Puerto Rico has become an increasingly popular destination for wealthy Americans and businesses seeking tax advantages due to its unique position as a U.S. territory. The primary tax incentives that have contributed to Puerto Rico’s reputation as a tax haven are Acts 20 and 22, combined into Act 60 in 2019. Waves and waves of people are moving to Puerto Rico including Investors, Hedge fund Managers, Lawyers and more. The reason are due to the astounding tax benefits provided by Puerto Rico.

With ZERO taxes, beaches, beach houses, golf and pure paradise, what could go wrong? Well compared to the benefits, perhaps very little. But with anything that looks this good, there are some potential qualifiers and hiccups that some people may be ignoring or need to know about.

The island recently has had a massive uptick in economical boom with real estate prices beginning to soar. Part of Puerto Rico’s government tax incentive programs require buying a home within the first two years of a move, and you have to pay for the privledge of getting lower taxes. We will cover some of the benefits of living there with items you should be aware of and we will discuss the investment opportunities that come with Puerto Rico.

Few places on earth offer a return on investment the way Puerto Rico does. With an ever-growing array of services and emerging industries, part of your success will be directly attributable to the available incentives. In order to bolster the manufacturing sector and other strategic areas, the local government has created aggressive economic and tax incentives programs with the purpose of helping operations on the island become more profitable to those companies who manufacture there.

Puerto Rico, officially the Commonwealth of Puerto Rico, is a self- governing, territory of the United States, located in the northeastern Caribbean, east of the Dominican Republic and west of both the US Virgin Islands and the British Virgin Islands.

The government of Puerto Rico is composed of three branches: the executive, legislative, and judicial branch. The executive branch is headed by the governor. The legislative branch consists of a Legislative Assembly, made up of a Senate as its upper chamber and a House of Representatives as its lower chamber. The Senate is headed by the President of the Senate, while the House of Representatives is headed by the Speaker of the House.

The governor and legislators are elected by popular vote every four years. The island is divided into 78 municipalities (counties) with various degrees of autonomy from the central government. San Juan is the capital and most populated municipality, combined with nine other municipalities which form the San Juan Metropolitan Area. Within the 78 municipalities, 4 are considered major cities.

The island has been part of the U.S. since 1898 and those born in Puerto Rico have been citizens of the U.S. since 1917. Yet, because Puerto Rico is not a state, federal taxes do not apply generally to income generated by individuals or corporations within the Commonwealth. Puerto Rico corporations are treated for federal tax purposes as foreign corporations and are not generally subject to U.S. corporate taxes. Individual bona-fide residents of Puerto Rico are not subject to federal taxes on income derived from Puerto Rico sources. In addition, Puerto Rico has provided incentives for manufacturing operations for over four decades. Products manufactured in Puerto Rico carry the Made in USA label.

In 2008, a new Economic Incentives Act for the Development of Puerto Rico (hereinafter, Act 73 or Economic Incentives Act) went into effect. Also during the year 2012, two additional laws were enacted: Act 20 and Act 22, promoting the export of services from Puerto Rico and the transfer of wealthy individuals to Puerto Rico. These new laws established a legal framework of incentives designed to stimulate the establishment and development of a wide array of ventures, among them manufacturing, social media, other internet-based operations, commercial businesses, and the export of services.

Now lets look at the attractive tax incentives of living in Puerto Rico and the unattractive parts that come with it. After that we will dive into the Qualified Opportunity Zone Act provisions enacted as part of the law known as the Tax Cuts and Jobs Act (TCJA).


1. Zero Taxes for Certain Gains: New residents enjoy tax-free interest and dividends earned post-relocation, and no long-term capital gains tax on appreciation after they become residents.

2. Favorable Tax Rates for Pre-Move Appreciation: A 5% tax rate is applied to long-term capital gains for appreciation before the move for any sales during the first 10 years as residents.

3. Major Attraction for the Crypto Community: The growing interest from the crypto community, lured by the prospect of zero taxes and a lifestyle of golf, beach houses, is creating a crypto island paradise.

4. Real Estate Investment: More on this below regarding investments, but part of Puerto Rico’s tax incentive program necessitates and requires buying a home within two years of moving, which is contributing to the real estate boom down there.

5. Hybrid Tax System: Puerto Rico’s tax system is a mix of U.S. and local laws., offering unique advantages while maintaining U.S. citizenship benefits.


1. Puerto Rico Source Income: The benefits apply primary to income sourced in Puerto Rico, with the IRS still taxing other income.

2. IRS and Puerto Rican Government Cooperation: There is increasing cooperation to identify and address potential tax evasion, with a likelihood of more audits and even criminal tax cases.

3. Residency and Closer Connection Tests: Establishing bona fide residency involves being physically present in Puerto Rico for a significant portion of the year and demonstrating closer connections to the territory than anywhere else.

