On Our Radar - Puerto Rico Incentives Code

Dear Clients, Colleagues, and Friends:

This afternoon the Governor of Puerto Rico Ricardo Rosselló signed into law the “Puerto Rico Incentives Code”, which repeals and replaces the current Puerto Rico Film Industry Economic Incentives Act (Act 27-2011, as amended). Here is what has been On Our Radar:

Puerto Rico Incentives Code. The Puerto Rico Incentives Code, of approximately 400 pages, is an effort to unify into a single code all incentives programs directed at promoting investment and job creation in various industries, including the creative industries. Section 2091.01 includes the same eligible activities as Act 27 and others:

  • Feature-length films

  • Short-films

  • Documentaries

  • Series, mini-series, including pilots

  • Commercials

  • Video games

  • TV programs, including reality shows

  • Stand-alone post-production

  • Film festivals

  • Music videos

Section 3050.01 provides for production incentives in the form of transferable tax credits equal to the sum of:

  • 40% of payments to residents of Puerto Rico;

  • 20% of payments to non-residents;

  • 15% of payments to residents of Puerto Rico, when a local producer controls the IP of the project, is responsible for its financing and production, and is entitled to 30% or more of the “producers’ net”, and either the director, cinematographer, editor, production designer, post-production supervisor, or the line producer is a resident of Puerto Rico.

Tax credits are allowed to be used against 100% of a person’s tax liability, which maximizes their transfer value. Contrary to Act 27, which limited the aggregate amount of tax credits per fiscal year, the Code does not set a limit on the amount of available tax credits per year.

Application Process. The Film Program will continue to accept physical applications until the Department of Economic Development approves regulations. In the future, online applications will be accepted. Attorneys will be allowed to issue “pre-eligibility reports” for a special expedited approval process.

Act 27 Projects. Grants under Act 27 (the contract between the production company and the government) will be grandfathered, which means that the corresponding tax credits under such grants will be calculated and granted under the rules of current Act 27.

Tax Credit Sales. Tax credit sales continue to be strong. This year we have placed more than $27 million in tax credits for an average price of 90%, with some tax credits selling for 92.5%. With the implementation of the 2019 Puerto Rico Income Tax Reform, the Puerto Rico Internal Revenue Code has permanently extended the tax filing extension date from July 15th until the 15th of October. This means that we now anticipate strong demand for both past and current fiscal year tax credits (buyers of tax credits against estimates) during the first three quarters of the year.

Once a tax credit is confirmed by the Treasury and the Secretary of Economic Development, selling time will depend on the amount and approval process of each buyer and the fact that buyers want to pay for tax credits as close as possible to their tax returns or estimates deadlines.

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Antonio, Maritere, and Claudia