Inflation Reduction Act does not trigger 15% income tax rate on industrial development income in Puerto Rico

Local contact

EY Global

10 Nov 2022
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Puerto Rico United States

In Informative Bulletin 22-11, the Puerto Rico Treasury Department (PRTD) has clarified that the 15% alternative minimum tax (CAMT) on the “adjusted financial statement income” of certain corporations enacted as part of the Inflation Reduction Act (IRA), P.L. 117-69, has not triggered the 15% income tax rate on industrial development income (IDI) in Puerto Rico.

Act 52-2022, recently enacted in Puerto Rico, allows taxpayers with tax decrees to elect to be subject to a 10.5% income tax rate on IDI if they are (i) engaged in manufacturing or other similar activities in Puerto Rico; and (ii) subject to the 4% excise tax. Under Act 52-2022, the 10.5% rate will increase to 15% if the United States amends the Internal Revenue Code (US IRC) to impose an income tax of at least 15% on the income of controlled foreign corporations (CFCs).

The IRA imposes the CAMT on the adjusted financial statement income of certain corporations for tax years beginning after 31 December 2022. Because the CAMT does not automatically apply in a tax year and is based on a corporation’s adjusted financial statement income, the PRTD clarified that the 15% CAMT will not activate the 15% income tax rate on IDI. The Secretary of the PRTD provided other reasons to support the clarification made in IB 22-11, such as that the CAMT may be claimed as a credit in future years against regular tax.


Under Act 52-22, a 15% rate will apply to the taxpayer’s IDI, instead of the 10.5%, if the United States amends the US IRC to apply a corporate income tax rate of at least 15% to a CFC’s income. Companies evaluating the income-tax-rate election under Act 52-2022 were uncertain if the IRA’s CAMT provisions would affect the income tax rate on IDI in Puerto Rico (see EY Global Tax Alert, US IRS and Treasury intend to issue proposed regulations on application of the noncompulsory payment regulations to certain amended Puerto Rico tax decrees, dated 26 September 2022). Informative Bulletin 22-11 makes it clear that the applicable rate remains 10.5%. The question of applicable rate on IDI in Puerto Rico could be reopened in the future if the US enacts legislation imposing a minimum income tax of 15%. 


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

Ernst & Young Puerto Rico LLC, State and Local Taxation Group, San Juan
  • Rosa M. Rodríguez
  • Pablo Hymovitz Cardona
  • María T. Riollano
  • Alberto J. Rossy
  • Alexandra M. Pérez
  • Carla J Diaz
  • Karol I. Santiago
  • Marcel Ramos
  • Isabel Rivera
  • Noeliz Suarez
  • David Montañez
  • Luz G. Rivera

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.