDC shall evaluate the processes and regulations thereof and may eliminate or amend any duplicity or impairment to achieve the objectives of this Code through the Incentives Regulations, administrative order, circular letter, memorandum, or interpretive document.

(d) To Promote Reciprocity with Other Jurisdictions- In such cases where the activities or transactions of an Exempt Business are allowed under this Code and are covered by reciprocity clauses with other jurisdictions which allow such entities to do business with other jurisdictions, the Secretary of the DEDC through the Incentives Regulations, shall have the authority to waive, through the Incentives Regulations, any limitations to allow reciprocity insofar as the actions or omissions of the Government of Puerto Rico are an impairment to such reciprocity.

(e) Public Information- The existence of a Decree or other benefit provided by this Code, the name of an Exempt Business, and the Chapter of Subtitle B of this Code under which the Decree was granted are deemed to be public information, provided that any other information related to the Exempt Business shall be disclosed as aggregate information per sector or industry, and not per person.

(f) Any person interested in the establishment of new incentives shall request the Secretary of the DEDC to conduct an analysis on the impact of such incentives based on the Return on Investment (ROI) formula.


Section 1000.04.- Bill of Rights for Decree Holders and its Shareholders

(a)  Every Exempt Business and its shareholders shall be entitled to receive fair, proper, and unbiased treatment from all the officials and employees of the DEDC during any process carried out at the Department.

(b)  The tax exemption Decrees constitute a contract between the Government of Puerto Rico, the Exempt Business, and its The terms and conditions agreed upon in the contract shall be honored during the effectiveness of the tax exemption Decree subject to the Decree Holder’s compliance with the terms and conditions thereof.

(c)  The tax exemption Decrees are valid throughout Puerto Rico, including its When an Exempt Business commences operations in a new Municipality, it shall not be required to amend its tax exemption Decree to carry out the activities covered by its Decree.

(d)  Every Exempt Business and its shareholders shall be entitled to negotiate matters of economic development and tax Decrees with the Secretary of the DEDC as representative of the Government of Puerto The endorsement of the Secretary of the Treasury shall be required for tax- and accounting-related matters.

(e)  When a new law is approved or new regulations are adopted which provide terms and conditions that are more favorable, an Exempt Business may request that its Decree be modified to reflect such benefits or terms which are better for the Exempt Business and its shareholders, at the discretion of the Secretary of the DEDC and subject to the endorsement of the Secretary of the Treasury.

(f)  Every Exempt Business and its shareholders shall be entitled to a transparent and expedited process for the granting of a tax exemption Decree.

(g)  Every Exempt Business and its shareholders shall be entitled to have the confidentiality of the information furnished to the DEDC No person outside of the DEDC that is not authorized by the Exempt Business and its shareholders shall have access to such information unless it is explicitly allowed by this Code or any other law. Furthermore, the Exempt Business and its shareholders shall be entitled to know the purpose for which such information is requested, how it shall be used, and the consequences of failing to furnish it.

(h)  Every Exempt Business and its shareholders shall be entitled to receive assistance from any authorized person to represent them; however, Certified Professionals must be either attorneys admitted to the Bar or certified public accountants.

(i)  Every Exempt Business and its shareholders shall be entitled to be notified, in writing, of any modifications the DEDC makes to the Decree as a result of any audit that shows noncompliance. The DEDC shall notify the nature of the modification made to the Decree and the grounds for such changes, as well as afford them the opportunity to be heard as required by the due process.

(j)  Every Exempt Business and its shareholders shall be entitled to not be discriminated against on the basis of race, color, sex, birth, social origin or condition, political affiliation or religious beliefs of the Exempt Business, its shareholders, or any representatives thereof.

The DEDC shall not impose or require arbitrary provisions in the Decrees which could result in the Exempt Business and its shareholders having to incur in unnecessary operating expenses to comply with such provisions.

The Decrees constitute a valuable instrument used by the State to promote capital investment and job and wealth creation in Puerto Rico which is the purpose of these tax exemptions that should govern their interpretation. None of the provisions of this Section shall be construed as limiting the powers of the Secretary of the DEDC or the Secretary of the Treasury to conduct investigations, provided they do not violate the rights of the Exempt Businesses, their shareholders, or their representatives.

It shall be a high priority of the Government of Puerto Rico to promote the renewal of existing decrees and the approval of new decrees to maintain or expand manufacturing activities in Puerto Rico as a primary sector that generates revenues for the government as well as economic activity, jobs, and income in the local jurisdiction.

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