Tax Benefits for Revitalizing Urban Centers

By Ferraiuoli LLC

On August 27, 2024, the governor of Puerto Rico signed into law, Act No. 182-2024 (“Act 182”), which amends Act 60-2019, known as the Puerto Rico Incentives Code, as amended, also known as (“Act 60”), to provide tax exemptions and tax credits to an exempt business engaged in the Development of a Urban Center Project that receives a Concession from the Secretary of the Department of Economic Development and Commerce (“DEDC”).  

At the time of this publication, the Financial Oversight and Management Board (“FOMB”) has not determined whether Act 182 is significant inconsistent with the Fiscal Plan and budget, and whether it will prevent the applicability of Act 182 pursuant to Section 204 of Puerto Rico Oversight, Management, and Economic Stability Act, Pub. Law 114-187 (“PROMESA”). Readers should verify if the FOMB issues any letter or establishes any action that may prevent the applicability of Act 182.

I. Eligibility

For a project to be considered a Development of an Urban Center Project and receive a Concession with tax benefits, it must comply with the following requirements:

-the Project must be for the development of real property for residential use, for sale or lease (mixed use of residential and commercial allowed with additional requirements);

-must be located in an Urban Center of Municipality in Puerto Rico, and the Eligible Investment in Urban Center must be equal to or greater than one million dollars ($1,000,000), excluding the acquisition cost of the real property or fair market value at the date of contribution of such real property; or the property is a real property in an Abandoned Condition (as now defined in Act 60); 

-the Project must consist of at least 7 residential units;

-the Application for Concession must be filed with the Secretary of the DDEC, on or before December 31, 2025;

-must commence construction on or after July 1, 2024 (except in those circumstances in which the Secretary of DEDC determines that it will serve the best interest of Puerto Rico to grant a Concession to a development that its construction was commenced between July 1, 2019 and July 1, 2024, and such construction has not been completed); and

-if the Urban Center Development is leased for residential use, the lease must have a minimum period of 6 months.

II. Tax Benefits

In general, the Incentives Code provides Exempt Business with the following tax exemptions for a term of fifteen (15) years, which may be extended for an additional period of fifteen (15) years:

-4% Flat Income Tax Rate on the sale and on the lease activities income;
-100% Income Tax Exemption on dividends or distributions paid by the Exempt Business;
-75% Real and Personal Property Tax Exemption;
-50% Municipal License tax Exemption; and
-75% Construction Excise Tax Exemption (available for the Eligible Business, Contractors and Sub-contractors).

III. Tax Credits

Act 60 provides the Urban Center Project with the opportunity to obtain a Credit for Eligible Investment in Urban Center of 40% of the Eligible Investment in an Urban Center and up to a maximum of 40% of the Total Cost of the Project in an Urban Center, available in three (3) installments: the first one-third of such credit in the second year after the exempt business commenced operations and one-third of the balance of such credit in the two subsequent years. Any unused amounts of tax credits may be carried forward to subsequent taxable years, until fully utilized. The tax credits can be assigned, sold or transferred, by the exempt business.