Opportunity Zones and other Bonus tax Incentives of Puerto Rico

For over a year now we've been hearing about Opportunity Zones and Opportunity Funds if you're an investor or contemplating investing and haven't heard about them get on board. There are over 8,700 zones across the United States, territories and the District of Columbia. 863 of which are designated zones just in Puerto Rico alone that's 98% of the island.  Below is a small synopsis of the tax benefits to an investor investing in a Qualified Opportunity Zone. For example, if you sell any kind of security like stocks, real estate, etc and you invest your gains into a Qualified Opportunity Fund within 180 days of the gain these are the benefits. Please note you must make investments into the fund no later than December 31, 2019, to realize the full tax benefits of the fund. 

• Investment in the fund for 5 years there is a 10% deferral on your capital gain tax
• Investment in the fund for 7 years there is a 15% deferral on your capital gain
• Investment in the fund for 10 years you will receive the 15% deferral on the initial investment and 100% tax-free on the gains that you created from the initial investment.

That's in unbelievable. Now it only gets better Puerto Rico is being called a tax haven because not only is most of the island an Opportunity Zone they have enacted several other tax incentives for domestic and foreign investors that want tax benefits but the hold time. Act 185 is one of those tax incentives.

Act 185 "Private Equity Funds Act" below is information on the PEF for PR accredited investors.

• 60% income tax deduction on the initial investment by PR investors in a PR-PEF (deduction up to 30% of the investor’s taxable net income per year for up to 15 years);

• 30% income tax deduction on the initial investment by PR investors in a PEF (deduction up to 15% of the investor’s taxable net income per year for up to 10 years);

• 0% tax on capital gains realized through the Fund by its investors from Puerto Rico sources;

• 10% tax on interest and dividends generated through the Fund by its investors;

• 5% tax on capital gains realized by the Fund’s investors from the sale of their proprietary interests in the Fund; however, 0% if the proceeds are reinvested by the investor within 90 days in a PR-PEF;

• Fund’s net losses may be deducted by PR investors in proportion to their proprietary interests in the Fund against income generated through other Funds or against capital gains;

• 5% tax on interest and dividends generated by the general partner or managing member and the investment adviser from the Fund;

• 2.5% tax on capital gains realized by the general partner or managing member and the investment adviser from the Fund;

• Income generated by the Fund and distributions to its investors are not subject to municipal license taxes; and

• The Fund is exempt from personal and real estate taxes on property owned by the Fund.

Act 185 "Private Equity Funds Act" for foreign accredited investors

• Has an office in Puerto Rico

• Has an Advisory Board with at least one of its investors as a member; and

• Offered only to “accredited investors”

• If the fund is organized outside PR (i.e., foreign partnership or foreign LLC), it must be engaged in trade or business in PR and derive at least 80% of its gross income from PR sources or from income effectively connected with a PR trade or business.

• At least 80% of its paid-in capital invested in securities and financial instruments that are not publicly traded;

• Remaining paid-in capital (up to 20%) may be invested in certain short-term instruments;

• No later than 4 years after its organization date and at each fiscal-year end thereafter (i.e., PR investment requirement): (1) invest at least 15% of its paid-in capital in securities or other financial instruments issued by entities engaged in an active trade or business in PR that derive at least 80% of their gross income during the last 3 years from PR sources or from income effectively connected with a PR trade or business (“PEF”), or (2) invest at least 60% of its paid-in capital in securities or other financial instruments issued by entities engaged in an active trade or business in PR that derive at least 80% of their gross income during the last 3 years from PR sources or from income effectively connected with a PR trade or business (“PR-PEF”)

• Hires an investment adviser that is engaged in trade or business in PR, has an office in PR, and is duly registered or exempt under applicable federal or PR law;

• No later than 4 years after its organization date, no more than 20% of its paid-in capital is invested in any single issuer (i.e., diversification requirement);

• Has a minimum capital (including commitments) of $10 million no later than 24 months after the first closing date

https://www.businessinpuertorico.com/pathwaytothefuture/downloads/Puerto%20Rico%20Private%20Equity%20Funds%20Act_ACT%20185.pdf

Now both of these are exception investment tools it just depends on what each individual investor has in mind for an exit strategy. Let me throw one more information piece into the mix in Puerto Rico there is an additional tax incentive that you can add to either of these options if you are investing in a development that has to deal with Hotels, Condo's, Guesthouses, Theme Parks and Golf Courses and many more. It's called Act 74: Puerto Rico Tourism Development Act.

Act 74: Puerto Rico Tourism Development Act

Incentives:

•  A tax credit equal to 10% of the total project costs, or 50% of the cash investment made by investors (whichever is less)
•  A tax credit equal to 40% of the eligible investment, the first tranche at the second year of operation, and the rest in subsequent years.
•  A tax credit equal to 30% of the eligible investment, first 10% percent at the moment to obtain the finance, the other 20% percent the first tranche the year that receives the first paying guest and the rest in subsequent years.
•  100% exemption on municipal construction excise taxes, Vieques and Culebra 75%
•  100% exemption on sales and uses taxes
•  100% exemption on excise taxes and other municipal taxes for new projects or 90% exemption, if an existing project, Vieques and Culebra 75%
•  90% exemption on income tax or 100% exemption if the project is located in the island municipalities of Vieques or Culebra
•  Up to 90% exemption on personal and real property municipal taxes, Vieques and Culebra 75%

Click below for more information on this incentive: 

https://www.prtourism.com/dnn/Doing-Business/Incentives

If you are an accredited investor thinking about investing in Puerto Rico please, feel free to contact us to help advise you through the process.

Tanya Rodriguez and Luis del Mazo

53 Calle Las Palmeras, 4th Floor

San Juan, Puerto Rico 00901

615-543-6587

Tanya@usrealcoin.us

www.usrealcoin.us