Cash Grants Available under Act 60-2019

Puerto Rico continues to be recognized around the world for its tax incentives program for businesses.  Companies in many different industries operate in Puerto Rico at reduced tax rates under tax incentives grants issued by the Department of Economic Development and Commerce (the “DEDC”). This tax incentives program has been a powerful tool that continues to modernize and fuel Puerto Rico’s economic development.

However, many businesses are not aware that in addition to tax incentives grants, the DEDC also offers cash grants under Act 60-2019, as amended (“Act 60”), the statute that codifies all of Puerto Rico’s tax incentives.  Most cash incentives are available only to businesses that operate in Puerto Rico under a tax incentives grant, but some are available to businesses that do not qualify for or hold a tax incentives grant.  In response to interest in these incentives, this Tax Alert provides a summary of the principal cash incentives currently available through the DEDC under Act 60.

Cash Incentives Available only to Businesses that Hold a Tax Incentives Grant

• Monetizable Research & Development Tax Credit

This incentive consists of an income tax credit of up to 50% of qualifying costs incurred in research and development (“R&D”) activities carried out in Puerto Rico. The R&D must be funded by the company and does not apply to R&D provided as a service for pay. To generate the R&D credit, the business must file an application and the DEDC will issue a certificate accrediting the investment as eligible (the “Accredited Certificate”).  The certified credit must be claimed in two or more installments. Up to fifty percent (50%) of the credit can be claimed in the taxable year in which the DDEC issues the Accredited Certificate, and the remaining balance can be used in subsequent taxable years until exhausted.  This credit is monetizable because it can be sold in a very active credit market. 

• Cash Incentive for Job Creation and Retention

The DEDC offers cash for the creation and retention of jobs in Puerto Rico based on the geographic location of the business, the number of jobs created, unemployment, and a return on investment. The amount of cash awarded varies. The business must maintain active operations for at least three (3) years and comply with the creation and retention of the committed jobs during this period. Cash is disbursed each year as jobs are created and retained.

• Cash Incentive for PRIDCO Building Improvements

Businesses that lease buildings from PRIDCO, a division of the DEDC, can obtain cash to improve these facilities for use in their operations.  To qualify, the business must present a cost estimate and must have obtained the construction permits. The business also must present three (3) fee quotes for the project. The cash is awarded when the company completes the project and submits invoices to the DEDC for the expenses incurred.

• Cash Incentive to Strengthen Innovative PYMES

This incentive is available to kick start small businesses (“PYMEs”) that engage in R&D and seek to commercialize internationally their innovation in the areas of science or technology. To qualify, a PYME’s annual gross sales must be under $3 million.  The business must operate in strategic sectors, such as advanced manufacturing, aerospace, pharma, biotech, medical devices, environmental sciences, energy, or technology. The operations, R&D activities, and commercial implementation of the resulting R&D must be conducted in Puerto Rico. The maximum amount of cash awarded to a business is $200,000.  The funds can be used to pay for payroll, rent, marketing expenses, utilities, and the purchase of machinery and equipment (“M&E”).

Cash Incentives Available to Businesses even if they Do Not Hold or Qualify for a Tax Incentives Grant

• Cash Incentive to Purchase M&E

A business that qualifies for or holds a tax incentives grant can obtain a reimbursement of up to fifty percent (50%) of the total costs incurred to purchase M&E for its operations.  To obtain the cash, the business must have purchased and installed the M&E and provide the DEDC invoices as evidence.

PYMEs that do not qualify for or hold a tax incentives grant qualify for a maximum cash amount of $50,000.

• Transportation Incentive

Cash is available to businesses with annual sales of $20 million or less to assist them in exporting products manufactured in Puerto Rico. The cash is awarded upon the presentation of fee quotes to cover transportation costs and logistics. A business operating with a tax incentive grant can obtain a maximum cash incentive of $50,000.  A business that does not qualify for a tax incentives grant can obtain a maximum cash amount of $10,000.  The incentive is available during an eighteen-month period.

• Marketing Incentive

Businesses that want to market products or services within and/or outside Puerto Rico can obtain a cash marketing incentive. The qualifying expenditures include advertising in all types of media, signs, shoppers, promotional activities, marketing studies, and promotional material. Cash is disbursed as expenditures are incurred. A business engaged in eligible Act 60 activities qualifies if its annual sales do not exceed $10 million. The business can obtain 50% of marketing costs up to a maximum cash amount of $50,000. A business that does not qualify for a tax incentives grant can obtain the incentive if its annual sales are $3 million or less.  The business can obtain 50% of marketing costs up to a maximum cash amount of $10,000.  Cash is available during an eighteen-month period.

• Seed Capital for PYMEs

PYMEs with annual gross income of $3 million or less that are not eligible for a tax incentives grant can obtain a maximum seed capital cash incentive of $15,000, subject to compliance with certain requirements. Cash is awarded upfront, and can be used to acquire M&E, pay for rent, and infrastructure improvements.

Applying for Cash Incentives

Businesses must separately apply for each of these incentives using specific applications provided by the DEDC and filed electronically.  To determine eligibility, the application is reviewed by a DEDC committee with expertise in the industry.  The Secretary of the DEDC makes the final determination, which is notified to the business via email.  The business is required to accept the terms of the offer in writing, and the DEDC then prepares a cash incentives contract that must be signed by the business and the DEDC.

The content of this McV Alert has been prepared for information purposes only. It is not intended as, and does not constitute, either legal advice or solicitation of any prospective client. An attorney-client relationship with McConnell Valdés LLC cannot be formed by reading or responding to this McV Alert. Such a relationship may be formed only by express agreement with McConnell Valdés LLC.