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Puerto Rico Incentives Code

Law 60 

 

In 2019, the “Puerto Rico Incentives Code” was developed to organize the numerous incentives enacted by the legislature, such as Law 20 and 22 of January 17, 2012. Law 60 of July 1, 2019, contemplates some benefits taxes that may be of interest to businesses and citizens residing in Puerto Rico. ​As a reference, we present several links.​ 

 

“Código de Incentivos de Puerto Rico” [60-2019] (pr.gov) 

 

Ley 60 Capítulos - Ley 60 Puerto Rico (l60pr.com)     

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Who pays what in closing costs?

The Civil Code of Puerto Rico establishes in its Article 1287 that it is up to the seller “to pay the expenses of the delivery and execution of the deeds, unless it is the purchasing party who chooses the authorizing notary, unless otherwise agreed.” Article 1288, for its part, establishes that it is up to the buyer to “defray the expenses of the certified copy and the registration in the real estate registry” (Registro de la Propiedad). Other expenses that correspond to the buyer are those of registering the property in his name at the Municipal Income Collection Center (CRIM).

The granting of the deed entails the payment of the notary's fees and the seals that by law must be attached to the document. Ordinarily, payment for the original deed corresponds to the seller, who will also choose the authorizing notary. If the buyer insists on choosing the authorizing notary, he will be obliged to pay for the deed, unless the parties make a different agreement.

In the event that the seller applies for a mortgage, all expenses related to the Mortgage will be borne by the Seller.

 

Here we leave you an informative link on the subject.

 Guía legal para vender o comprar tu inmueble en Puerto Rico. (ortizmorales.com)

 

NOTARY CALCULATOR

Do you want to know how much you are going to pay in Stamps and Tariffs?

 Here I leave you a link so you can calculate the closing costs.

 

Calculadora Notarial (fianzanotarialpr.org)

Opportunity Zones

On July 1, 2019, the Governor of Puerto Rico signed into law Act 60, also known as the Puerto Rico Tax Incentives Code (Incentives Code), which consolidated dozens of tax decrees, incentives, subsidies and tax benefits in a single statute, including Act No. 21 of May 14, 2019, also known as the "Development of Opportunity Zones of Economic Development Act of Puerto Rico of 2019" (the Act). 

The U.S. Department of the Treasury has certified 863 designated Opportunity Zones in Puerto Rico. These zones include 835 low-income communities and 26 non-low-income contiguous tracts. You can find a map of all the Opportunity Zones in Puerto Rico and additional information by clicking on any Opportunity Zone on the map provided in.

List of Puerto Rico Opportunity Zones & OZ Funds - OpportunityDb

Income

Tax

Provision       Benefit

Net income from opportunity zones

The net income is subject to a fixed 18.5% income tax rate.

Royalty payments and licensing made to foreign entities and nonresident individuals not engaged in a trade or business in Puerto Rico for the use of intangible property related to the exempt operation

Such payments are subject to a fixed 18.5% income tax rate and withholding at source.

Dividend distributions

Dividend distributions are tax exempt and not subject to the alternative minimum tax, the additional tax on corporations improperly accumulating surplus or profits, and the alternative minimum tax on individuals.

Sale or exchange of assets

Gains from the sale or exchange of assets are tax exempt, if the gains are reinvested to maintain the 90% asset threshold of Section 1400Z-2(d)(1) of the United States Internal Revenue Code of 1986, as amended.

Interest payments

Interest payments are tax exempt if they are related to bonds, promissory notes or other obligations of an exempt business, provided certain criteria are met.

Interest payments

Taxpayers are allowed a tax credit of up to 25% of cash contributed by investors in exchange for shares or a membership interest of: (i) an opportunity zone fund which in turn contributes the money to the exempt business in exchange for shares or a membership interest in the exempt business and (ii) an exempt business when such exempt business is carried out directly by the fund.

The credit is available in four installments and any amount not used in a year can be carried forward until exhausted; and may be sold or transferred to third parties.

Interest payments

Taxpayers are allowed a tax credit of up to 25% of cash contributed by investors in exchange for shares or a membership interest of: (i) an opportunity zone fund which in turn contributes the money to the exempt business in exchange for shares or a membership interest in the exempt business and (ii) an exempt business when such exempt business is carried out directly by the fund.

The credit is available in four installments and any amount not used in a year can be carried forward until exhausted; and may be sold or transferred to third parties.

Capital gains

A taxpayer may elect to defer capital gains from the sale of a capital asset to nonrelated parties, if the gains are reinvested in an opportunity zone fund 180 days after the sale or exchange of the capital asset.

The capital gains may be deferred until the investment on the opportunity zone fund is sold or exchanged or December 31, 2026, whichever is earlier.

In computing any gain, the basis on the investment held in the opportunity zone fund may be gradually increased depending on the number of years in which the investment is held.

Property Taxes 

Property

Taxes              Benefit

Personal property tax

Taxpayers are allowed a 25% exemption from the personal property tax. Municipalities may increase the exemption to up to 75% by municipalities.

Real propery tax

Taxpayers are allowed a 25% exemption from the real property tax. Municipalities may increase the exemption to up to 75%.

Municipal

license tax

Construction

excise tax          Benefit

Personal property tax

A tax-exempt business is allowed a 25% exemption from the municipal license tax, the construction excise tax or any other municipal tax imposed by municipal decree.

A tax-exempt business also is allowed a 25% exemption from construction taxes imposed by the municipality (excluding municipal license tax) that are applicable to the exempt business, as well as its contractors or subcontractors, on the construction activities.

Municipalities may increase the exemption to up to 75%.

The taxable portion will be subject to the current rates at the date of the signing of the tax grant.

Dividends and distributions from tax-exempt businesses are exempt from municipal taxes.

Implications

In addition to the preferential income tax treatment, the local statute provides for reductions in other local taxes and a transferable tax credit of up to 25% of cash contributed. These provisions, among other benefits like the expedited permitting process, are intended to make Puerto Rico's market more appealing for investors looking to take advantage of opportunity zones.

Other Legal Resources

Link of the new Civil Code of Puerto Rico, approved on June 1, 2020.

 Código Civil de Puerto Rico de 2020 (pr.gov)

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