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 903 - Industrial Incentive Act of 1978 (§§ 10024 — 10037) › § 10026 - Exemptions

(a) Exemption with respect to industrial development income. — Businesses exempted from industrial development income taxes for the periods specified in subsection (d) of this section are exempted on and after the date their operations commence, as determined under subsection (j) of this same section, under the following terms and conditions:
(1) During the first five (5) years from the date their operations commence, ninety percent (90%) of its industrial development income shall be exempted from the payment of income taxes.
(2) During the subsequent five (5) years, including and comprised between the sixth and tenth year from the date their operations commence, seventy-five percent (75%) of its industrial development income shall be exempt from the payment of income taxes.
(3) During the subsequent five (5) years, including and comprised between the eleventh and fifteenth year from the date their operations commence, sixty-five percent (65%) of its industrial development income shall be exempt from the payment of income taxes.
(4) During the subsequent five (5) years, including and comprised between the sixteenth and twentieth year from the date their operations commence, fifty-five percent (55%) of its industrial development income shall be exempt from the payment of income taxes.
(5) In case the exempted business is established in Vieques or Culebra, it shall enjoy fifty percent (50%) exemption from taxes on its industrial development income for the following five (5) years, included and comprised between the twenty-first and the twenty-fifth year from the date its operations commence.
(6) The tax rate(s) prevailing on the date of the signature of the tax exemption decree by the Governor (as such rate(s) are provided in Act June 29, 1954, No. 91, as amended, or their successors shall be the basis for determining during the original term of the decree the income tax rate(s) for each decree. The tax shall be computed by multiplying such individual or corporate income tax rate (as the case may be) by the taxable industrial development income for the years provided in subsection (d) of this section. The taxable income shall be governed pursuant to the provision of these sections, or the law in effect on the date the decree is signed.
(7) Notwithstanding the foregoing provisions of subsection (a), in the case of those exempted businesses engaged in manufacture whose industrial development income in any taxable year is less than five hundred thousand dollars ($500,000), the first one hundred thousand dollars ($100,000) of said income shall be totally exempted and may be excluded from the computation to be made to determine the taxable industrial development income, according to the provisions of subsections (a), (i) and (m) during the periods provided in subsections (d), (i) and (m) and after the date its operations commence as determined under subsection (j) of this section, respectively. Provided, That no exempted business engaged in manufacture which chooses the benefits provided in clause (8) of this subsection may avail itself of the benefits provided in this clause.
(A) If an exempted business engaged in manufacture is a component member of a controlled group of corporations or partnerships that are exempted businesses, or is controlled in more than fifty percent (50%) by one or more persons who directly or indirectly own an exempted business on December 31 of each specific year, then, for the purposes of this clause, the exemption of the first one hundred thousand (100,000) dollars shall be accredited in the following manner:
(i) $100,000.00—divided between the number of exempted businesses that are component members of the group on said December 31, or
(ii) if all the component members of the controlled group of exempted businesses agree to a prorated plan (on the date and in the manner prescribed by the Secretary of the Treasury by regulations), that part of the one hundred thousand (100,000) dollars that is assigned to said member pursuant to the plan;
(iii) the sum of the prorated amounts under subparagraph (ii) above, among the component members of any controlled group, shall not exceed one hundred thousand (100,000) dollars.
(B) For the purposes of this clause, the provisions of Act June 29, 1954, No. 91, as amended, shall be applied to the term “controlled group of exempted businesses”. Provided, That for the purposes of this subparagraph, control shall exist in case the exempted business is owned directly or indirectly in more than fifty percent (50%) by one (1) person.
(8) The exempted business engaged in manufacture may deduct from its industrial development income five percent (5%) of its total production payroll up to an amount not to exceed fifty percent (50%) of said industrial development income, to adjust said income before applying the provisions of subsections (a), (i) and (m) of this section during the periods provided in subsections (d), (i) and (m) and from the date of commencement of its operations, as it is determined under subsections (j) of this section, respectively.
For the purpose of this clause, the production payroll shall be the wages paid by the exempted business to the personnel related directly to the exempted economic activity, specifically excluding the salaries of the executives, supervisors and administrative personnel and any payment for personal services rendered under contract by firms not related to the exempted business, provided the above is not in conflict with the definition of production worker adopted by the Bureau of Labor Statistics of the Department of Labor and Human Resources of Puerto Rico.
(b) Exemption with respect to municipal and Commonwealth taxes on personal and real property. — The property of exempted businesses used in the development, organization, construction, establishment or operation of the activity which gives rise to the exemption, as well as the property devoted to industrial development, shall be exempted from municipal and commonwealth taxes in the percentages and for the periods provided in clause (2) of this subsection and in subsection (d) of this section. It shall also enjoy total exemption on said taxes during the period authorized by the tax exemption decree or any amendment thereto to carry out the construction and/or establishment of the industrial or service unit. Provided, That if the exempted business chooses to postpone the commencement of its exemption period with regard to commonwealth and municipal taxes on real or personal property under subsection (j) of this section, it shall be subject to the payment thereof from the date determined as the date of commencement of operations to the date determined for the commencement of said exemption. The exempted periods shall begin on January 1 of the year in which the exempted business first owns such property or uses property devoted to industrial development on such date; accordingly, the exempted business shall enjoy this exemption commencing in the year for which the first payment is due on the first of July following said first of January.
