P.R. Laws tit. 13, § 10107
(a) Renegotiation of decrees in effect. —
(1) Any exempted business may request that the Secretary of State consider renegotiating its grant in effect if said exempted business is able to show that it will increase the average employment it has had during the past three (3) taxable years prior to the date of filing the request, by twenty-five percent (25%) or more; or that it will make a substantial investment in its existing operation to help maintain the economic and job stability of the industrial unit, which represents an increase of twenty-five percent (25%) or more in the investment of property intended for industrial development in existence on the effective date of this act. If the exempted business shows to the satisfaction of the Secretary of State that it is unable to meet the requirement of increasing the average number of jobs or investment described above, the exempted business shall submit the pertinent evidence to the Tax Exemption Office. The Secretary of State, after favorable recommendation of the Secretary of the Treasury and the Administrator, and after the recommendation of the agencies that issue tax exemption reports, may, at his/her discretion, consider the renegotiation, taking into account any other factor or circumstance that will reasonably show that the renegotiation of the decree will be for the best social and economic interests of Puerto Rico.
For the purposes of this section, the number of jobs of an exempted business shall consist of the number of individuals residing in Puerto Rico who work at least twenty (20) hours a week in the exempted business as employees, even if they are not directly on the payroll of the exempted business (such as persons working under personnel leasing contracts, but not including persons such as consultants or independent contractors).
For the purposes of this section, the investment of the exempted business in its existing operation shall be computed according to the book value of the property intended for industrial development, computed with the benefit of the allowable depreciation under the straight-line depreciation method, taking into account the user life of said property determined according to Subtitle A of the Puerto Rico Internal Revenue Code in lieu of any other accelerated depreciation allowed by law.
In agreeing to the requested renegotiation, the Secretary of State, after recommendation of the agencies that issue reports on tax exemption, shall take into account the number of jobs of the exempted business, the place in which it is located, investment and additional jobs, as well as the remaining term of its decree, the tax benefits already enjoyed and its financial capacity, so that the exempted business may obtain a new decree with tax benefits adjusted under this part.
The Secretary of State shall establish the terms and conditions he/she deems necessary and convenient for the best interests of Puerto Rico, within the limits provided for by this part, and may, at his/her discretion, after recommendation of the agencies that issue reports on tax exemption, impose special job requirements, limit the term and percentage of the exemption, limit the taxes to be exempted, levy a fixed tax rate on industrial development income higher than that provided in § 10102(a) of this title, and require and provide any other term or condition needed for the industrial and economic development purposes proposed in this part.
When the exempted business fails to meet the requirements of an increase in jobs or investments provided in this subsection, the Secretary of State, after the favorable recommendation of the Secretary of the Treasury and the Administrator and the agencies that issue reports on tax exemption, may levy a fixed tax rate on industrial development income greater than that levied in § 10102 of this title, for up to a maximum of ten percent (10%).
The Secretary of State may not grant a fixed tax rate on industrial development income under this subsection that is less than seven percent (7%) without the approval of the Secretary of the Treasury. In no case may a fixed rate be granted which is less than two percent (2%) on the industrial development income.
(2) Except in the case of those businesses described in § 10102(a)(2) of this title, the fixed rate provided in clause (1) of this subsection shall be applicable only with respect to annual industrial development income computed under this part, excluding such income from the investments described in § 10101(j) of this title which exceeds the base period income.
For the purposes of this clause, “base period income” means the highest amount resulting from a comparison between the industrial development income for the last taxable year prior to the date of the application for renegotiation, but excluding income earned from the investments described in § 10101(j) of this title, and the average annual industrial development income computed under the applicable law to the decree issued under preceding laws for the three (3) taxable years with greater industrial development income, excluding the income from the investments described in § 10101(j) of this title, of the five (5) taxable years prior to the date of the renegotiation application under this section, or the shorter applicable period. In the case of exempted businesses that have been in operation for a period of three (3) years or less as of the date of the renegotiation application, the base period income shall be the annual average industrial development income (excluding the income from the investments described in § 10101(j) of this title) earned during said period, computed under the law that applies to the previous decree.
