Puerto Rico enacts opportunity zones development law



Puerto Rico’s governor Ricardo Rosselló Nevares has signed the Act for the Development of Opportunity Zones for Economic Development into law, and which establishes the tax, regulatory and economic framework for the development of opportunity zones in the US territory. 

The law, known as Act 21-2019, is intended to serve as Puerto Rico’s equivalent to the federal opportunity zones created under the US’ Tax Cuts and Jobs Act of 2017, and which provides tax incentives for qualified opportunity funds that invest in priority projects within the qualified opportunity zones designated for Puerto Rico under the US Internal Revenue Code, according to Puerto Rico-based law firm McConnell Valdés.



Under the law, qualified opportunity funds investing in Puerto Rico will enjoy a flat income tax rate of 18.5 per cent on the net income from an exempt business, which is defined as conducting the entirety of its business within the qualified opportunity zone, is not eligible for a tax incentive under any other tax incentives law, is managed by a qualified opportunity fund or an entity in which its, and is engaged in an activity considered to be a priority project.



A priority project is defined broadly as an industry or business, or other revenue generating activity, which contributes to the diversification, recovery or social and economic transformation of the eligible zone’s community. 


In addition, qualified opportunity funds also enjoy a 100 per cent tax exemption for dividends from an exempt business, a 25 per cent property tax exemption, which could be raised to up to 75 per cent, and a 25 per cent municipal licence and municipal construction tax exemption, which could be increased to a maximum of 75 per cent.



Investors also enjoy a 100 per cent tax exemption for interest earned on bonds or loans of the exempt business and projects, as well as agile procedure for the evaluation and issuance of permits for the exempt business and projects.



Puerto Rico-based Investors, either as individuals or entities, enjoy tax free treatment in dividends received from an exempt business, and tax deferral on capital gains from the sale or exchange of capital assets, if an amount equal to the capital gain realised from said sale or exchange is invested in a qualified opportunity fund.