New Tax Incentives for Urban Development Projects in Puerto Rico: Maximize Your Investment Opportunities

Introduction

Urban development in Puerto Rico has entered a new era of opportunity. With the signing of House Bill 2172, Governor Pedro Pierluisi has introduced the Eligible Urban Center Investment category under the Incentives Code (Law 60-2019). This new law offers substantial tax benefits to incentivize developers and investors to revitalize urban areas.

If you're looking to expand your portfolio or take advantage of lucrative tax benefits, this program is designed to lower costs and maximize returns for urban redevelopment projects. Here's everything you need to know.

Key Benefits of the Incentive Program

The Eligible Urban Center Investment category provides four powerful tax advantages for qualifying urban development projects:

1. Preferential 4% Tax Rate

   • Income generated from the sale or lease of qualified urban projects will be taxed at a reduced rate of just 4%, providing significant tax savings.

2. Dividend Exemptions

   • Shareholders and partners in corporations will not pay income taxes on dividends or profit distributions derived from exempt income, keeping more money in their pockets.

3. 75% Municipal Tax Exemption

   • Developers can benefit from a substantial reduction in municipal taxes, easing financial burdens and making projects more cost-effective.

4. 40% Transferable Tax Credit

   • A tax credit equal to 40% of the project's costs can be used to offset tax liabilities or sold to third parties, providing liquidity and financial flexibility.

These benefits create a favorable environment for investment in Puerto Rico’s urban centers, making redevelopment projects more financially viable than ever.

Qualifying Criteria for Projects

To qualify for these incentives, urban development projects must meet specific requirements, including:

1. Minimum Project Cost

   • The total cost of the project must exceed $1 million, excluding property acquisition expenses.

2. Location on Abandoned Properties

   • Eligible projects must be developed on properties classified as abandoned, including land or structures that are:

     • Unoccupied or in disuse.

     • Experiencing significant structural defects or requiring substantial redevelopment.

3. Creation of Residential Units

   • Each project must enable the creation of at least seven residential units, contributing to Puerto Rico’s housing market.

4. Affordable Housing Cap

   • The sale price of individual units cannot exceed $750,000, ensuring affordability within the urban centers.

By meeting these criteria, developers can take advantage of the substantial tax incentives offered by this program.

Why This Incentive Matters

The Eligible Urban Center Investment category represents a strategic initiative to revitalize Puerto Rico’s urban areas, making it an attractive opportunity for both local and international investors.

Economic Impact

This program encourages private investment in previously neglected urban areas, boosting local economies, creating jobs, and generating municipal revenues.

Housing Development

With its focus on residential projects, the incentive directly addresses Puerto Rico’s housing challenges by converting abandoned properties into functional living spaces.

Financial Advantages

The combination of tax savings, credits, and exemptions ensures that developers can maximize returns on investment while reducing costs.

How MZLS Can Help You Maximize These Benefits

Navigating government-backed incentive programs can be complex. At MZLS, we specialize in helping investors and developers leverage opportunities like the Eligible Urban Center Investment program.

Our services include:

• Assessing Project Eligibility

  We’ll evaluate your project to ensure it meets the program’s criteria.

• Structuring for Maximum Benefits

  We’ll help structure your project to optimize tax savings and credits.

• Compliance Assistance

  We’ll ensure all documentation, applications, and agreements comply with government requirements.

Whether you’re launching a new development or adapting an existing project to qualify, our experienced legal team will guide you every step of the way.

FAQs on the Eligible Urban Center Investment Program

Q: What types of properties qualify as "abandoned"? A: Properties are classified as abandoned if they are unoccupied, in disuse, or have structural defects that require redevelopment.

Q: Can I sell tax credits under this program? A: Yes, the 40% tax credit is transferable, meaning developers can sell these credits to third parties, enhancing liquidity.

Q: How do I ensure my project complies with the program’s requirements? A: MZLS can assist with compliance by reviewing project documentation and ensuring adherence to the law's provisions.

Contact MZLS for Expert Guidance

The new tax incentives for urban development in Puerto Rico offer an unprecedented opportunity to revitalize abandoned areas while enjoying substantial financial benefits. At MZLS, we have the expertise to help you navigate these incentives and optimize your investments.

Contact us today to schedule a consultation. Let us help you transform your vision into reality while taking full advantage of Puerto Rico’s new urban development incentives.