(1) When an exempted business uses real or personal property owned by it, as well as property devoted to industrial development, the period of exemption provided in subsection (d) of this section shall apply to its own property, and separately to the property devoted to industrial development according to the provisions of this chapter.
(2) The property of exempted businesses shall enjoy the following exemption with respect to municipal and commonwealth taxes on real and personal property:
(A) During the first five (5) years after the date of commencement of its operations it shall enjoy ninety percent (90%) exemption from the applicable taxes.
(B) During the following five (5) years, including and comprised between the sixth and the tenth year from the date of commencement of its operations, it shall enjoy seventy-five percent (75%) exemption from the applicable taxes.
(C) During the following five (5) years, including and comprised between the eleventh and the fifteenth year after the date of commencement of its operations, it shall enjoy sixty-five percent (65%) exemption from the applicable taxes.
(D) During the following five (5) years, including and comprised between the sixteenth and the twentieth year from the date of commencement of its operations, it shall enjoy fifty-five percent (55%) exemption from the applicable taxes.
(E) In case the exempted business is established in Vieques or Culebra, during the following five years including and comprised between the twenty-first and the twenty-fifth year from the date of commencing its operations, it shall enjoy fifty percent (50%) exemption from the applicable taxes.
(3) The real and personal property taxes shall be appraised, imposed, notified, and administered according to the provisions of the Property Tax Law in effect on the date of the appraisal and imposing of the tax.
(4) Exempted businesses engaged in manufacturing shall be exempted annually from the payment of real and/or personal property taxes, at the choice of the exempted business, of the first one hundred thousand dollars ($100,000) of the appraised value of the same for the periods provided in subsections (d) and (m) of this section, from the date of commencement of operations, as determined under subsection (j) of this same section.
(A) If an exempted business engaged in manufacturing is a component member of a controlled group of corporations or partnerships which are exempted businesses, or is controlled in more than fifty percent (50%) by one or more persons that directly or indirectly own a business exempted as of December 31 of each specific year, then, for purposes of this paragraph, the exemption of the first one hundred thousand dollars ($100,000) shall be credited in the following manner:
(i) $100,000—divided between the number of exempted businesses which are component members of the group on said December 31, or
(ii) if all the component members of the controlled group of exempted businesses agree to a prorated plan (on the date and in the manner prescribed by the Secretary of the Treasury by regulations), that part of the $100,000 that is assigned to said member pursuant to the plan.
(iii) The sum of the amounts prorated under the foregoing subparagraph (ii) of this paragraph among the members of any controlled group shall not exceed one hundred thousand dollars ($100,000).
(B) For the purpose of this clause, the provisions of Act June 29, 1954, No. 91, as amended shall apply to the term “controlled group of exempted businesses”. Provided, That for purposes of this clause, control shall exist in case the exempted business is owned directly or indirectly in more than fifty percent (50%) by one person.
(5) Notwithstanding the provisions of subsections (b)(3) and (m)(3) of this section, or any other law, all intangible personal property of the nature of a patent or production license or trademark acquired by an exempted business used in the operation declared exempt by this chapter shall be totally exempted from the payment of taxes on personal property.
(c) Exemption with respect to license fees, excise and other municipal taxes. — Exempted businesses shall not be subject to license fees, excise or other municipal taxes levied by any ordinance of any municipality, for the periods provided in subsection (d) of this section and also during the period authorized by the tax exemption decree or any amendment thereof to carry out the construction and/or establishment of the industrial or service unit. Provided, That if the exempted business chooses to postpone the commencement of its tax exemption period with regard to license fees, excise and other municipal taxes under subsection (j) of this section, it shall be subject to the payment thereof from the date that is determined as the commencement date of the operations until the date determined for the commencement of said exemption.
(d) Periods of industrial tax exemption. —
(1) Every exempted business that has requested the benefits of this chapter shall enjoy the following periods of exemption from the date of commencement of its operations:
(A) If the exempted business is established in an area designated as a zone of high industrial development (Zone I), the exempted business shall enjoy ten (10) years of exemption.
(B) If the exempted business is established in an area designated as a zone of intermediate industrial development (Zone II), the exempted business shall enjoy fifteen (15) years of exemption.
(C) If the exempted business is established in an area designated as a zone of low industrial development (Zone III), the exempted business shall enjoy twenty (20) years of exemption.
(D) If the exempted business is established in Vieques or Culebra (Zone IV), the exempted business shall enjoy twenty-five (25) years of exemption.
