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 902 - Puerto Rico Industrial Incentive Act of 1963 (§§ 10012 — 10023) › § 10012 - Exemptions

(a) Exemption with respect to industrial development income. —
(1) Exempted business that may be established in a “high industrial development zone”, as the latter is described in this chapter, is exempt from income tax upon its industrial development income derived during the ten (10) 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.
(2) [Repealed. Act July 23, 1974, No. 147, Part 1, p. 675, § 1, eff. Jan. 1, 1975.]
(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 real and personal property devoted to industrial development shall not be subject to municipal or Commonwealth taxes on real and personal property for the periods stated below 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 be counted from the first of January of the year following the year in which the exempted business commenced the activities that give rise to its exemption. In case the exempted business uses property devoted to industrial development after the first of January, following the year in which the exempted business commences operations, the periods stated below shall commence the first of January of the year following that in which the exempted business commenced the use of such property:
(1) When the exempted business qualifies for the exemption provided in subsection (a)(1) ten (10) years.
(2) [Repealed. Act July 23, 1974, No. 147, Part 1, p. 675, § 2, eff. Jan. 1, 1975.]
(c) Exempted business shall not be subject to license fees, excise, or other municipal taxes levied by any ordinance of any municipality for the periods stated below and which shall be counted 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:
(1) When the exempted business qualifies for the exemption provided in subsection (a)(1) ten (10) years.
(2) [Repealed. Act July 23, 1974, No. 147, Part 1, p. 675, § 3, eff. Jan. 1, 1975.]
(d) In the case of an exempt business which is a commercial hotel or a guesthouse which principally operates in the interest of tourism, the exemptions granted under this section shall be limited to fifty percent (50%) of the taxes referred to. If the owner or owners of the guesthouse do not reside therein, the latter shall not enjoy said property tax exemption as provided in this section.
(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 § 10013(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 exemption 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 § 10013(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; and 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 the 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 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 property devoted to industrial development as defined under § 10013(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 § 10016(d) of this title, that the said 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 subtitle in respect of property devoted in industrial development are applicable to the additions to the property devoted to industrial development as provided under § 10013(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 an 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)(1) of this section with respect to the income tax on the industrial development income shall be for fifteen (15) years additional to the years therein indicated.
(2) The exemption provided in subsection (b)(1) of this section with respect to the Commonwealth and municipal taxes on real and personal property shall be for fifteen (15) years additional to the years therein indicated.
(3) The exemption provided in subsection (c)(1) with respect to license fees, excises or other municipal taxes imposed by any ordinance of any municipality shall be for fifteen (15) years additional to the years therein indicated.
(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 § 10014 of this title shall be for twenty-five (25) years.
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 and Human Resources, 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 an 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 and Human Resources, 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 an 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 an underdeveloped industrial zone. Provided, That the elimination of a zone, or an area, town or municipality located therein from the designation of an 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 to the exempted businesses which have obtained their exemptions before or after the date on which the zone was designated as an underdeveloped industrial zone, even though the date of commencement of operations under the provisions of subsection (a) of this section is prior or subsequent to the date on which the zone was declared as an underdeveloped industrial zone. The provisions of this subsection shall also apply to exempted businesses or to businesses that were exempted, that transfer their operations from the high industrial development zone to an underdeveloped industrial zone. The eligibility of the exempted business to the provisions of this subsection shall be included in the tax exemption grant.
A business which has applied for exemption to establish itself in an underdeveloped industrial zone, or which has obtained it prior to the date on which said zone loses its designation of underdeveloped industrial zone, shall be entitled to enjoy the exemption provided under this subsection if it establishes itself in said zone within a period not to exceed two years from the date on which the zone ceased to be an underdeveloped industrial zone.
(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 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 §§ 10014 and 10015 of this title with regard to distributions, sale of stock, and liquidation of exempted businesses. 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.
(l) An applicant for tax exemption or an exempted business shall have the option, on the date of filing the application and until the day when that which would have been its first year of exemption ends, to choose that its tax-exemption period commence within two years from the date fixed as the beginning-of-operations date under the provisions of subsections (a) and (e) of this section, provided it notifies in writing the Secretary of the Treasury, the Economic Development Administrator and the Director of the Industrial Tax-Exemption Office of its intention of availing itself of this option on or before the day its first year of exemption ends.
