Global Tax Alert (News from Americas Tax Center) | 10 March 2014

Puerto Rico approves tax incentives to promote aircraft maintenance, repair and overhaul activities

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Puerto Rico’s Governor signed Act 32 of 27 February 2014 (Act 32-2014), known as the Aircraft’s Maintenance, Repair and Overhaul Promotion Act of Puerto Rico, which establishes the Government’s public policy to promote aircraft maintenance, repair and overhaul (MRO) activities in Puerto Rico. Act 32-2014 also appoints the Puerto Rico Industrial Development Company to administer the provisions under Act 32, and amends the Tax Incentives Act of 2008 for the Development of Puerto Rico (Act 73-2008) to provide tax incentives to entities engaged in MRO activities.

The legislation highlights the reasons for approving Act 32-2014, such as expanding and diversifying the current industrial base, with specific focus on the aeronautical industry. It also notes the initiative’s success relies on the local highly skilled and productive labor force, the proximity of suppliers and key clients to this industry, and the attractive tax incentives.

Act 32-2014 uses the existing legal and incentives framework under Act 73-2008 to make tax incentives available to MRO entities considering establishing in Puerto Rico.

MRO activities were added to the eligible business definition within Act 73-2008. As such, MRO entities that apply for tax exemption under Act 73-2008 and satisfy the rest of its provisions will enjoy all its tax incentives and exemptions. These incentives include: 4% flat tax rate, 100% exemption from tollgate taxes, 60% exemption from municipal taxes, and 90% exemption from property taxes.

Act 32-2014, however, enhances certain incentives to apply solely to eligible MRO. Entities engaged in this eligible activity that are granted a decree under Act 73-2008 will enjoy all these tax incentives for 20 years as compared to other eligible businesses, which have a tax-exemption period of only 15 years. Furthermore, the 20-year period could be extended an additional 10 years without a curtailment of the original incentives.

The entities engaged in MRO activities interested in these incentives must establish operations in Puerto Rico, and submit an application under Act 73-2008.

Implications

The Government noted in a recent press release that the approval of Act 32-2014 is part of its economic development initiatives, which also include continued promotion of the service industry.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Puerto Rico LLC, San Juan
  • Teresita Fuentes
    +1 787 772 7066
    teresita.fuentes@ey.com
  • Rosa M. Rodríguez
    +1 787 772 7062
    rosa.rodriguez@ey.com

EYG no. CM4244