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Strategic Projects
Tax incentive for large-scale projects that deliver significant economic impact to Puerto Rico, offering customized benefits based on projected investment, job creation, and strategic value.
12 min
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Section Code:
2014.01
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Purpose:
General Applications — Section 2014.01
Overview
The Strategic Projects designation under Section 2014.01 of Act 60-2019, as amended, provides a flexible incentive framework for projects that deliver exceptional economic value to Puerto Rico. Unlike standardized designations with fixed benefit structures, strategic projects receive customized tax treatment based on the scale, nature, and projected impact of the proposed investment. This designation is designed for large-scale initiatives that create substantial employment, attract significant capital, or position Puerto Rico competitively in emerging industries.
Businesses that typically qualify for strategic project status include major manufacturing facilities, large technology campuses, significant infrastructure developments, and multi-phase investment programs that commit to sustained economic contributions over extended periods. The designation is particularly suited to projects that involve capital investments in the tens of millions of dollars, create hundreds of direct jobs, or introduce new industries or capabilities to Puerto Rico that would not otherwise be present.
The key distinction of the Strategic Projects designation compared to other incentives is its negotiated nature. Rather than applying a predetermined set of tax rates and exemptions, applicants work with the Puerto Rico Industrial Development Company (PRIDCO) and other agencies to structure a decree that reflects the unique characteristics and commitments of the project. This allows for greater flexibility in addressing specific project needs while ensuring that benefits are proportional to the economic contribution.
Recent amendments to Act 60-2019 have reinforced the government's commitment to attracting transformational investments through this designation. The evaluation criteria emphasize not only direct job creation and capital deployment but also secondary impacts such as supply chain development, technology transfer, and contributions to Puerto Rico's long-term economic resilience.
Key Benefits
Customized Corporate Income Tax Rate
Strategic projects may negotiate a corporate income tax rate that reflects the scale and nature of their investment. While standard export service businesses receive a fixed four percent (4%) rate, strategic projects may secure comparable or even more favorable terms depending on the projected economic impact. The negotiated rate applies to qualifying income derived from the project activities and is guaranteed for the term of the tax decree, which may extend fifteen (15) to twenty-five (25) years or longer for exceptionally large investments.
For a project generating fifty million dollars ($50,000,000) in annual taxable income, even modest differences in the negotiated rate translate to millions of dollars in annual tax savings compared to standard Puerto Rico corporate rates of thirty-seven and a half percent (37.5%).
Property and Municipal Tax Exemptions
Strategic projects typically receive substantial exemptions from real and personal property taxes on facilities, equipment, and infrastructure directly related to the project. Exemptions of ninety percent (90%) to one hundred percent (100%) are common for qualifying assets. Municipal license taxes, which normally range from point five percent (0.5%) to one and a half percent (1.5%) of gross revenues, may also be reduced or eliminated under the negotiated decree.
These exemptions significantly reduce the cost of establishing and operating large-scale facilities in Puerto Rico, particularly for capital-intensive industries that require substantial investment in buildings, machinery, and specialized equipment.
Flexible Decree Terms and Extensions
Strategic project decrees are structured to accommodate long-term investment horizons. Initial decree terms may exceed the standard fifteen (15) to twenty (20) year periods available under other designations, and provisions for extension or renewal may be included from the outset. This long-term certainty is essential for projects with extended construction phases, phased investment programs, or industries where return on investment is measured in decades rather than years.
Additional Incentives and Support
Depending on the project's characteristics, strategic projects may access additional benefits such as sales and use tax exemptions on construction materials and equipment, expedited permitting processes, infrastructure support, and access to Economic Development Fund resources. The comprehensive nature of the strategic project framework allows for a holistic approach to incentivizing major investments.