An amount equal to the base period income shall be taxable each taxable year under the provisions of the decree issued under the preceding law, renegotiated under this subsection, including, but not limited to, the tax on distributions of industrial development dividends or profits, and the liquidation tax that applies under said preceding law, for the remainder of the exemption period of the previous renegotiated decree provided that the industrial development income (excluding income from the investments described in § 10101(j) of this title) for the taxable year computed under this part is greater than the base period income. If the industrial development income (excluding the income from the investments described in § 10101(j) of this title) for any taxable year computed under this part is less than the base period income, the industrial development income (excluding income from the investments described in § 10101(j) of this title) shall be computed for said year pursuant to the provisions of the law under which the previous renegotiated decree was approved, and this amount shall be taxed under the provisions of the preceding law, provided that it does not exceed the base period income.
The industrial development income from the investments described in § 10101(j) of this title (“2(j) income”) shall also be subject to the provisions of the preceding law that apply to the decree renegotiated under this subsection for the remainder of the exemption period of the renegotiated previous decree for up to an amount that shall not exceed the 2(j) income of the base period, including, but not limited to the tax on distributions of industrial development dividends or profits and the liquidation tax applicable to the distributions of said 2(j) income.
For the purposes of this clause, “2(j) income of the base period” means the annual average industrial development income from the investments described in § 10101(j) of this title that applies to the decree issued under preceding laws, for the three (3) taxable years with the highest income from said 2(j) investments, of the five (5) taxable years prior to the date of the renegotiation application under this section, of the shortest applicable period. In the case of exempted businesses that have been operating for a period of three (3) years or less on the date of the renegotiation application, the 2(j) income of the base period shall be the annual average income earned from said 2(j) investments during said period, computed under the law that applies to the previous decree.
If upon the date of the renegotiation application, the exempted business had an option in effect under § 10041 of this title, or if the investment income described in § 10101(j) of the preceding applicable law was subject to taxation on said income, for the purposes of this clause, the 2(j) income, up to an amount that shall not exceed the 2(j) income of the base period, shall be subject (for the remainder of the exemption period of the previous renegotiated decree) to the rate that applies to the base period income under the previous applicable law, and said 2(j) income, as well as the base period income, shall not be subject to the tax on distributions of industrial development dividends or profits to the liquidation tax, as provided in § 10041 of this title, or as provided in the previous renegotiated decree.
Once the exemption period under the previous decree expires, the fixed rate provided in clause (1) of this subsection shall apply to all industrial development income earned by the exempted business, excluding income from the investments described in § 10101(j) of this title, which shall be fully exempted from taxes.
(3) Exempted businesses that renegotiate their decree under the provisions of this subsection and which on the renegotiation date were operating under §§ 10012—10052 of this title may distribute the profits obtained before the effectiveness of the renegotiation at any later date, but such distributions shall be made according to the tax treatment provided in the decree granted by each of said laws under which said profits were obtained.
(4) Exempted businesses that renegotiate their decrees under this subsection shall be taxed on total liquidation with regard to their industrial development income, according to the tax treatment provided in each of the laws under which said profits were obtained.
(5) The remaining terms, conditions and benefits contained in this part which are not in contravention of the provisions of this subsection shall apply to the exempted businesses covered thereby.
(b) Conversion of businesses exempted under preceding laws. — Any of the following businesses exempted under preceding laws may apply to avail themselves of the provisions of this part, subject to the limitations provided below, provided they show that they comply with all the applicable legal provisions.
(1) Exempted businesses that have not commenced operations as of the effective date of this part may request that these be converted for the remainder of the term granted originally, in which case their exemption shall be adjusted as provided in §§ 10102 and 10105 of this title.
(2) Exempted businesses whose decrees were granted on or after August 25, 1997, and have not been enjoying the exemption before said date, except under said decrees, may request that these be converted for the remainder of the term granted originally, in which case their exemption shall be adjusted as provided in §§ 10102 and 10105 of this title.
(3) The Secretary of State, after the recommendation of the agencies that issue reports on tax exemption, when considering any conversion application under this subsection, shall establish the terms and conditions that he/she deems necessary and convenient for the best interests of Puerto Rico, within the limits provided by this part, impose special job requirements, and/or limit the percentage of the exemption and the taxes to be covered under the decree, provide a fixed tax rate on industrial development income higher than that provided in § 10102(a) of this title (but never higher than ten percent (10%)), and/or require and provide any other term or condition necessary and convenient for the purposes of this part.