(e) Designation of industrial development zones. — The Governor shall designate, from time to time and by executive order, the geographic areas to be included in the different industrial development zones, upon recommendation of the Chairman of the Planning Board, the Secretary of the Treasury, the Secretary of Labor and Human Resources, and the Economic Development Administrator. This designation shall be based on the need of establishing industrial operations in the particular area, taking into consideration the nature and the geographic location of the area, the availability of the labor force, the existing infrastructure and other factors that may affect the economic and social development of the area or zone to be designated. The Governor may also, upon the recommendation of the aforementioned officials, reclassify any geographic area from one zone to another when the factors that justified the inclusion of the area in the prior zone have changed. The reclassification shall not affect the exemption of exempted businesses already established in that area.
(1) The Executive Order designating the geographic areas to be included in the different industrial development zones shall provide the quantity of net employment that shall have to be created in any particular area after the date of its designation, in addition to the net employment already existing therein, so that the exemption period of the area so designated may be reduced to that which corresponds to the next lowest zone as provided in clause (2) of this subsection, to wit: from Zone III (20 years) to Zone II (15 years), or from Zone II (15 years) to Zone I (10 years), as the case may be. The Governor may not redesignate a particular geographic area to its former classification until at least twelve (12) months have elapsed from the reduction of the exemption period of said geographic area.
(2) The Economic Development Administrator, in consultation with the Secretary of Labor and Human Resources and the Chairman of the Planning Board, shall certify to the Governor the change of zone provided in clause (1) of this subsection, as a result of the creation of the additional net employment required in each particular designated area through the establishment of new industrial units and the expansion of existing industrial units after discounting any reduction due to plant shutdowns or reduction in employment in the industrial units in said area. To carry out the certification provided herein, the population changes which have occurred in the geographic areas included in the various industrial development zones and the relative proportion of the total employment in manufacture within each designated area shall also be taken into consideration. Said certification of change of zone shall have prospective effect from the date that it is filed in the Office of Industrial Tax Exemption. The Director of said office shall publish a public notice of such certification in two newspapers of general circulation in Puerto Rico.
(3) Any business which has requested an exemption to establish operations in a determined area, or has obtained it prior to the date on which said area is reclassified from one zone to another, which qualifies for less years of exemption, but has not yet been established, shall be entitled to avail itself of the exemption period provided for said area before its reclassification if it is established in said area during the period authorized in the decree, or within a period of one year from the date on which the area was reclassified, whichever is less. For the purposes of this chapter, the date of the first training or production payroll shall be considered as the date of establishment of the business. This term may be extended by the Governor up to twelve (12) additional months for just cause, upon the filing of the corresponding sworn application by the exempted business with the Office of Industrial Tax Exemption.
(4) The Governor shall designate the new geographic areas to be included in the different industrial development zones provided by this chapter on or before January 1, 1979. Until such designations are made, the designations in effect on the effective date of this act as established under the provisions of § 10012 of this title shall apply to the tax exemption concessions granted under this chapter, to wit: that the designations included in the former high industrial development area or zone shall be used for Zone I or the High Industrial Development Zone; that the designations included in the former low-development industrial area or zone shall be used for Zone II or the Intermediate Industrial Development Zone; and the designations included in the former underdeveloped industrial area or zone shall be used for Zone III or the Low Industrial Development Zone.
(f) Exemption for tourist hotels which resume operations, tourist hotels under construction and Puerto Rican “paradores” (inns). — When the exempted business is a tourist hotel that resumes operations, a tourist hotel under construction or a Puerto Rican parador (inn) that operates principally in the interest of tourism, it shall enjoy the same exemptions granted under subsections (a), (b) and (c) of this section corresponding to the zone in which it is located.
(g) Special, scientific, educational or recreational facilities. — When the exempted business is a special, scientific, educational or recreational facility, it shall enjoy a fifty percent (50%) exemption on its industrial development income and on municipal and commonwealth taxes on real or personal property devoted to industrial development, and shall also enjoy the same exemption regarding intangible personal property, license fees, excise and other municipal taxes provided in subsection (b)(5) and in subsection (c) of this section, respectively.
(1) Every exempted business which is a special, scientific, educational or recreational facility and which has obtained the benefits of this chapter shall enjoy the following periods of exemption.
(A) If the exempted business is established in an area designated as a high industrial development zone (Zone I), the exempted business shall enjoy ten (10) years of exemption.
(B) If the exempted business is established in an area designated as an intermediate or low industrial development zone (Zone II or Zone III), the exempted business shall enjoy fifteen (15) years of exemption.
(C) If the exempted business is established in Vieques or Culebra (Zone IV), the exempted business shall enjoy twenty (20) years of exemption.
(2) Every exempted business that is a special, educational, scientific or recreational facility may request the benefits of subsection (m) of this section in accordance with the terms thereof, except that the extension shall be for a period of five (5) years and the percentage of exemption provided in paragraphs (B), (C), (D) and (E) of subsection (m)(1) of this section shall apply to the designation that the respective zones of industrial development enjoyed at the commencement of operations according to its tax exemption grant.
(h) Rules applicable to tax exemption for property devoted to industrial development. —
(1) Property previously belonging to the Commonwealth of Puerto Rico or any of its instrumentalities. — The period during which property devoted to industrial development belonged to any political subdivision, agency or instrumentality of the Commonwealth of Puerto Rico shall not be deducted from the exemption periods referred to in subsection (d) of this section, and said property shall be considered for the purposes of this chapter as if it had not been previously devoted to industrial development.
