Manufacturing Incentives in Puerto Rico: Key Benefits and Requirements

Puerto Rico’s Incentives Code (Act 60-2019) provides a comprehensive framework to attract manufacturing businesses and promote economic development on the island. The Code offers strategic tax benefits, operational incentives, and infrastructure support to make Puerto Rico a competitive destination for manufacturing investments. This article explains the key manufacturing incentives under Act 60-2019 and how businesses can benefit from them. For information on general information rights for tax decree holders in Puerto Rico visit our published article Bill of Rights for Decree Holders in Puerto Rico: Key Protections and Benefits.

Strategic Tax Benefits for Manufacturing

Under Act 60-2019, eligible manufacturing businesses can qualify for a fixed income tax rate of 4% on industrial development income. This preferential rate applies to income derived from manufacturing activities conducted within Puerto Rico, including production, assembly, processing, and packaging of goods. The incentives are designed to enhance Puerto Rico's competitiveness in the global manufacturing sector. The benefit is comprable to the one for export of services and goods.

Municipal and Property Tax Exemptions

Manufacturing businesses with an approved tax exemption decree are eligible for up to 75% exemption on municipal and property taxes, including:

• Municipal License Tax: 75% exemption from the tax imposed by municipalities on gross income.

• Real and Personal Property Tax: 75% exemption on taxes related to manufacturing equipment, facilities, and other business assets. This includes:

• Municipal License Tax: 75% exemption from the tax imposed by municipalities on gross income.

• Real and Personal Property Tax: 75% exemption on taxes related to manufacturing equipment, facilities, and other business assets.

These exemptions reduce the operational costs for manufacturers, improving profitability and encouraging reinvestment in local operations.

Import and Export Incentives

Act 60-2019 provides incentives for both importing raw materials and exporting manufactured goods:

• Import Tax Exemptions: Manufacturing businesses are exempt from paying import duties on raw materials and machinery used in the manufacturing process.

• Export Incentives: Income generated from exporting manufactured goods qualifies for the 4% industrial development income tax rate.

This framework positions Puerto Rico as a key player in the global supply chain by lowering the cost of importing and increasing profitability from exports.

Job Creation and Training Incentives

To encourage local employment, manufacturing businesses that create jobs in Puerto Rico may qualify for additional benefits:

• Employee Training Grants: The Puerto Rico Department of Economic Development and Commerce (DEDC) offers grants and subsidies for employee training and workforce development.

• Job Creation Tax Credits: Businesses that create a minimum number of full-time jobs are eligible for tax credits based on the number of positions created and the wages paid.

These incentives are designed to strengthen the local labor market and ensure that manufacturing businesses have access to a skilled workforce.

Energy and Infrastructure Incentives

Manufacturing businesses that invest in infrastructure and renewable energy projects can qualify for additional incentives:

• Energy Efficiency Grants: Businesses that adopt energy-efficient practices and renewable energy sources are eligible for grants and tax credits.

• Infrastructure Investment Credits: Capital investments in manufacturing facilities and infrastructure improvements may qualify for additional tax credits.

These incentives reduce operational costs and enhance the long-term sustainability of manufacturing businesses.

Duration and Renewal of Tax Exemption Decrees

Manufacturing businesses can secure a tax exemption decree for an initial period of 15 years. The decree can be renewed for an additional 15 years if the business remains compliant with the terms and conditions of the Incentives Code. This long-term certainty encourages sustained investment and operational stability.

Priority for Strategic Sectors

The Puerto Rico government prioritizes manufacturing activities in strategic sectors, including:

• Pharmaceuticals and Medical Devices

• Electronics and Aerospace

• Biotechnology and Life Sciences

• Food Processing and Packaging

Manufacturing under Act 60-2019 covers both traditional industries, such as medical device production and pharmaceuticals, and more modern sectors, including software development and application creation. Additionally, it includes less obvious industries, such as certain food processing activities, which benefit from the same tax and operational incentives as other manufacturing fields.

Businesses operating in these high-priority sectors may receive expedited processing and enhanced incentives.

The Puerto Rico government prioritizes manufacturing activities in strategic sectors, including:

• Pharmaceuticals and Medical Devices

• Electronics and Aerospace

• Biotechnology and Life Sciences

• Food Processing and Packaging

Businesses operating in these high-priority sectors may receive expedited processing and enhanced incentives.

Compliance and Reporting Requirements

Manufacturing businesses must comply with all terms and conditions outlined in the tax exemption decree. This includes:

• Filing annual reports with the DEDC.

• Maintaining job creation and capital investment commitments.

• Demonstrating compliance with environmental and safety regulations.

Non-compliance may result in the suspension or revocation of the tax exemption decree.

Conclusion

Manufacturing incentives under Act 60-2019 position Puerto Rico as a competitive destination for manufacturing businesses. The combination of strategic tax benefits, operational incentives, and infrastructure support creates a favorable business environment for long-term growth. Maximize your tax benefits—schedule a consultation today for expert guidance on securing a tax exemption decree and navigating Puerto Rico's manufacturing incentives.