Tax Alert: Act No. 182 of 2024: Incentives for Housing Development in Urban Centers


Overview


On August 27, 2024, Act No. 182 was enacted, introducing a transformative framework designed to revitalize Puerto Rico's urban centers. This legislation seeks to address critical challenges, including the need for housing development to support a growing professional class committed to establishing or relocating to Puerto Rico.
Act No. 182 amends Chapter 7 of Subtitle B of the Infrastructure and Green Energy provisions of the Puerto Rico Incentives Code (Incentives Code or Act 60-2019), to designate the development of projects in urban centers as   exempt activities. This designation grants tax incentives to businesses involved in the development, restoration, rehabilitation, or construction of infrastructure.


Key Highlights of Act No. 182


New Definitions and Investment Categories

  • Urban Center is defined as a geographic area that encompasses the heart or core of a town or city, as delineated by the municipality in an area plan or designated as a historic zone. This definition is established in close coordination with the Mayor of the municipality undergoing revitalization.

 

  • The Act establishes the category “Eligible Investment in Urban Center” under Section 1020.01 of the Incentives Code, specifically targeting investments in residential projects within urban centers.

 

 Exempt Activities Eligibility 

As a general rule, to qualify as an “Eligible Business”, the entity must develop a project within an Urban Center in Puerto Rico, which involves developing real property for residential use, intended for sale or lease, and must meet the following criteria: 

  • The Eligible Investment in the Urban Center   is equal to or greater than $1,000,000, excluding the acquisition cost of the real property; or
  • The property is in a state of abandonment. Real Estate Property in a State of Abandonment is understood to be any unoccupied structure or unused or vacant lot that is unsuitable for habitation or use by humans due to disrepair, construction defects, or because it poses a risk to public health or safety; and 
  • Each project must contain at least seven (7) residential units.
     

Tax Benefits

  • 4% Flat income tax rate on the income generated from the sale of the project within the Urban Center or rental income
  • 100% Exemption on distributions from Earnings and Profits from the exempt activities
  • 50% Exemption from municipal taxes, including municipal license taxes;
  • 75% Exemption on municipal construction excise taxes, applicable to contractors and subcontractors
  • 75% Exemption on personal and real property taxes; and
  • 40% tax credit on Eligible Investments is also available, with the flexibility for these credits to be assigned, sold, or transferred.
     

Application Timelines and Conditions

  • Applications for the exemptions must be submitted by December 31, 2025.
  • Construction activities should commence after July 1, 2024, unless exceptions are granted by the Secretary of the Department of Economic Development.

 

Strategic Implications

Act 182 represents a significant advance toward addressing the housing crisis in Puerto Rico through a tailored tax incentive framework for the real estate sector. This initiative aligns with broader trends in sustainable urbanization, positioning Puerto Rico as an attractive destination for new residents and investors alike.

As the application deadlines approach, it is important for investors and developers to seek expert guidance to navigate the complexities of these incentives and optimize their projects. RSM Puerto Rico is equipped to provide personalized advice and strategic planning to maximize the benefits offered under Act No. 182.

 

For further information or assistance in applying for these incentives, please do not hesitate to contact our tax advisors at [email protected] | 787-751-6164.