(4) Exempted businesses that convert their decrees under the provisions of this subsection, and that have been operating under §§ 10038—10052 of this title, as of the effective date of the conversion, may distribute the profits obtained before the effective date of the conversion at any later date, but said distributions shall be made according to the tax treatment provided in the law under which said profits were obtained.
(5) Exempted businesses that avail themselves of the provisions of this subsection shall be taxed on their total liquidation with regard to their industrial development income, according to the tax treatment provided in each of the laws under which said profits were obtained.
(6) The benefits of this subsection may be applied for within twelve (12) months from the date of approval of this act and the effectiveness of its provisions may be fixed from the first day of the taxable year in which they are applied for, but never before January 1, 1998, and until the first day of the next taxable year, at the option of the exempted business.
(7) The remaining terms, conditions and benefits contained in this part which are not in contravention of the provisions of this subsection shall be applicable to the exempted businesses covered thereby.
(c) Extension of tax exemption. — Any exempted business may apply for an extension of its decree for ten (10) additional years under the provisions of this subsection. The application shall be made within eighteen (18) months ending on the date prescribed by law for filing the last income tax return corresponding to the year in which the decree would expire. The same shall include such information, data and evidence showing that it has met and shall continue to meet all applicable legal provisions, including the terms and conditions of its decree.
(1) Any exempted business that has availed itself of this provision, except those exempted businesses described in § 10102(a)(2) of this title, shall pay a fixed tax rate on their industrial development income of ten percent (10%) for the term of the extension provided by this subsection in lieu of any other tax levied by law. Exempted businesses described in § 10102(a)(2) of this title shall be subject to a fixed tax rate on industrial development income of five percent (5%) for the term of the extension provided in this subsection. However, income derived from the investments described in § 10101(j) of this title shall continue to be fully exempt for the exemption period provided in this subsection. Distributions of industrial development dividends or profits obtained during the term provided in this subsection shall not be subject to income taxes.
(2) Any exempted business that has availed itself of this provision, except those exempted businesses described in § 10102(a)(2) of this title, shall enjoy a fifty percent (50%) exemption on the corresponding real and personal property taxes, as well as on municipal license taxes, municipal excises, and other municipal taxes. Exempted businesses described in § 10102(a)(2) of this title shall enjoy a seventy-five percent (75%) exemption on the corresponding real and personal property taxes, as well as on municipal licenses, municipal excises, and other municipal taxes. The municipal license tax rate that applies during the term of the extension provided in this clause shall be the rate in effect as of the date the original decree was signed.
(3) An exempted business that avails itself of this provision shall maintain an average number of jobs equal to not less than eighty percent (80%) of the average number of jobs for the three (3) taxable years prior to the extension of the decree under this subsection. This requirement shall also be extended to the successor business of the exempted business.
The Secretary of State may adjust, waive or change the average employment condition after consultation with the Secretary of the Treasury and the Administrator when the exempted business that avails itself of this provision is reasonably able to show that there are extraordinary circumstances to adjust, waive or change the same.
(4) Exempted businesses that have availed themselves of the provisions of this subsection and that on the effective date of the extension period have been operating under §§ 10038—10052 of this title, §§ 10024—10037 of this title, or §§ 10012—10023 of this title, shall distribute the profits obtained prior to the effective date of the extension period at any later time, but such distributions shall be made according to the tax treatment provided in each of said laws under which said profits were obtained.
(5) Exempted businesses that have availed themselves of the provisions of this subsection shall be taxed on total liquidation with regard to their industrial development income according to the tax treatment provided in each of the laws under which said profits were obtained.
(6) The provisions of this subsection may be extended for ten (10) additional years if the Secretary of State, after recommendation of the Secretary of the Treasury and the Administrator, determines that said extension is necessary and convenient for the social and economic advancement of Puerto Rico.
(7) The remaining terms and conditions in this part that are not in contravention of the provisions of this subsection shall apply to the exempted businesses covered thereby.
History —Dec. 2, 1997, No. 135, § 8, eff. Jan. 1, 1998.