2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART I - Industrial Incentives (§§ 10001 — 10052) › Chapter 901 - Puerto Rico Industrial Incentive Act of 1954 (§§ 10001 — 10011) › § 10001 - Exemptions

(a) Exempted business is exempt from income tax upon its industrial development income derived during the ten years following the date of the commencement of its operations as determined jointly by the Secretary of the Treasury and the Economic Development Administrator of the Commonwealth of Puerto Rico, or by the Governor thereof in the event they are unable to agree on the date of the commencement of operations referred to.
(b) The property of exempted business used in the development, organization, construction, establishment or operation of the activity which gives rise to the exemption as well as property devoted to industrial development shall not be subject to municipal or Commonwealth taxes on real and personal property for the periods set forth in clauses (1)—(6) of this subsection, and which shall be counted from the first of January of the year in which the exempted business commences its operations whenever said business owns as of that date such property or utilizes property devoted to industrial development, or in cases to the contrary, such periods shall commence from the first of January following the year in which the tax exemption decree has been approved for the business, provided that for that date, first of January, the property has been placed at the disposal of the exempted business. In case the property has been placed at the disposal of the exempted business on a date subsequent to the first of January of the year following the year in which the decree of tax exemption has been approved, the aforesaid periods shall commence on the first of January of the year following the year in which the property has been placed at the disposal of the exempted business.
(1) When the investment in real or personal property is not greater than $1,000,000................ 5 years. (2) When such investment exceeds $1,000,000 but not $3,000,000................ 6 years for the whole investment. (3) When such investment exceeds $3,000,000 but not $5,000,000................ 7 years for the whole investment. (4) When such investment exceeds $5,000,000 but not $7,000,000................ 8 years for the whole investment. (5) When such investment exceeds $7,000,000 but not $10,000,000................ 9 years for the whole investment. (6) When such investment exceeds $10,000,000................ 10 years for the whole investment.
When an exempt business utilizes real or personal property owned by it as well as property devoted to development income, the preceding schedule shall apply on the investment made on its own property and separately and independently upon the investment made on property devoted to industrial development.
The preceding schedule shall apply first to the original investment. Within thirty (30) days following the end of the fifth year of the exemption, the exempted business shall submit to the Secretary of the Treasury of Puerto Rico a sworn statement of the investment made up to that date in real and personal property owned by it. A similar statement shall be prepared and submitted by the owner of property devoted to industrial development. The Secretary of the Treasury shall verify the correctness of such statement within sixty (60) days following the filing thereof. Once the amounts of such investments have been verified in this manner, the Secretary of the Treasury shall determine and shall advise the corresponding beneficiary the period of exemption readjusted which results from the total investment in each of such two classes of property at the end of said period of five (5) years. This procedure of the readjustment shall be repeated, if found necessary, at the end of the seventh year and at the end of the tenth year of the possible duration of the exemption.
(c) Exempted businesses shall not be subject to license fees, excises, or other municipal taxes levied by any ordinance of any municipality for a period of ten years from the date when the business begins its operations as jointly certified to by the Secretary of the Treasury and the Economic Development Administrator of the Commonwealth of Puerto Rico or by the Governor thereof when they are unable to agree.
(d) In the case of an exempt business which is a commercial hotel, the exemptions granted under this section shall be limited to fifty percent (50%) of the taxes referred to.
(e) In case the exempt business had commenced its operations on or before the filing of the corresponding application for tax exemption, the periods of exemption to which reference is made in subsections (a) and (c) hereof shall be counted from the date when the application for tax exemption was filed.
(f) The period during which a property devoted to industrial development, as defined under § 10002(b) of this title, pertained to the Puerto Rico Industrial Development Company or to a subsidiary thereof or pertained to any governmental department, political subdivision, agency or instrumentality, shall not be deducted from the total periods of exemptions referred to in subsections (a), (b) and (c) of this section, as to property devoted to industrial development, and said property shall be considered, for the purposes of this chapter, as if it had not been previously devoted to industrial development.
(g) In the event that the exempted business be a property devoted to industrial development, as defined under § 10002(b) of this title, the exemption periods referred to in subsections (a) and (c) of this section shall not cover those periods during which the property devoted to industrial development is on the market to be leased to an exempted business, or is vacant, or is leased to a non-exempted business, except as provided in subsection (h) of this section; the exemption periods referred to in subsections (a) and (c) of this section shall be computed on the basis of the total period during which property was leased or otherwise placed at the disposal of an exempted business, even if to that end a total period of more than ten years must be taken into account. Provided, that the total exemption is not greater than that provided under said subsections (a) and (c) of this section, and that the exempted business (a property devoted to industrial development) notifies by registered letter to the Secretary of the Treasury, to the Director of the Industrial Tax Exemption Office and to the Administrator of the Economic Development Administration of the Commonwealth of Puerto Rico the date on which the property is leased for the first time to an exempted business and the date on which the property becomes vacant and is reoccupied by another exempted business. This provision shall not be applicable with respect to the exemption period referred to in subsection (b) of this section.
(h) In case the exempted business is properly devoted to industrial development, as defined under § 10002(b)(1) of this title, the exemption periods referred to in subsections (a), (b) and (c) of this section with respect to property devoted to industrial development, shall continue their normal course, notwithstanding the fact that the exemption of the exempted business which is using said property, as a result of the expiration of its normal period of exemption or by revocation of its exemption, expires before the exemption period of the property devoted to industrial development, unless, in the event of revocation, it is shown, as provided under § 10005(d) of this title, that the lease or utilization was not undertaken in good faith, that is, that at the time such property was leased or otherwise made available to the exempted business, the owner or owners thereof had knowledge of the facts that subsequently caused the revocation.