(2) Computation to determine the exemption period for property devoted to industrial development. — When the exempted business is property devoted to industrial development, the exemption periods referred to in subsection (d) of this section shall not cover those periods in 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 further in this subsection (h). Said exemption periods shall be computed on the basis of the total period during which the property was made available to an exempted business, provided the total exemption is not greater than the exemption provided under the above subsection (d) of this section, and the exempted business (property devoted to industrial development) notifies the Secretary of the Treasury, the Economic Development Administrator and the Director of the Office of Industrial Tax Exemption in writing the date on which the property is first leased to an exempted business and the date on which the property is vacated and is again occupied by another exempted business. This provision shall not apply with respect to the exemption referred to in subsection (b) of this section.
(3) Property devoted to industrial development used by an exempted business whose exemption has expired. — If the exempted business is property devoted to industrial development, the periods of exemption referred to in subsection (d) of this section shall continue their normal course, notwithstanding the fact that the exemption of the exempted business which is using said property expires before the period of exemption of the property devoted to industrial development as a result of the termination of its period of exemption or the revocation of its exemption, unless, in the case of a revocation, it is established, as provided in § 10032(d)(2) of this title, that at the time said property was made available to the exempted business, the owners thereof had knowledge of the facts that subsequently caused the revocation.
(i) Option to convert to partial tax exemption in exchange for benefits under this chapter. — An exempted business engaged in the operation of a tourist hotel or in manufacturing which has been granted a tax exemption concession under the provisions of the previous Industrial Incentive Act and which is in effect on January 1, 1978, shall have the option, by filing the corresponding sworn application with the Office of Industrial Tax Exemption, of converting its tax exemption concession to the provisions of this chapter and shall enjoy the benefits and obligations provided in this subsection. The application to exercise said option shall be made by the exempted business at any time, but no later than December 31, 1979. The exempted businesses which have been granted their tax exemption concession under the previous act after January 1, 1978, shall have the option of converting their concession to the provisions of this chapter by filing the corresponding application on or before December 31, 1979, or within the period of six (6) months after the date the concession is signed by the Governor, whichever is later.
(1) Term of conversion. — Every exempted business engaged in the operation of a tourist hotel or in manufacturing which applies for the benefits of this subsection shall enjoy a period of exemption equal to the balance of the years remaining under its original decree. When applying for the benefits of this subsection, the exempted business must indicate if it chooses the same for the taxable year corresponding to the year that includes the date of filing of the application, or if it chooses the same to commence on the first day of its next taxable year following the date of filing. Provided, That the operations of the exempted business shall be subject to the provisions of this chapter for not less than one (1) taxable year, although it may be necessary to make its effectiveness retroactive to the first day of its last taxable year of the exempted period under the original decree.
(2) Exemption with respect to industrial development income. — Every exempted business engaged in the operation of a tourist hotel or in manufacturing which applies for the benefits of this subsection shall pay taxes on its industrial development income that enjoyed full exemption under its former decree, in accordance with the following exemption percentages:
(A) If the remaining term of its converted decree is not more than four (4) years, seventy-three point three percent (73.3%) of its industrial development income shall be exempt from the payment of income taxes.
(B) If the remaining term of its converted decree is more than four (4) years, but not more than eight (8) years, seventy-seven point seven percent (77.7%) of its industrial development income shall be exempt from the payment of income taxes.
(C) If the remaining term of its converted decree is more than eight (8) years, but not more than twelve (12) years, eighty-five point five percent (85.5%) of its industrial development income shall be exempt from the payment of income taxes.
(D) If the remaining term of its converted decree is more than twelve (12) years, but not more than sixteen (16) years, ninety point zero percent (90.0%) of its industrial development income shall be exempt from the payment of income taxes.
(E) If the remaining term of its converted decree is more than sixteen (16) years, but not more than twenty (20) years, ninety-one point zero percent (91.0%) of its industrial development income shall be exempt from the payment of income taxes.
(F) If the remaining term of its converted decree is more than twenty (20) years, ninety-three point three percent (93.3%) of its industrial development income shall be exempt from the payment of income taxes.
(2a) Alternate exemption with respect to industrial development income. — Every exempted business engaged in manufacturing that applies for the benefits of this subsection and whose remaining term of its decree (from the date that it chooses for the commencement of the benefits of this subsection) is more than six (6) years shall have the option of requesting in its petition for conversion that its industrial development income, that enjoyed exemption under its original decree, be taxed in accordance with the provisions of this clause in lieu of the provisions of clause (2) of this subsection, in which case, it shall be taxed in accordance with the following provisions:
(A) Alternate exemption. — During the remaining term of its decree, the percentage resulting from the multiplication of ninety percent (90%) by the total or partial exemption previously enjoyed by the exempted business shall be exempt from the payment of income taxes.
