Puerto Rico has introduced House Bill 1517 to amend its corporate tax and economic incentives framework, proposing optional tax rates of above 4% to 15%, a 10.5% rate for certain controlled group entities, extended tax decrees and a new economic development fund.

RF Report

Puerto Rico’s House of Representatives introduced House Bill 1517 (P. de la C. 1517) on 15 October 2026. The bill aims to provide greater tax flexibility for exempt businesses, establish a dedicated economic development fund to retain and attract strategic investments (including export services, manufacturing, tourism, and creative industries), and harmonise legacy incentive statutes with the current Incentives Code.

Referred to the Economic Development Commission, the bill proposes major amendments to the Puerto Rico Incentives Code (Act No. 60-2019) and the Puerto Rico Economic Incentives for Development Act (Act No. 73-2008).

Corporate income tax amendments

  • Optional alternative corporate tax framework: Certain tax-exempt businesses could elect a fixed corporate income tax rate above 4%. The change would add Section 2011.06 to Act No. 60-2019 and Section 3(a)(7) to Act No. 73-2008. Eligible businesses include those with an active decree, new applicants, and businesses previously taxed under Section 3A of Act No. 135-1997 or Section 3(a)(5) of Act No. 73-2008.
  • An optional rate above 4%: The Secretary of the Department of Economic Development and Commerce (DDEC) may negotiate a fixed rate on net income from eligible activities. The rate can be greater than 4% and up to 15%, but only when the Secretary finds that it serves the best interest of Puerto Rico. A business can stop using this alternative regime. It must notify the DDEC and the Department of the Treasury on or before its income tax return filing due date, including any extensions. After that, it returns to the rate that applied under its decree before the election.
  • Decree extensions: Businesses that elect a rate above 4% under Act No. 60-2019 receive a 15-year extension. The extension runs from the date of the amendment or the date of the decree application, whichever applies to the business. Under Act No. 73-2008, the decree extends for 15 years from the expiration date of its original term.
  • A 10.5% rate for controlled groups: The bill sets a fixed income tax rate of 10.5% for certain exempt businesses that are members of a controlled group. The rate applies to industrial development income from product or service sales. The business must have started operations after 31 December 2022 but before 1 January 2027. This change amends Section 2062.01(a)(3). The bill also removes the previous requirement of a 3-year average gross receipts threshold of 75 million to qualify for this rate.

Transfer pricing, controlled group & excise duty provisions

Businesses that elect either the optional rate of more than 4% up to 15% or the 10.5% rate are exempt from certain controlled group rules. This covers the electing business and the members of its controlled group, as defined in Section 1123(h)(3) of the 1994 PR Internal Revenue Code.

The exemption applies from the effective date of the rate and covers Section 1123(f)(4)(B) and Sections 2101 to 2106 of the 1994 Code, along with any successor provisions in the 2011 Code.

In practice, this removes the controlled group intercompany tax rules and excise taxes for these entities. The former Act 154 excise tax provisions are one example of what no longer applies to their transactions with each other.

Municipal license tax & income tax exemptions

Amends Act No. 60-2019 to clarify that cash grants and tax credits received by exempt businesses are excluded from gross income for corporate income tax purposes and from gross business volume for municipal license tax purposes.

Creation & tax treatment of the economic transformation fund

  • Establishment: Creates the Opportunity, Wealth, and Economic Transformation Fund, managed by the Department of the Treasury, to support high-impact economic activities.
  • Funding: Financed by corporate income taxes collected from exempt businesses under the optional tax rate framework of above 4% to 15%. Royalty tax withholdings and collections under the baseline 4% tax rate or lower decree rates are excluded and directed to the Strategic Economic Incentives Fund.
  • Eligible reimbursements: Covers full or partial reimbursements for raw materials, transportation, employee salaries and benefits, training, local goods and services, eligible R&D, infrastructure resilience improvements, depreciation and controlled group tax obligations.
  • Tax treatment: Payments received from the Fund are excluded from gross income for regular corporate income tax, Alternative Minimum Tax (AMT) and municipal license tax purposes.

Implementation timeline & key dates

The 10.5% tax rate applies to qualifying controlled group entities that began operations after 31 December 2022 and before 1 January 2027. The amendments generally take effect for tax years beginning after 31 December 2025.