4. Stringent Residency Requirements: Similar to the previous analysis, one must reside in Puerto Rico for at least 183 days per year, and not have been a resident of Puerto Rico in the last 15 years.

5. Tax Implications of Moving Assets: Pre-move appreciation on assets, including stocks and potentially crypto, is still subject to U.S. tax.

6. Long-term commitment: To fully benefit from these tax rules, especially regarding stock appreciation, one might need to wait up to ten years after moving.

7. Real Estate Taxation: Selling U.S. real estate as a Puerto Rico resident will still incur U.S. source income taxes.

Among the most glossed over qualifiers to the rules about Puerto Rico source income. You get the great benefits only on income sources in Puerto Rico, not on everything else- which the IRS can still tax you on. Many people mike like to ignore established sourcing rules, and might imagine that if they live in Puerto Rico, everything is Puerto Rico source income. Another qualifier is the rule that per-move appreciation on your assets is still taxes by the IRS. The rules for stocks are quite clear on this point. The rules for crypto are not as clear, so there are some differences of opinion about how crypto will be treated.

Despite qualifiers, Puerto Rico’s program is pretty incredible. U.S. Citizens are taxable on their worldwide income. That unforgiving price tag has causes many American’s to renounce their citizenship, going through an exit process with the IRS and State Department.


The Tourism Development Act of 2010 (the “2010 TDA”) sets forth the public policy regarding the Puerto Rico tourism industry. In general, the 2010 TDA traces, but improves, the tax incentives regime of its predecessor legislation, the Tourism Development Act of 1993 (“1993 TDA”). Among the tax exempt eligible tourist activities are ownership and administration of hotels, condohotels, vacation clubs, tourist marinas and theme parks. New eligible activities are described further below.

Tourism Tax Exemption Benefits:

A. Income

1. Tourist Activities Conducted in Vieques and Culebra- 100% exemption on (i) tourism development income and (ii) dividents, profits and liquidating distributions.

2. Tourist Activities Conducted In Locations other than Vieques and Culebra-90% exemption on (i) tourism development income and (ii) dividends, profits and liquidating distributions.

3. Distribution out of tourism development income are taxed just once and they retain their nature and exempt character.

4. Sale of Stock or Ownership Interest in a Tourism Business:100% (Vieques and Culebra) 90% (other locations) if certain conditions are met.

5. Additional Exemptions: 100% exemptions from the alternative minimum tax, additional tax on corporations/partnershisp, and the alternate basic tax on individuals.

6. Withholding Tax and Fixed Tax on Royalties: 12% withholding tax on royalty payments made to foreign entities not engaged in trade or business in Puerto Rico for the local use of intellectual property related to tourist activities. Reduced 2.9% withholding tax on such royalties made to: (i) any entity or person not engaged in a trade or business in Puerto Rico that directly owns 50% or more of stock or ownership interest of the paying tourism business (a “Related Noreisdent Person:); (ii) any entity or person not engaged in trade or business in Puerto Rico that owns directly 80% or more stock or ownership, interest of a Related Nonresident Person (a “Controlling Holder”); or (iii) any entity or person not engaged in a trade or business in Puerto Rico which is 80% held (directly or indirectly) by a Related Nonresident Person or a Controlling Holder.

7. Exemption on Certain Interest: 100% exemption from income and municipal license tax on interest, charges and other proceeds with respect to bonds, notes and other obligations of a tourism business for the development, construction, improvement or rehabilitation of a tourism business under the 2010 TDA, provided certain requirements are satisfied.

B. Property Taxes

90% exemption from municipal and state property (personal and real) taxes on properties dedicated to a tourist activity.

C. Municipal License Tax and other Municipal Taxes

New tourism businesses are 100% exempt from municipal license tax, excise and other municipal taxes with respect to their tourism development income, transactions, or events (or on the use) imposed by any municipal ordinance. The exemption for existing businesses is 90%.

D. Excise and Sales and Uses Taxes

Up to 100% exemption on excise taxes, sales and uses taxes imposed by the Puerto Rico Internal Revenue Code with respect to articles acquired or used by an exempt business related to a tourist activity. This exemption extends to articles acquired by a contractor or subcontractor to be used solely and exclusively by an exempt business in construction works related to a tourist activity.

E. Construction Excise Taxes

100% exemption from any tax, imposition, fee, license, excise, rate or tariffs levied by any ordinance for the construction of works to be dedicated to a tourist activity. This exemption also applies to contractors and subcontractors of an exempt business.

F. Volume of Business of Contractor and Subcontractor

For municipal license tax purposes, contractors and subcontractors that perform works for an exempt tourism business will determine their volume of business by deducting payments that they are obligated to make to subcontractors under the principal contract with the exempt business. This rule applies as well to subcontractors that employ other subcontractors. Certain certification requirements must be satisfied.

