On 4 March 2011, Puerto Rico enacted Act No. 27 of 2011 which is otherwise known as Puerto Rico Film Industry Economic Incentives Act. Thecore scope of Act 27 is to provide tax exemptions and tax credits to businesses engaged in film production in Puerto Rico.
The tax exemptions for the eligible production businesses comprised within Act 27 are:
- 4% fixed income tax rate on income derived from the production (6% to 10% fixed income tax rate in the case of studio operators),
- 100% tax exemption on dividend distributions,
- 90% tax exemption from personal property taxes,
- 90% tax exemption from real property taxes,
- 100% tax exemption on municipal license taxes, construction taxes and other municipal taxes,
- 100% tax exemption on excise taxes on articles imported by the grantee to be used in the eligible activities.
The tax credits for the eligible production businesses comprised within Act 27 are:
- 40% tax credit on all payments to Puerto Rico resident companies and individuals. The Act provides an annual limit of $50,000,000 of tax credits. Nevertheless, there are exemptions to this annual limit. The first two exemptions are primarily relatedwith projects developed in the Film Development Zones. Specifically, film projectsmay apply for up to $50,000,000 additional tax credits ifany portion of theirexpenses are incurred within a Puerto Rican Film Development Zone. Furthermore, an additional $150,000,000 ammount is possible to be attained if the film project is produced within a Film Development Zone having a film studio with a cost of plus $200,000,000. Nevertheless, in addition to the prior, Act 27 also states that after attaining the previous limits, additional tax credits in an amount of $100,000,000 can be attained if the film credits program has conceded at least $250,000,000 for two consecutive years;
- 20% tax credit on all payments to non-resident 'Above-the-Line' talent, including actors, producers, directors and writers. No annual cap is established with respect to non-resident 'Above-the-Line' payments;
- 25% infrastructure tax credit on costs incurred in the development of a film studio or other eligible infrastructure project. The Act provides an annual limit of $10,000,000 of tax credits available for infrastructure projects. These credits have a lifetime cap for all projects of $150,000,000. The minimum investment for individual infrastructure projects is $1 million.