(B) Special carry-over credit. — Every business that chooses the benefits of this clause shall have the right to carry over as a credit during future taxable years an amount equal to two thirds of the net amount of the income tax it pays as a result of the partial exemption provided in paragraph (A) of this clause as a matter of right. This credit shall be applicable against the payment of taxes and/or withholding at the source provided by §§ 10027 and 10029 of this title.
(C) Availability of extension. — Every business that chooses the benefits of this clause shall not have the vested right to request the benefits of the extension that is provided in clause (11) of this subsection and in clause (8) of subsection (m) of this section.
(D) Other provisions. — Every exempted business that requests the benefits of this option shall enjoy and be subject to all of the provisions of this subsection and of this chapter that do not conflict with the provisions set forth in this clause.
(3) Basis for determining tax rate. — The tax rate(s) prevailing as of the date the Governor signs the tax exemption conversion decree (as such rate(s) are provided in Act June 29, 1954, No. 91, as amended, or subsequent acts) shall be the basis for fixing the income tax rate during the term of the converted decree. The tax shall be computed by multiplying such individual or corporate income tax rate(s), as the case may be, by the taxable industrial development income for the years provided in clause (2) of this subsection. The taxable income shall be governed in accordance with §§ 1—430 of Act June 29, 1954, No. 91, as amended, or the law in effect as of the date the decree is signed.
(4) Basis for determining new rates in case of a previous partially-exempt decree. — In case the existing decree to be converted provides for a partial exemption for the purpose of computing the new tax rate applicable thereto, the percentage of exemption provided in clause (2) above shall be multiplied by the percent of partial exemption previously enjoyed by the exempted business, and such product shall be used to determine the income tax rates during the remaining balance of the grant, in accordance with the provisions of clause (3) of this subsection; Provided, That in case the exempted business had different partial rates in its former decree, a separate computation shall be made for each period.
(5) =it Exemption on real and personal property. — Every exempted business which requests the benefits of this subsection shall be exempted from commonwealth and municipal taxes on property devoted to industrial development in the percentages (total or partial) that it previously enjoyed under the converted decree.
(6) Other municipal taxes. — Every exempted business that applies for the benefits of this subsection shall be exempted from the license fees, excise and other municipal taxes imposed by any ordinance of any municipality in the percentages (total or partial) that it previously enjoyed under the converted decree.
(7) Rules for the distribution of accumulated earnings. — Every exempted business that applies for the benefits of this subsection may:
(A) Distribute the earnings accumulated from its industrial development income prior to January 1, 1978, which are subject to taxes in accordance with the provisions of §§ 1—430 of Act June 29, 1954, No. 91, as amended, or other commonwealth statute, by paying a tax withheld at source equal to four percent (4%) of such distribution in lieu of any other tax liability under any other applicable law, if such exempted business complies with the provisions of § 10027(h)(1) of this title with respect to the term, percentages, minimum and ways of retaining, reinvesting and distributing such industrial development income under this chapter. Provided, That the industrial development income (as that term is defined in the provisions of prior incentive and income tax laws) accumulated prior to January 1, 1973, may be distributed subject solely to the four percent (4%) tax provided in this clause, in an annual amount not greater than fifty percent (50%) of the amount of such income accumulated as of the date of the first distribution. The amounts that remain available for distribution may be accumulated in accordance to law or distributed on subsequent dates subject to the four percent (4%) tax provided in this clause.
(B) Distribute earnings earned or accumulated after January 1, 1978, in accordance with the provisions of § 10027(h) of this title.
(C) The exempted business which makes distributions of accrued benefits under the provisions of this clause shall deduct and withhold the corresponding tax, and notify and remit it to the Secretary of the Treasury, as established in Act June 29, 1954, No. 91, as amended.
(8) Carry-over credit. — Every exempted business which avails itself of the benefits of this subsection shall be entitled to carry over as a credit during future taxable years an amount equal to the sum which it pays for the four percent (4%) tax provided in clause (7) of this subsection, as well as any payment made by the exempted business after March 15, 1978, for taxes withheld on dividends from industrial development income accumulated prior to January 1, 1978, exclusively under §§ 231(a)(1)(A), 231(a)(2)(C) and §§ 13 and 15 of Act June 29, 1954, No. 91, as amended, as applicable to exempted business covered § 231(b) of Act June 29, 1954, No. 91, § 231, as amended. Such credit may be applied against the payment of any tax on the industrial development income of the exempted business that is imposed after the date chosen by the exempted business for the commencement of the benefits under this subsection, provided that the amount to be credited shall not exceed fifty percent (50%) of the amount of the payment of such taxes for the specific taxable year.
(9) Special exemption for tax on liquidation. — Every exempted business which requests the benefits of this subsection shall be exempted from the four percent (4%) liquidation tax provided in § 10029(b) of this title and from the tax withheld at source for the distribution of accumulated benefits provided in § 10027 of this title, on its industrial development income accumulated prior to January 1, 1978, distributed exclusively according to a total liquidation plan.
