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Fiddler González & Rodríguez, P.S.C., P.O. Box 363507, San Juan, PR 00936-3507.
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Myrna Y. Medina-Massanet
*Special Tax Counsel
Vol. 2016, No.1 August 26, 2016
Tax Incentives Benefits Exemption Extended to Shipping MRO Business
Act 79 signed into law by the Governor of Puerto Rico on July 22, 2016 extends the tax benefits provided by the 2008 Economic Incentives for the Development of Puerto Rico Act (Act 73-2008) to the Maintenance, Repair and Overhaul (MRO) of maritime vessels.
Act 32-2014, which amended Act 73-2008, already provided tax exemption to the airline MRO industry which was mainly approved at that time to attract Lufthansa to open an MRO facility currently operating in Aguadilla, Puerto Rico.
Act 79 is effective on the date of its approval.
Use of Film Tax Credits Expanded
Act 92, enacted by the Governor on July 29, 2016 immediately expands the use of tax credits issued under the 2011 Film Industry Economic Incentives Act by providing that tax credits issued under said Act can be claimed by taxpayers against the tax liability generated by special legislation, such as other tax incentives.
This amendment makes film tax credits more marketable and attractive since the same can now be applied against income taxes generated under the PRIRC, special legislation, or a combination of both.
Tourism Tax Incentives Increased
Act 137-2016 enacted on August 6, 2016, establishes the 2016 Tourism Industry Financial Support Act, which creates an Investment and Recovery Tourism Industry Program.
Among the amendments to the 2010 PR Tourism Development Act contained in this law are changes in the definition of total project cost to include mix use developments, such as residential, hotel and commercial space buildings as long as at least 70% of the total project area is touristic in nature, excluding common areas.
This new definition is applicable for purposes of the new alternative tax credits created by this law which we explain in following paragraphs.
In the alternative tax credits provided for tourism investments, the exempt business rather than the investor is the qualifying party and the business will opt for one of the two tax credit alternatives which are:
1. Forty percent (40%) of the eligible investment made after the effective date this bill is enacted to be claimed in three (3) equal installments, starting in the year subsequent to the year in which business was commenced and the balance in the following two tax years, or
2. Thirty percent (30%) of the eligiblen investment made after the law is effective, of which 10% can be claimed in the year of receiving the necessary financing for the hotel and the balance in three consecutive subsequent years starting with the year in which the exempt business receives their first paying guest.
Both of the alternative tax credits can be claimed against income taxes imposed under our PR Internal Revenue Code or various incentive laws, such as the 2008 Economic Incentives for the Development of Puerto Rico Act.
This alternative credits, which are expected to foster tourism projects financed by private banks, can also be ceded, sold or transferred subject to certain limitations.
Tax Incentives Exemption Benefits Clarified as to Intellectual Property Development and Extended to Transit-Oriented Developments
Act 130 of August 5, 2016, extends the definition of eligible business under the 2008 Economic Incentives for the Development of Puerto Rico Act (Act 73-2008) to the construction of low income housing for rental purposes, related services and infrastructure in areas adjacent to mass transportation systems (“transit-oriented developments”) by adding these activities to the list of strategic projects that constitute eligible business under the Act 73-2008.
Act 130 also clarifies that the development of software programs and applications that are licensed or subject to patent and that can be reproduced on a commercial scale qualifies as an eligible business provided the following attributes are met:
(1) The user interacts with the program to perform valuable tasks, and (2) the business models may involve (a) the distribution in physical, web or cloud mode, and (b) the income is derived from licensing, subscriptions to the program and/or service charge.
The following tasks do not add value and are not eligible according to this law:
1. Web Data publishing companies and their search engines
2. Companies who use technology to render a service but do not have the necessary human resources to develop new products
3. Companies whose primary income is from advertising and marketing
4. Programs that lack a methodology to perform a task
5. Programs that include gambling where the income comes from a bet
The amendment also designates this activity as an eligible investment if done by a small or medium size business and its generated tax credits are not subject to recapture.
Tourism Tax Incentives Amplified to Cover B&B and Posadas Program Lodgings
Act 136-2016, enacted August 5, 2016, amends the definition of Tourist Activity under the 2010 Tourism Development Act (2010 TDA) to include lodgings that are included in the Posadas de Puerto Rico program and those certified as Bed and Breakfast (B&B). Certain existing businesses, such as B&B and small and medium size lodgings of up to 25 rooms, may now request tax exemption under the 2010 TDA without expanding or renovating their facilities, if the application is filed within a year of this Act’s enactment.
Act 136 also increases the tax credit for Eco touristic and sustainable facilities from the lower of 10% of total project cost or 50% of cash invested to the lower of 20% of total project cost or 60% of the eligible investment.
Finally, this law amends the Room Tax Act to establish that the room tax rate for B&B and those in the Posadas Program will be 7%.
Tax Court” Created in Puerto Rico
Act 123-2016 enacted on August 5, 2016 amends the Puerto Rico Judiciary Act of 2003 to establish a courtroom specialized in handling tax matters and economic crimes to be part of the Superior Court of San Juan.
This courtroom will handle tax controversies in civil cases that arise of any law that imposes any type of tax in favor of the Commonwealth of Puerto Rico, its instrumentalities and subdivisions and any special law that grants tax credits or tax exemption.
Additionally, Act 123 will handle economic crimes that arise under the 2011 PR Internal Revenue Code or special laws such as the Bank Act and the Uniform Securities Act.
This Act will be effective on November 3, 2016 or ninety (90) days after its enactment.
CRIM Legislation Approved
Act 180, enacted August 17, 2016, amends the 1991 Property Tax Act to, among other things, allow for the electronic notification of real property taxes, including changes in assessed values.
The Act also allows the CRIM sixty (60) extra days to review administrative assessment revision requests beyond the normal sixty (60) days when the CRIM needs the additional time to perform said review.
Act 180 also adds a new Article 3.52 to Act 83-1991 to deal with administrative and judicial credit and refund requests. Among other areas, Article 3.52 states that the First Instance Court cannot consider a refund or credit claim, unless the CRIM has denied the claim and has properly notified said denial by certified or electronic mail.
Finally, Act 83-1991 is amended to formally allow the CRIM to enter into written offers in compromise and to implement the filing of all personal property tax returns by electronic means and orders the CRIM to implement an orientation campaign of at least 120 days to start no later than 90 days after the approval of this law.
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**©2014 Fiddler, González & Rodríguez, P.S.C. This Watch has been prepared by Fiddler, González & Rodríguez, P.S.C. for informational purposes only and does not constitute legal advice. This information does not create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. Fiddler, González & Rodríguez, P.S.C. and its members assume no responsibility to inform you of additional changes in law or any other legal issues related to the matters advised in this e-mail.