Once said choice has been made, the tax exemption of the exempted business shall begin two (2) years after the date fixed as the beginning-of-operations date under said subsections (a) and (e) of this section. Provided, That any time within the term prescribed by law for the filing of the income tax return for a given taxable year, it may choose any date within said taxable year provided it notifies in writing to the Secretary of the Treasury, the Economic Development Administrator and the Director of the Industrial Tax Exemption Office the choice of said new date, in which case, the exemption of the exempted business shall commence from the date chosen. For the purposes of this chapter, the date chosen by the exempted business under the option provided in this subsection, shall be equivalent to and shall mean the same as “beginning-of-operations date” under subsections (a) and (e) of this section.
(1) The exempted business may further exercise a second option of postponing for two (2) additional years the beginning of its tax-exemption period, up to a maximum of four (4) consecutive years, from the date fixed as the beginning-of-operations date. This second option may be exercised any time within the two years following the first option. Once this second option is exercised, the tax exemption of the exempted business shall begin four years after the date fixed as the beginning-of-operations date. Provided, That any time within the date set by law for the filing of the income tax return for a given taxable year, the exempted business may choose any date within said year as the date its tax-exemption period shall begin, provided it notifies in writing to the Secretary of the Treasury, the Economic Development Administrator and the Director of the Industrial Tax-Exemption Office the choice of said new date, in which case, the exemption of the exempted business shall begin from the date chosen, which shall mean the same as beginning-of-operations date.
Once an applicant or an exempted business chooses to avail itself of the provisions of this subsection, said selection shall be irrevocable, except in the above-mentioned case of the selection of another date within the said periods of two years, and except the applicant or the exempted business may waive its right to avail itself of the provisions of this subsection at any date before the end of the year that would have been its first tax-exemption year.
(2) The exempted business may also choose that the beginning of its tax-exemption period be postponed in accordance with the provisions of this subsection, as to its industrial development income only.
Said exempted business shall then enjoy tax exemption on its real and personal property and on licenses, excises, license taxes and other municipal taxes, from the date fixed as the beginning-of-operations date, for the exemption period corresponding to the exempted business on the basis of its location. The tax-exemption period on its industrial development income shall begin after the end of the term of postponement of the beginning of operations the exempted business may have applied for, or on the date chosen before the end of such term, under the provisions of this subsection. In such case, the exempted business shall terminate its tax-exemption period on its real and personal property and on licenses, excises, license taxes and other municipal taxes before the end of the tax-exemption period on its industrial development income. The difference in time between the expiration of both tax-exemption periods shall be equal to the difference in time between the beginning of both tax-exemption periods.
(m) In the case of an exempted business that has ceased its operations and may later on wish to resume same, the periods during which it has not been operating shall not be deducted from the total exemption period corresponding to it under this chapter, and said exempted business may enjoy the rest of its exemption period while the exemption of an exempted business is in force hereunder, provided the Governor shall determine that such cessation of operations was due to justified causes and that the reopening of the said exempted business is necessary and convenient for the development of the economy and welfare of the Commonwealth of Puerto Rico, because it will provide increased opportunities for work and will redound in a substantial contribution to the net income of the Commonwealth of Puerto Rico.
(n) If upon the expiration of its exemption period an exempted business shall sustain a net operating loss which it has been unable to absorb against the exempted net income obtained during the exemption period, said loss shall be a net operating loss to be carried over to the taxable years next following that in which the exemption expired. Should there be any balance from said loss, the same may be taken as a deduction in the next taxable year, and this may be continued to be done with respect to any resulting balance in subsequent years, until the loss is totally taken, provided the deduction of such loss does not extend over a period of more than five (5) years. For the purposes of these provisions, the term “net operating loss” shall have the meaning provided in § 122 of Act June 29, 1954, No. 91, known as the Income Tax Act of 1954, as amended.
(o) High industrial development zone. — Shall include those areas which the Governor may designate upon recommendation of the Chairman of the Planning Board, the Secretary of Labor and the Economic Development Administrator. Such areas shall be those which have attained a substantial industrial development, taking into account the number of inhabitants therein and the nature and opportunity of employment existing there as well as the facilities available to attract factories. When the circumstances that justified the inclusion by the Governor of an area within a high industrial development zone cease to exist, the Governor may, upon recommendation of the Chairman of the Planning Board, the Secretary of Labor and the Economic Development Administrator, eliminate such area from the high industrial development zone, and he may also restore it anew, upon consultation with the said agencies, whenever the facts may again so warrant.
