P.R. Laws tit. 23, § 576
(a) Types of exemption. — Every film entity shall be subject to the provisions of clauses (1)—(6) of this subsection:
(1) Exemption from the payment of income tax. —
(A) Fixed rates of taxes on net income. — Film entity income directly derived from the exploitation of film projects or infrastructure projects shall be subject to a fixed income tax of seven percent (7%), in lieu of any other tax, if any, provided by law. The profit or loss generated by the sale or exchange of film entity assets shall not be deemed to be directly derived from the exploitation of film projects or infrastructure projects.
(B) Tax exemption on dividends. — The dividends or benefits from income deriving from the exploitation of film projects or infrastructure projects and distributed by the film entity to its stockholders or partners, and the distributions made in liquidation shall be totally exempted from the payment of income tax.
(C) Exemption period. — The fixed rate of taxes on income and the income tax exemption on dividends provided in this paragraph shall be in effect for a period of ten (10) years and shall take effect on the date specified in subsection (b) of this section.
(D) Deduction and carry-over of losses. —
(i) If the film entity incurs a net loss in the operation of a film project or an infrastructure project, said loss shall be deductible and may be used exclusively against income of the film project or the infrastructure project, as the case may be.
(ii) Once the exemption period for income tax purposes has expired, the net losses incurred that the film project or infrastructure project has been carrying over as of the expiration date of said period, may be deducted from any taxable income in Puerto Rico, subject to the limitations provided in §§ 8401 et seq. of Title 13.
[(iii)] Nothing that is provided herein shall limit the right, under §§ 8006 et seq. of Title 13, of the partners in a special partnership to take a deduction for his/her distributive share of the losses of a special partnership against the income from other sources subject to the limitations of §§ 8006 et seq. of Title 13.
(2) Exemption from municipal and Commonwealth taxes on real or personal property. — The property devoted to a film project or infrastructure project that is otherwise subject to taxation, shall be entitled to a ninety percent (90%) exemption from all municipal and Commonwealth taxes on real or personal property, for a ten (10)-year period, computed from the date fixed in subsection (b) of this section.
The stock or shares owned by an investor in a film entity shall not be subject to the payment of property taxes under §§ 5001 et seq. of Title 21, or any other law of a similar nature.
Real and/or personal property taxes shall be assessed, levied, notified and administered pursuant to the provisions of §§ 5001 et seq. of Title 21, in effect as of the date the tax is assessed and levied.
(3) Exemption regarding municipal license taxes, excise taxes and other municipal taxes. —
(A) No film entity shall be subject to municipal license taxes, excise taxes and other municipal income taxes levied by a municipal ordinance, as of the date fixed pursuant to subsection (b) of this section. The exemption shall be in effect for a ten (10)-year period and shall begin on the date specified in subsection (b) of this section.
(B) Every film entity and its contractors or subcontractors shall enjoy up to one hundred percent (100%) of exemption from any tax, assessment, license, excise tax, rate or tariff for the construction of works that shall be used by a film project or infrastructure project within a municipality, imposed by any ordinance of any municipality, as of the date fixed pursuant to subsection (b) of this section. The exemption shall be in effect for a ten (10)-year period and shall commence on the date specified in subsection (b) of this section. The contractors or subcontractors that work for a film entity, shall determine their volume of business for municipal license fee purposes, deducting the payments they are obligated to make to subcontractors under the primary contract with the exempted business. Subcontractors who, in turn, use other subcontractors within the same project, shall also deduct those payments in the determination of their volume of business. A contractor or subcontractor may deduct the payments described in the preceding paragraph from their respective volumes of business only if said contractor or subcontractor certifies, through a sworn statement, that he/she did not include in the contract executed for works or services to be rendered with regard to the exempted business, an item equal to the municipal license fee resulting from the volume of business deducted pursuant to this paragraph. Every contractor or subcontractor that does work for a film entity shall file a copy of all contracts related to said work, within ten (10) calendar days following the granting thereof, in the municipality or municipalities where said works shall be carried out, and shall provide the name, physical and mailing address and employer number of all subcontractors.
(4) Tax exemption regarding goods of use and consumption. — Goods of use and consumption introduced to be used directly and exclusively in the production of a film project or as part of an infrastructure project are hereby exempted from the payment of excise taxes levied in §§ 9001 et seq. of Title 13. The materials used for the construction of buildings known as “construction material” and the machinery, equipment and accessories used in whole or in part in the administrative phase of the film entity, or in its merchandising or articles not related to the activities for which this chapter provides incentive, are excluded from this exemption. The Commissioner and the Secretary of the Treasury shall determine, the procedure to claim said exemption, through regulations.
(5) Taxes on occupancy of hotel rooms. — The exemption provided in § 905(d) of Title 13 shall be applicable to rooms occupied by components of artistic and technical personnel contracted by film projects, while conducting functions for said projects.
(6) Estate and gift taxes. — The stock or other shares issued by a film entity shall be deemed to be property located in Puerto Rico for purposes of §§ 9152 and 9207 of Title 13.
(7) Exemption on real property revenue. —
(A) The net income derived from leasing real property, including lands and improvements, or any part thereof, to a film entity carrying out an infrastructure project, shall be subject to a fixed income tax of seven percent (7%) in lieu of any other tax, if any, established by law, provided said property is engaged exclusively in the exploitation of an infrastructure project.
(B) The fixed rate levied in paragraph (A) of this clause shall apply during a single term of ten taxable years as of the date an application for tax exemption is filed with the Secretary.
(b) Commencement of the exemption. —
(1) The fixed tax rate and the exemptions provided in subsection (a) of this section shall commence:
(A) With regard to income taxes of a film entity, counting from the day on which the film project or infrastructure project begins operations, but never before the date of the due filing of an application for a license to avail itself of the benefits of this chapter. For purposes of this paragraph, “beginning of operations” with regard to film projects, shall mean the payment of the first payroll in filming. As for infrastructure projects, the term shall be defined by regulation;
(B) with regard to taxes on real or personal property dedicated to a film project or infrastructure project, as of January 1 of the calendar year following that on which the film project or infrastructure project commences;
(C) with regard to license fees, excise taxes and other municipal taxes, as of January 1, or July 1 closest to the date of the due filing of the license application, and
(D) with regard to the excise taxes levied under §§ 9001 et seq. of Title 13, thirty (30) days after the due filing of a license application, provided a bond is posted pursuant to the applicable provisions of the Code, prior to the date selected for the commencement of this exemption, and the abovementioned application has not been denied; in the event that the application for exemption is denied, the taxes mentioned in this paragraph shall be paid, with interest, within the sixty (60) days following the notice of the denial, and
(E) with regard to municipal construction excise taxes, as of the date of the due filing of a license application, and
(2) the film entity shall have the option to postpone each one of the commencement dates referred to in clause (1) of this subsection, through a notice to such effect to the Commissioner and the Secretary of the Treasury. Said notices shall be filed on or before the date provided through regulations promulgated to such effect. The starting dates shall not be postponed for a period greater than thirty-six (36) months following the date established in clause (1) of this subsection. The Secretary and the Commissioner shall issue an order fixing the dates for the commencement of the exemption periods under this chapter, pursuant to the application of the exempted business and according to the regulations promulgated for such purposes.
(3) The percent of exemption applicable to each film entity, as well as the conditions under which the license is granted shall be determined pursuant to the provisions on said matters contained in the regulations issued under this chapter.
History —Dec. 24, 1999, No. 362, § 20.