(10) Special provision in the case of exempted businesses with taxable industrial units. — In case an exempted business has enjoyed other tax-exemption grants for the manufacture of substantially similar products in other industrial units, which have expired at the time of their application for conversion under the provisions of this subsection, the benefits provided in this subsection shall be applicable exclusively to the grants in effect as of the date of filing of such application. Provided, That the accumulations of industrial development income of the exempted business (including those that correspond to the expired industrial unit grants) that may be distributed in total liquidation free from any tax on the exempted business or its shareholders shall enjoy the benefits provided in clauses (7), (8) and (9) of this subsection, except that the credit that is provided by clause (8) for such accumulations may be used solely and exclusively for the payment of taxes on the industrial unit income that no longer enjoys tax exemption.
(11) Extension of decree. — Every exempted business that requests the benefits of this subsection shall have the right to the extension of its decree for ten (10) additional years in accordance with the provisions of subsection (m) of this section.
(12) Application of other provisions of law. — Every exempted business that requests the benefits of this subsection shall enjoy and be subject to all of the provisions of this chapter that are not in conflict with the express provisions of this subsection.
(j) Determination of the date of commencement of operations; postponement thereof. —
(1) The date of commencement of operations referred to in this chapter shall be determined jointly by the Secretary of the Treasury and the Economic Development Administrator, or by the Governor, in the event they are unable to agree.
(2) When the exempted business has commenced its operations prior to the filing of its application for tax exemption, its period of exemption shall commence from the date it filed said application.
(3) The applicant for tax exemption, or the exempted business, shall have the option, on the date of filing its application and until its first year of exemption ends, to choose that its tax exemption period in regard to its industrial development income and/or real or personal property tax and/or license fees, excise and other municipal taxes shall commence within a period of two (2) years from the date fixed as the date of commencement of operations under this subsection, upon written notice to the Secretary of the Treasury, the Economic Development Administrator and the Director of the Office of Industrial Tax Exemption. When such choice has been made, the exemption shall begin two (2) years after the date of commencement of operations.
(A) Notwithstanding the foregoing, at any time but not later than the term prescribed by law for the filing of the income tax return for a given taxable year included in the above-stated choice, the exempted business may choose any date within said taxable year for the commencement of its exemption upon written notice to the Secretary of the Treasury, the Economic Development Administrator and the Director of the Office of Industrial Tax Exemption of the selection of such new date, which shall have the same meaning as the date of commencement of operations.
(B) Once an applicant, or the exempted business, chooses to avail itself of the provisions of this subsection, such choice shall be irrevocable, although it may waive its right to avail itself of its provisions within what would otherwise have been its first year of exemption, or choose another date during said term of two (2) years, as provided herein.
(k) Interruption of the exemption period. — In the case that an exempted business under this chapter has ceased its operations and later on wishes to resume them, the periods during which it has not been in operation shall not be deducted from the total exemption period corresponding to it, and said exempted business may enjoy the rest of its exemption period while its exemption is in force, provided the Governor determines that such cessation of operations was due to justified causes and that the reopening of such exempted business is necessary and convenient for the development of the economy and the general welfare because it will provide increased job opportunities and will produce a substantial contribution to the income of the People of Puerto Rico.
(l) Carry-over of net loss from exempt operations. — Any net loss of industrial development income of an exempted business may be carried over or deducted, up to an amount equal to the percent that such income is taxable, against its taxable industrial development income, in accordance with the provisions of Act June 29, 1954, No. 91, as amended.
(1) If upon the expiration of the exemption period of an exempted business it has a net loss carry-over from its exempt operations up to the amount of such loss that may be carried over in accordance with the provisions of this subsection, which it has been unable to absorb against the taxable industrial development income during the exemption period, said loss shall be a net operating loss to be carried over to the taxable year next following that in which the exemption expired. Should there be any balance remaining from said loss, the same may be taken as a deduction in the next taxable year and this may continue to be done with respect to any resulting balance in subsequent years, until the loss is totally taken, provided that the deduction of such loss does not extend over a period of more than five (5) years.
(2) Any net loss of an exempted business incurred in the taxable years preceding the first year of the commencement of its exemption may be carried over against the income of the last fully taxable return it files, or against taxable income of subsequent years, in accordance with law, but may not be carried over against its taxable industrial development income after its exemption period commences.
(m) Option to choose extension of partial tax exemption under this chapter. — An exempted business engaged in the operation of a tourist hotel, Puerto Rican paradores or in manufacturing that enjoys a tax exemption grant under the provisions of this chapter may request an extension of its tax exemption decree as long as this subsection is in effect by filing the corresponding sworn petition with the Industrial Tax Exemption Office, so that said exempted business may continue to enjoy the benefits and obligations provided in this chapter. The exempted business must make the application within a period of twelve (12) months which ends on the date on which its tax-exemption decree expires.
(1) Exemption with respect to industrial development income. — Every exempted business that requests the benefits of this subsection shall enjoy an additional exemption on its industrial development income for the period of ten (10) years from the date of expiration of the tax exemption grant to be extended, in accordance with the following provisions:
(A) During the first five (5) years of its extension period it shall enjoy a fifty percent (50%) exemption from industrial development income taxes.