It is provided that the inclusion of an area in a high industrial development zone shall not affect the exemption of the exempted businesses established in that area prior to its designation as such, neither shall it affect the exemption of the exempted businesses which have obtained their exemptions prior to the inclusion of the area in said zone but whose date of commencing operations under the provisions of subsection (a) of this section is subsequent to the date on which the area was included in the high industrial development zone.
(p) In the event that the exempted business is located on one of the islands adjacent to and forming a part of the Commonwealth of Puerto Rico and which is constituted into a municipality, the exempted business shall enjoy the following additional exemption period, provided it remains located on said island during its exemption period:
(1) The exemption provided in subsection (a)(1) of this section with respect to the income tax upon its industrial development income shall be for thirty (30) years.
(2) The exemption provided in subsection (b)(1) of this section with respect to municipal and Commonwealth taxes on real or personal property shall be for thirty (30) years.
(3) The exemption provided in subsection (c)(1) with respect to license fees, excises or other municipal taxes by any ordinance of any municipality shall be for thirty (30) 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 § 10014 of this title shall be for thirty (30) years.
A business that is exempt or that has been exempted under Act No. 184 of May 13, 1948 or under §§ 10001—10011 of this title or this chapter, established in said islands prior to the effective date of this act or a business that is exempt or that has been exempted that transfers its operations from a high industrial development zone to these islands, is entitled to the additional exemption provided in this subsection which, for the purposes of the businesses established in said islands prior to the effective date of this act shall be continuous to their original exemption in such a way that they may enjoy consecutively a total of thirty (30) years of exemption from the date of commencement of operations, with respect to each and every one of the exemptions provided by this chapter. In the case of businesses which have transferred their operations to these islands before or after the effective date of this act, such additional exemption shall also be computed in the manner mentioned. Provided, That in the case of businesses which on the date in which they transfer or have transferred their operations have ceased to be exempted, the period during which they were not exempted shall be excluded from the mentioned computation and the additional exemption shall commence from the date of commencement of operations in these islands and from that date the exemption shall be computed continuously up to a total of thirty (30) years, including additional exemption and the original exemption which they enjoyed prior to the transfer. Provided, That said businesses shall enjoy said additional exemption while they remain established in these islands. Said grantee shall be subject to the provisions of this chapter during the effectiveness of its additional exemption.
(q) The applicant to tax exemption or to any exempted business shall have the option, on the date of filing his application and before the end of his first exemption year, to choose that his exemption period be computed on the basis of sixty percent (60%), seventy percent (70%) or eighty percent (80%) of his exemption for the period of exemption corresponding to him under this chapter; in which case he shall be entitled to an additional exemption period for the same number of years computed on the basis of eighty percent (80%), sixty percent (60%) or forty percent (40%) of his exemption.
If the applicant or any exempted business chooses to avail itself of this provision, the exemption shall be computed as follows:
(1) The exemption provided in this section as to income tax on the income of industrial development shall be on sixty percent (60%), seventy percent (70%) or eighty percent (80%), as chosen by the applicant or exempted business, of said industrial development income for the period of exemption corresponding to the exempted business under this chapter and the exempted business shall pay taxes on the remaining forty percent (40%), thirty percent (30%) or twenty percent (20%) of his said industrial development income for the exemption period corresponding to the exempted business under this chapter as to the corresponding period of additional exemption for the same number of years, the exemption provided in this section as to income tax on industrial development income shall be on eighty percent (80%), sixty percent (60%) or forty percent (40%), as the case may be, from said industrial development income for the additional exemption period corresponding to the exempted business under this subsection and the exempted business shall pay taxes on the remaining twenty percent (20%), forty percent (40%) or sixty percent (60%), as the case may be, from his said 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 respect 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 sixty percent (60%), seventy percent (70%) or eighty percent (80%) thereof, as the applicant or exempted business has chosen, for the exemption period corresponding to the exempted business under this chapter and with regard to the corresponding additional exemption period for the same number of years, said exemptions shall be for eighty percent (80%), sixty percent (60%) or forty percent (40%) thereof, as the case may be.
