One of the main hurdles when starting a business is money. While the amount of money you need varies from venture to venture, odds are that if you are reading this blog post you are either between the ages of 18-35 or you are a creative person. That is why in this blog post, I will share with you 5 tax incentives you should know about when starting your business.
1. Act No. 135-2014, “Young Entrepreneurs Incentive and Financing Act.”
The purpose of Act 135 is to promote the retention of Puerto Rican talent and foster the return of young professionals who have left the Island.
What are the incentives under Act 135?
- Income tax exemption for individuals between the ages of 16-26 for the first $40,000 of gross income earned, be it as wages, rendered services, and/or self-employment.
- Full income, municipal license, and personal property tax exemption for the first $500,000 of gross income earned during the first 3 years of operation of any new business established by individuals between the ages of 16-35.
- Financing program that allows for the refinancing of student loans used to obtain the training, specialty, and skills required to establish or operate a business.
- Venture Capital Investment program with the Economic Development Bank of Puerto Rico.
How can you benefit from Act 135?
You have to apply for the incentive with the P.R. Department of Economic Development and Commerce and sign an operating agreement with them.
2. Act No. 173-2014, “P.R. Creative Industries Promotion Act.”
The purpose of Act 173 is to stimulate and foster existing and potential creative industries in Puerto Rico.
What are the creative industries?
Act 173 defines creative Industries as those businesses with potential for creating jobs and wealth, mainly through the export of creative goods and services in the following sectors:
- design (graphic, industrial, fashion, and interior design);
- arts (music, visual arts, performing arts, and publishing);
- media (application, videogames, online media, digital, and multimedia content development); and
- creative services (architecture and creative education).
How you can benefit from Act 173?
Creative individuals and teams need to register in the Creative Industries Registry of the Trade and Export Company (“Comercio y Exportación”). Once you’ve been registered, you will receive a certification that enables you to apply for the following incentives: Act No. 20-2012, Act No. 62-2014 and Act No. 120-2014.
3. Act No. 20-2012, “Act to Promote the Export of Services.”
Act 20 provides beneficial fixed tax rates and property tax exemption to eligible services for a period of time.
What are some eligible services?
- Research and development;
- Advertising and public relations;
- Economic, environmental, technological, scientific, managerial, marketing, human resources, computer, and auditing consulting services;
- Commercial arts and graphics services;
- Professional services such as legal, tax, and accounting services;
- Electronic data processing centers;
- Computer program development;
- Voice and data telecommunications between persons located outside Puerto Rico;
- Shared service centers that include, but are not limited to accounting, finance, tax, auditing, marketing, engineering, quality control, human resources, communications, electronic data processing, and other centralized management services;
- Storage and distribution centers of companies engaged in the business of transportation of items and products that belong to third parties, known as “hubs”; and
- Educational and training services.
4. Act No. 120-2014, “Small- and Medium-sized Businesses Job Generation and Retention Act.”
Act 120 establishes a tax and/or wage incentive program for small- and medium-sized businesses (“SMBs” or “PyMEs”, for its Spanish acronym) to promote their development and expansion. The statue also supports the creation of new jobs and the retention of jobs in SMBs having serious financial difficulties.
What are SMBs under Act 120?
- Microbusiness – generate an annual gross income of less than five hundred thousand dollars ($500,000) and have seven (7) employees or less;
- Small-sized business – generate an annual gross income of fewer than three million dollars ($3,000,000) and have twenty-five (25) employees or less on a full-time basis; and
- Medium-sized business – generate an annual gross income of fewer than ten million dollars ($10,00,000) and have fifty (50) employees or less.
5. Act No. 62-2014, “Micro, Small-, and Medium-sized Business Promotion Act.”
Act 62 establishes a fast-track process for issuing use permits to individuals or micro, small-, and medium-sized businesses for the establishment and operation of certain businesses. The act also creates a preferential rent program, among other minor things.
In this blog post, we outlined 5 incentives you should know about when starting your business in Puerto Rico. Comment below, which incentive would you apply for your business?