(B) In case the exempted business should be established in a high industrial development zone during the next five (5) years, including and comprised between the sixth and the tenth years of the extension, it shall enjoy a thirty-five percent (35%) exemption from industrial development income taxes.
(C) In case the exempted business should be established in an intermediate industrial development zone during the next five (5) years, including and comprised between the sixth and the tenth years of the extension, it shall enjoy a forty percent (40%) exemption from industrial development income taxes.
(D) In case the exempted business should be established in a low industrial development zone during the next five (5) years, including and comprised between the sixth and the tenth years of the extension, it shall enjoy a forty-five percent (45%) exemption from industrial development income taxes.
(E) In case the exempted business should be located in Vieques or Culebra during the next five (5) years, including and comprised between the sixth and the tenth years of the extension, it shall enjoy a fifty percent (50%) exemption from industrial development income taxes.
(2) Basis for determining the income tax rate. — The tax rate(s) prevailing as of the date the Governor signs the extension of the tax-exemption decree (as such rate(s) are provided in Act June 29, 1954, No. 91, as amended, or subsequent acts) shall be the basis for determining the income tax rate(s) during the effectiveness of the extension of such decree. The tax shall be computed by multiplying the individual or corporate income tax rate, as the case may be, by the taxable industrial development income for the years provided in clause (1) of this subsection. The taxable income shall be governed in accordance with the provisions of such sections or the law in effect on the date the extension of the decree is signed.
(3) Exemption with respect to municipal and commonwealth taxes on real and personal property. — Every exempted business that requests the benefits of this subsection shall enjoy during the period of ten (10) years of extension, a fifty percent (50%) exemption from commonwealth and municipal taxes on the property of the exempted business devoted to industrial development.
(4) Other municipal taxes. — Every exempted business that requests the benefits of this subsection shall enjoy during the period of ten (10) years of extension, a fifty percent (50%) exemption from license fees, excise and other municipal taxes imposed by any ordinance of any municipality.
(5) Basis for determining the rate of property taxes and municipal license fees. — Property taxes, license fees, and excise and other municipal taxes for which partial exemption is provided in accordance with the provisions of clauses (3) and (4) above shall be appraised, imposed, notified and administered in accordance with the provisions of the law in effect on the date of appraisal and imposition of the tax, license fee or excise.
(6) Applicability of special conditions. — The provisions of clause (5) of subsection (n) of this section shall be applicable to this subsection, and any reference to (n) in said clause (5) shall be read as (m).
(7) Application of other provisions of law. — Every exempted business that requests the benefits of this subsection shall enjoy and be subject to all of the provisions of this chapter that are not in conflict with the provisions of this subsection.
(8) Availability of conversion benefits. — The businesses that choose the option to convert to partial tax exemption as provided in subsection (i) of this section shall have a vested right to the extension benefit provided in this subsection, which shall be deemed to have been exercised at the time of filing of the application for conversion.
(n) Option for the textile products, wearing apparel, leather and shoe industries. — Any exempted business engaged in the manufacture of textile products, wearing apparel and any other products made from fabrics and similar materials, articles made of leather or imitation leather, and the manufacture of shoes, whose tax-exemption concession pursuant to the provisions of former acts, or of this chapter, expires during the period comprised between January 1, 1978, and June 30, 1988, shall have the option, by filing the corresponding sworn application at the Office of Industrial Tax Exemption of extending its tax exemption decree so that said exempted business may continue to enjoy the benefits and obligations provided in its decree, except as otherwise provided in this subsection. The application to exercise this option shall be made by the exempted business at any time on or before the date its tax exemption decree, or extension, expires, but not later than the date prescribed by law for the filing of the last income tax return corresponding to the year in which the exemption concession to be extended would have expired.
(1) Exemption with respect to industrial development income. — Every exempted business that requests the benefits of this subsection shall enjoy, from the date of expiration of its original decree, a ninety percent (90%) exemption on its industrial development income for a period of five (5) additional years.
(2) Basis for determining income tax rate. — The tax rate(s) prevailing as of the date the Governor signs the extension of the tax-exemption decree (as such rate(s) are provided in Act June 29, 1954, No. 91, as amended, or subsequent acts) shall be the basis for determining the income tax rate during the term of the extension of said decree. The tax shall be computed by multiplying the rate(s) of individual or corporate income taxes, as the case may be, by the taxable industrial development income for the years provided in clause (1) of this subsection. The taxable income shall be governed in accordance with the provisions of said sections, or the law in effect on the date the decree is signed.
(3) Exemption on property. — Every exempted business that requests the benefits of this subsection shall be exempted from Commonwealth and municipal taxes on their property devoted to industrial development, in the percentages (total or partial) that it was previously enjoying in the decree to be extended; except that the exempted business requesting the benefits of this subsection and which has enjoyed an extension in accordance with the provisions of this chapter, shall enjoy an exemption of fifty percent (50%) of the Commonwealth and municipal taxes on real and personal property.