Once the applicant or exempted business has chosen that his exemption period be computed on the basis of one of the said sixty percent (60%), seventy percent (70%) or eighty percent (80%) of the exemption corresponding thereto under this chapter in addition to an additional exemption period for the same number of years computed on the basis of eighty percent (80%), sixty percent (60%) or forty percent (40%) of his exemption, such computation shall apply in like manner to:
(A) The distribution of dividends or profits and sixty percent (60%), seventy percent (70%) or eighty percent (80%) as chosen by the applicant or exempted business, of the dividends or profits of the exempted business shall be favored by the exemption corresponding thereto under this chapter and the remaining forty percent (40%), thirty percent (30%) or twenty percent (20%) of the dividends or profits of the exempted business shall not be exempt. In regard to the additional period of exemption corresponding to the exempted business under this clause, eighty percent (80%), sixty percent (60%) or forty percent (40%), as the case may be, of the dividends or profits of the exempted business shall be favored by the exemption corresponding thereto under this chapter by the said additional period of exemption corresponding to the exempted business under this chapter and the remaining twenty percent (20%), forty percent (40%) or sixty percent (60%), as the case may be, of the dividends or profits of the exempted business shall not be exempt.
(B) The other provisions of § 10014 and the provisions of § 10015 of this title with regard to distributions, sale of stock, and liquidation of exempted businesses.
Once the applicant or any exempted business has chosen to avail itself of the provisions of this subsection said selection shall be irrevocable except that the applicant or exempted business may renounce to avail itself of the provisions of this subsection on any date before the end of its first exemption year. Such business exempted under §§ 10001—10011 of this title, or under this chapter, may choose to avail themselves of the provisions of this subsection with regard to the remainder of the unused exemption, from the taxable year in which it notifies its choice to do so.
(r) In the event that the exempted business is located in a zone designated by the Governor of Puerto Rico as [an 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)(1) of this section with respect to the income tax on the industrial development income shall be for five (5) years additional to the years therein indicated.
(2) The exemption provided in subsection (b)(1) of this section with respect to the Commonwealth and municipal taxes on real and personal property shall be for five (5) years additional to the years therein indicated.
(3) The exemption provided in subsection (c)(1) with respect to license fees, excises or other municipal taxes imposed by any ordinance of any municipality shall be for five (5) years additional to the years therein indicated.
(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 § 10014 of this title shall be for fifteen (15) years.
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 and Human Resources, 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. There shall be designated as [an underdeveloped] industrial zone such zone which is in such an industrial and economic level that does not qualify as an “underdeveloped” industrial zone nor which requires the special incentives of said zone, but which still is found in [an underdeveloped] level needing the aid of the incentive of a special exemption in order to reach the economic and industrial development level of the zones favored by the ten (10) years exemption. When the zone designated by the Governor as [an 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 and Human Resources, 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 [an 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 [an underdeveloped] industrial zone. Provided, That the elimination of a zone, or an area, town or municipality located therein from the designation of a [underdeveloped] industrial zone shall not affect the exemption of the exempted businesses established in that zone while same was a [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 to the exempted businesses which have obtained their exemption before or after the date on which the zone was designated as [an underdeveloped] industrial zone, even though its date of commencing operations under the provisions of subsection (a) of this section is prior or subsequent to the date on which the zone was declared [an underdeveloped] industrial zone. 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. The eligibility of the exempted business to the provisions of this subsection shall be included in the tax exemption grant.
A business which has applied for exemption for its establishment in [an underdeveloped] industrial zone or which has obtained it prior to the date in which said zone is eliminated from the designation of [an underdeveloped] industrial zone shall be entitled to enjoy the exemption provided under this subsection if established in said zone within a period not to exceed two (2) years from and after the date in which the zone was eliminated as [an underdeveloped] industrial zone.