Requirements & Obligations
Project Scale and Economic Impact
To qualify as a strategic project, the proposed investment must demonstrate exceptional scale and impact relative to other incentive applicants. While specific thresholds may be negotiated, projects typically involve capital investments of twenty-five million dollars ($25,000,000) or more, creation of one hundred (100) or more direct jobs, or introduction of capabilities that significantly advance Puerto Rico's economic development objectives. The project must present credible evidence that it would not proceed, or would proceed at a substantially reduced scale, without the negotiated incentives.
Business Structure and Registration
Applicants must establish a legal entity organized under Puerto Rico law, typically a corporation or limited liability company, to hold the decree and conduct project operations. The entity must be registered with the Puerto Rico Department of State and the Puerto Rico Department of Treasury, and must obtain all necessary business licenses and permits. For projects involving regulated industries, additional licenses from sector-specific regulatory authorities may be required.
Employment and Workforce Commitments
Strategic project decrees include binding employment commitments that reflect the project's scale. These typically specify minimum direct employment levels, timelines for achieving employment targets, and requirements regarding the residency status of employees. A substantial majority of employees must be bona fide residents of Puerto Rico, and the project may be required to implement training programs, partnerships with local educational institutions, or other workforce development initiatives.
Capital Investment and Milestones
The decree will specify capital investment commitments and the timeline for deployment. Projects must maintain detailed records of capital expenditures, asset acquisition, and construction progress. Failure to meet investment milestones may result in reduction of benefits, requirement to repay previously claimed benefits, or termination of the decree. Periodic reporting to PRIDCO and other agencies is required to demonstrate compliance with investment commitments.
Ongoing Compliance and Reporting
Strategic project decree holders must file detailed annual reports documenting employment levels, capital investment, revenue sources, and other metrics specified in the decree. The project must maintain separate accounting for decree-related activities, and books and records must be kept in Puerto Rico and available for inspection. Audits by Puerto Rico tax authorities should be expected, and maintaining thorough documentation is essential for demonstrating ongoing eligibility.
How to Apply
The application process for Strategic Projects designation is more extensive than for standardized incentives, reflecting the customized nature of the benefits and the scale of commitments involved. The process typically requires twelve (12) to twenty-four (24) months from initial engagement to decree issuance, though timelines vary based on project complexity and government review capacity.
The process begins with preliminary discussions with the Puerto Rico Industrial Development Company (PRIDCO) and, in some cases, the Puerto Rico Department of Economic Development and Commerce (DDEC). During this phase, the project sponsor presents an overview of the proposed investment, including projected capital deployment, employment creation, industry sector, and expected timeline. PRIDCO staff assess whether the project meets the general criteria for strategic project status and advise on the appropriate path forward.
Following preliminary approval to proceed, the applicant prepares a comprehensive application package. This typically includes detailed business plans, financial projections, market analysis, organizational charts, construction and development timelines, and evidence of the project sponsor's financial capacity and track record. Economic impact studies may be required to quantify the project's contribution to Puerto Rico's economy, including direct, indirect, and induced effects.
The formal application is submitted to PRIDCO, which coordinates review with the Puerto Rico Department of Treasury, the Office of Management and Budget, and other relevant agencies. The review process involves detailed analysis of the application, requests for additional information, and negotiation of specific decree terms. Throughout this phase, the applicant should expect multiple rounds of discussion and revision as terms are refined.
Once terms are agreed, the decree is drafted, reviewed by legal counsel on both sides, and executed by the appropriate government officials. The decree constitutes a binding agreement between the project sponsor and the Government of Puerto Rico. Following execution, the project must meet specified conditions precedent, such as entity formation, initial capital deployment, or commencement of construction, before benefits become effective.
After decree issuance, the project enters an implementation phase during which employment and investment commitments must be met according to the agreed timeline. The first compliance report is typically due following the close of the first fiscal year of operations, establishing the ongoing reporting rhythm that continues throughout the decree term.
This information is educational and should not be considered legal or tax advice. Applicants should consult with qualified legal and tax professionals familiar with Puerto Rico incentive programs before making any business decisions or submitting applications.
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