(4) Other municipal taxes. — Every exempted business that requests the benefits of this subsection shall be exempted from the license fees, excise or other municipal taxes imposed by any ordinance of any municipality, at the percentages (total or partial) that it was previously enjoying in the decree to be extended; except for the business which requests the benefits of this subsection and has enjoyed an extension according to the provisions of this chapter, shall enjoy a partial tax exemption of fifty percent (50%) on license fees, excise and other municipal taxes imposed by any ordinance of any municipality.
(5) Applicability of special conditions. — The exempted business, or its predecessor or successor exempted business that is in production on a commercial scale on the date on which the exempted business requests the concession of the tax benefits provided in this subsection, shall not reduce the annual production, total production, operations or employment by twenty percent (20%) or more as compared with its respective total production or average operations or employment during the respective three- (3) year periods ending at the close of the taxable year of such exempted business or predecessor or successor business, preceding the date on which the exempted business requests the concession of the tax benefits provided in this subsection, unless, due to extraordinary circumstances, such average may not be maintained.
(A) All or part of the conditions specified in clause (5) of this subsection may be met by the exempted business requesting the benefits provided in this subsection, or that is already enjoying the same, by the predecessor exempted business or businesses, by the successor exempted business or businesses, or by one or more of such exempted businesses. In those cases in which all or part of the conditions specified herein are being satisfied by the predecessor or successor exempted business or businesses or by one or more of them, the benefits provided in this subsection shall apply to that portion of the annual production, total production or operations being conducted by such predecessor or successor exempted businesses which shall enjoy such benefits with respect to that portion of their annual production, total production or operations.
(B) The Governor shall have authority to:
(i) Waive the conditions specified in clause (5) of this subsection, when he determines that this will be in the best interest of the People of Puerto Rico, in view of the nature of the physical facilities, the investment, the number of jobs involved, the total amount of the payroll and the location of the exempted business.
(ii) Allow an exempted business to consolidate with another exempted or eligible business, to split up or carry out any reorganization, if such consolidation, split or reorganization is necessary to prevent a situation which could be oppressive to such exempted business or to the group of associated exempted industries of which it forms a part. Provided, That if the exempted business is consolidated with another exempted or eligible business, splits up or carries out a reorganization and the Governor does not relieve the exempted business from the conditions required by clause (5) of this subsection, such exempted business shall make the appropriate adjustment in the annual average production, total production, average operations or employment that may be required by said clause.
(iii) The Governor shall exercise his authority to determine under what conditions the exemption may be granted, with authority, within the limits established by this chapter, to limit the term and/or the percentage and/or the taxes to be exempted, to condition the operations and the number of jobs, and to grant the same as may be necessary and convenient in benefit of the best interests of the People of Puerto Rico in consideration of the aforementioned factors.
(C) Nothing contained in this clause shall limit the authority conferred upon the Governor by other provisions of this chapter.
(o) Exemption for service unit. — When the exempted business is a service unit, as defined in § 10025(d)(9) of this title, it shall enjoy a seventy-five percent (75%) exemption during the first five (5) years, from the date of the beginning of its operations, sixty-five percent (65%) during the following five (5) years, including and comprised between the sixth and tenth year counting from the date of the beginning of its operations, fifty-five percent (55%) during the next five (5) years, including and comprised between the 11th and 15th year counting from the date of the beginning of its operations, and fifty percent (50%) during the following five (5) years including and comprised between the 16th and 20th year counting from the date of the beginning of its operations, on its industrial development income and on the municipal and state taxes on personal or real property devoted to industrial development, and shall further enjoy the same exemption with regard to intangible personal property, license fees, excise and other municipal taxes provided by clause (5) of subsection (b) and subsection (c) of this section, respectively.
Provided, That the personal property used by service units in the nature of stocks, bonds and other securities issued by domestic corporations, the stocks, bonds and other securities issued by foreign corporations belonging to juridical persons engaged in the business of investments, sale or brokerage of bonds in Puerto Rico, and those belonging to foreign entities or natural persons, shall be totally exempted.
(p) Extension of partial exemption for real and personal property devoted to the operation of tourist hotels declared exempted. — An exempted business which is a tourist hotel that enjoys a tax-exemption concession under the provisions of §§ 10012—10023 of this title, which expires during the period comprised between January 1, 1978, and December 31, 1982, may request that the benefits of its tax-exemption decree be extended partially by filing the corresponding sworn application with the Office of Tax Exemption so that said tourist hotel may enjoy a seventy-five percent (75%) exemption from the municipal and commonwealth taxes on its property devoted to industrial development during an additional period of five (5) years, from the expiration of the tax-exemption decree to be extended. The application to choose this benefit shall be made by the exempted business within the twelve (12) month period that ends on the date prescribed by law for the filing of the last income tax return corresponding to the year in which such tax-exemption concession would have expired.
History —June 2, 1978, No. 26, p. 55, § 3; July 20, 1979, No. 176, p. 460, § 2; Apr. 8, 1983, No. 18, p. 26, § 1; June 3, 1983, No. 58, p. 126, § 3; May 29, 1984, No. 31, p. 67.