(s) In those cases where the Governor determines, after considering the recommendations of the Secretaries of Treasury, Justice and Labor and Human Resources and of the Economic Development Administrator, that due to the foreign competition caused by the low costs of production and other factors, the manufacture in Puerto Rico or in the United States of a product in particular has ceased or is about to cease and that the only way in which said product can compete with similar foreign products is by performing in Puerto Rico only part of the total of its manufacturing process and the rest outside of Puerto Rico, the Governor may then:
(1) Determine that that part of the manufacture that shall be performed in Puerto Rico complies with the provisions of this chapter, and
(2) grant it a partial exemption of seventy percent (70%) of all exemptions that this chapter provides for the total of years corresponding to it according to the zone where the factory is established, when fifty percent (50%) or more of the total cost of the labor involved in the particular product is performed in Puerto Rico, or to grant it a partial exemption of sixty percent (60%) of all exemptions which this chapter provides for the total of years corresponding to it in accordance to the zone where the factory is established, when the cost of the labor in Puerto Rico be equivalent from forty percent (40%) to forty-nine [percent] (49%) of the total cost of the labor involved in the particular product. It being provided that if in any year in particular the exempted business does not maintain the said costs, its exemption shall cease for that year in particular, and shall continue in the year in which the business complies again with said costs and the years in which it does not comply, shall not be deducted from the total of the years of exemption corresponding to it. It being understood that if an exempted business does not maintain in one particular year the cost of fifty (50%) or more employed in the manufacture of the product in Puerto Rico but complies with the cost from forty-percent (40%) to forty-nine percent (49%), that business shall be entitled in that particular year to the said exemption of sixty percent (60%) and of seventy percent (70%) for the year when it complies with the cost of fifty percent (50%) or more, and the same shall occur if a business exempted on the basis of a cost from forty percent (40%) to forty-nine percent (49%) complies in one year in particular with the cost of fifty percent (50%) or more.
In case an exempted business covered by the provisions of this subsection is related, through the economic interest stated in § 10019(b)(3) of this title, to another industrial unit or units which has or have enjoyed tax exemption for the manufacture of a product substantially similar to the product the exempted business will partially produce in Puerto Rico, such related industrial unit or units, may not reduce by fifty percent (50%) or more the annual average of production employees during the period of three (3) years ending at the close of the taxable year of such industrial unit or units related to the exempted business, or with respect to such portion of said period as may be applicable, before filing application to avail themselves of the provisions of this subsection, unless such reduction of fifty percent (50%) or more, above stated be due to extraordinary circumstances such as strikes, wars, acts of the government or of nature, such as fire, earthquake, hurricane and others, or any other cause beyond the control of the related industrial unit or units and of the business exempted under the provisions of this subsection.
The estimate of compliance with fifty percent (50%) or more of the annual average of production employees shall be based on the annual average of the production employees hired by the exempted business and/or by one or more of the industrial units related to the exempted business.
(t) In case an exempted business is a business covered by the provisions of § 10019(e)(3)(A) of this title, the corresponding exemptions provided in subsections (a), (b) and (c) of this section and in § 10014 of this title, shall be for each taxable year of the exempted business in which it may comply with the conditions required in paragraphs (B), (C) and (D) of subsection (e)(3) of § 10019 of this title, commenced after December 31 of 1973 or after December 31, 1974, if the exempted business is a hotel of the ones included in § 2(f)(1)(2) of Act Nov. 20, 1975, No. 6, for a total of five (5) years, or an equal period if the above-mentioned conditions have been dispensed with, as provided in § 10019(e)(4)(A) of this title. Provided, That the exemptions of this subsection shall not apply to any taxable year in which the benefits of § 10019(e)(3) of this title are denied in accordance with the provisions of § 10019(e)(4)(C) of this title.
History —June 13, 1963, No. 57, p. 86, § 1; June 24, 1964, No. 74, p. 229; June 26, 1964, No. 99, p. 313, § 1; June 28, 1966, No. 127, p. 399; June 27, 1969, No. 99, p. 275; June 27, 1969, No. 100, p. 277; Apr. 17, 1970, No. 10, p. 25; June 30, 1971, No. 123, p. 372; June 8, 1972, No. 9, p. 364, § 1; June 15, 1972, No. 19, p. 400, §§ 1-3; May 22, 1973, No. 30, p. 92; July 5, 1974, No. 108, Part 1, p. 356, § 1; July 23, 1974, No. 147, Part 1, p. 675, §§ 1-6; July 23, 1974, No. 178, Part 2, p. 39, § 1; July 23, 1974, No. 190, Part 2, p. 69; July 23, 1974, No. 210, Part 2, p. 115, § 1; July 23, 1974, No. 231, Part 2, p. 203, § 1; Nov. 20, 1975, No. 6, p. 929, § 1; Mar. 25, 1976, No. 16, p. 36, § 1.