(i) The exemption periods referred to in subsections (a), (b) and (c) of this section and all other provisions of this chapter in respect of property devoted to industrial development are applicable to the additions to the property devoted to industrial development as provided under § 10002(b) of this title. Said exemption periods shall begin and end and shall be for the totality provided in said subsections (a), (b) and (c) of this section, irrespective of the exemption of the main property devoted to industrial development.
(j) In case the exempted business is located in a zone designated by the Governor of Puerto Rico as underdeveloped industrial zone, the exempted business shall enjoy the following additional exemption period, provided it stays located in said zone during its exemption period:
(1) The exemption provided in subsection (a) of this section with respect to the income tax on income from industrial development shall be for an additional three (3) years.
(2) The exemption provided in subsection (b) of this section with respect to the Commonwealth and municipal taxes on real and personal property shall be for an additional three (3) years.
(3) The exemption provided in subsection (c) with respect to license fees, excises or other municipal taxes imposed by an ordinance of any municipality shall be for an additonal three (3) years.
(4) The exemption with respect to the distribution of dividends or profits by a corporation or partnership that is an exempted business as provided in § 10003 of this title shall be for three (3) years additional to the first seven (7) years of its operation therein indicated.
The Governor shall designate the underdeveloped industrial zones in Puerto Rico upon recommendation of the Chairman of the Planning Board, the Secretary of the Treasury, the Secretary of Labor, the Secretary of Commerce and the Economic Development Administrator. This designation shall be based on the necessity of establishing factories in that particular zone, taking into account its population and the nature and opportunities of employment existing there, and with due regard also to difficulties such zone confronts to attract factories to be established there. When the zone designated by the Governor as underdeveloped industrial zone, or an area, town or municipality located therein, ceases to be so, the Governor, upon recommendation of the Chairman of the Planning Board, the Secretary of the Treasury, the Secretary of Labor, the Secretary of Commerce and the Economic Development Administrator, may eliminate said zone, or such area, town or municipality located therein from the designation of underdeveloped industrial zone, and he may likewise redesignate it as such upon consultation with the said agencies, when the facts may again justify its redesignation as underdeveloped industrial zone. Provided, That the elimination of a zone, or an area, town or municipality located therein from the designation of underdeveloped industrial zone shall not affect the exemption of the exempted businesses established in that zone while same was an underdeveloped industrial zone and said exempted businesses shall enjoy the balance remaining to them of the additional exemption provided in this subsection while they stay located in said zone. The provisions of this subsection shall apply only to the exempted businesses which have obtained their exemption after the effectiveness of these provisions, and to the exempted businesses which have obtained their exemption prior to the effectiveness of these provisions but whose date of commencing operations is subsequent to the effective date of these provisions. The provisions of this subsection shall not apply to exempted businesses which transfer their operations from other places in Puerto Rico to an underdeveloped industrial zone, or which are already established in the zone when same is designated as underdeveloped industrial zone. The eligibility of the exempted business to the provisions of this subsection shall be included in the tax exemption grant.
(k) The exempted business shall, on the date it commences to operate, have the option to choose that its exemption period be computed on the basis of fifty percent (50%) of its tax exemption for the double of the exemption period corresponding to it under this chapter. If the exempted business chooses to avail itself of such computation on the basis of fifty percent (50%) of its tax exemption for the double of the exemption period corresponding thereto under this chapter, the exemption shall be computed as follows:
(1) The income-tax exemption provided in this section with regard to the industrial development income shall be on fifty percent (50%) of such industrial development income for the double of the exemption period corresponding to the exempted business under this chapter, and the exempted business shall pay the tax on the remaining fifty percent (50%) of its aforesaid industrial development income.
(2) The exemptions provided in this section with regard to municipal and commonwealth taxes or taxes imposed by the Government of the Capital on real and personal property, and with regard to license fees, excises, or other municipal taxes imposed by any ordinance of any municipality or of the Government of the Capital, shall be for fifty percent (50%) thereof for the double of the exemption period corresponding to the exempted business under this chapter.
Once a corporation or partnership which is an exempted business has chosen that its exemption period be computed on the basis of the said fifty percent (50%) of the exemption corresponding thereto under this chapter for the double of the exemption period corresponding to it hereunder, such computation shall apply in like manner to:
(a) The distribution of dividends or profits, and fifty percent (50%) of the dividends or profits of the exempted business will be favored by the exemption corresponding thereto under this chapter for the double of the period corresponding to it thereunder, and the remaining fifty percent (50%) of the dividends or profits of the exempted business shall not be exempt.
(b) The other provisions of §§ 10003 and 10004 of this title with regard to distributions, sale of stock, and liquidation of exempted businesses.
The provisions of this subsection shall apply only to such exempted businesses as may have obtained their exemption subsequently to the effective date of these provisions, or that its date of commencement of operations is subsequent to such effectiveness. Provided, That such exempted businesses as may begin operations at a date prior to the effective date of these provisions, may choose, within a period of twelve (12) months counting from the effective date of these provisions, to avail themselves of same as regards the balance of the exemption period corresponding thereto under this subtitle on the date they exercise such option. Once the exempted business has chosen to avail itself of such computation on the basis of fifty percent (50%) of its tax exemption for the double of the exemption period corresponding thereto under this chapter, such choice shall be irrevocable.
History —Dec. 15, 1953, No. 6, p. 12, § 1; June 30, 1959, No. 98, p. 277, § 1; June 12, 1961, No. 35, § 1; June 8, 1962, No. 26, p. 51, § 1; June 23, 1971, No. 66, p. 202, § 1.