G. Tax Credits

50% of the tourism investment but not exceeding 10% of the total cost of the tourism project. The 2010 TDA provides a list of the expenditures counted toward the total cost of the project.

H. Exemption Periods

10 years. The exemption period may be extended for 10 additional years provided that the Tourism Company determines that the exemption is essential for the tourism industry based on the particular facts of the case, the nature of the facilities, the number of employees and reinvestment in the exempt business, among other factors.

I. Renegotiation of Concession

An exempt business under the 1993 TDA or its predecessor act may request a renegotiation of its tourism concession to enjoy the benefit of the 2010 TDA inasmuch as (i) it complies with the requirements of the 2010 TDA, including undertaking a substantial renovation; (ii) the Tourism Company determines that the renegotiation is in the best social and economic interest of Puerto Rico, subject to prior consent of the Treasury Department; and (iii) it surrenders the existing tourism concession.

Tourist Activities

The 2010 TDA includes the following new activities:

  • (i) Agro-Accommodation – Accommodation facilities established in an agricultural exploitation with the purpose of lodging sojourners for contemplating nature and/or participating in activities related to agricultural or craft operations.
  • (ii) Agro-Tourism – A group of activities specifically organized by a bona fide farmer complementary to its principal activities, to which the tourists are invited, and constitute “other services” for payment.
  • (iii) Nautical Tourism – A group of services provided to tourists in contact with the water, including but not limited to: renting or chartering to tourists nautical tourism vessels for leisure, recreation or educational purposes, including excursions, renting small crafts, jet skis, sailboats or similar vessels to guests of a hotel, condohotel, vacation club and the like exempt businesses, and the operation of an integrated renting program of vessels.
  • (iv) Medical Tourism – Medical facilities or installations accredited and certified in Puerto Rico that provide accommodations to patients and their companions that travel to Puerto Rico from other places with the intention of getting medical care and treatment.

    All marinas in Vieques and Culebra will be deemed tourist marinas.

    Tourism Activities conducted in Vieques and Culebra – 100% exemption on (i) tourism development income and (ii) dividends, profits and liquidating distributions.


What investors might not be aware of are the powerful tax-saving opportunities of combining the Qualified Opportunity Zone (QOZ) benefits of investments in Puerto Rico with most of the island designated as QOZ’s with those more recently offered under Puerto Rico laws also intended to encourage economic growth in the Commonwealth of Puerto Rico, most prominently, the Puerto Rico Incentives Code of 2019,Act 60-2019 (Act 60)

U.S. and territorial communities eligible for QOZ designation3 are (1) low-income communities, which are census tracts having (a) a poverty rate of at least 20% (high-poverty tracts) or (b) a median family income at least 20% below that in the surrounding state or territory or, for communities in a metropolitan area, below the greater of the statewide or metropolitan area median family income (low-income tracts);4 or (2) census tracts that are contiguous with a low-income community designated as a QOZ and have a median income not exceeding 125% of that of the qualifying contiguous community.5 Following Hurricanes Maria and Irma in 2017, Congress enacted a special provision for Puerto Rico, exempting it from the limit on the number of census tracts that could be designated as QOZs, to encourage its redevelopment.6

Every state, the District of Columbia, and five U.S. territories7 have QOZs. In addition, state and local tax incentives have increasingly been targeted to eligible taxpayers that roll over capital gains from prior investments into longer-term business development investments in regions in need of economic development.8

However, Puerto Rico is unique in its concentration of QOZs and in how firmly it has enshrined geographically targeted economic stimulus in local tax policy. Nearly 10% of all QOZs nationwide (863 of 8,764) are in Puerto Rico — more than any other U.S. jurisdiction except California (at 879).9 Moreover, 98% of the island is a QOZ; generally, investments in Puerto Rico are investments in QOZs.

Investments by U.S. taxpayers in Puerto Rico through mid-2027 via a self-certified investment vehicle, known as a qualified opportunity fund (QOF), operating in one of Puerto Rico’s QOZs may (1) reduce capital gains, potentially permanently, from prior investments that are rolled over within 180 days into the QOF and (2) create an ability to realize tax-free gains from any post acquisition appreciation in the value of the taxpayer’s investment in such a fund after a 10-year holding period.10

The unique status of Puerto Rico

Puerto Rico is considered part of the United States for many federal laws but not income tax laws. Residents of the island do not pay federal income taxes on their Puerto Rico–source income.11 Entities organized in Puerto Rico are generally classified as foreign persons, and Puerto Rico is generally treated as a foreign country under the Code.12

In addition to splitting tax authority with Puerto Rico, the United States has historically provided special tax incentives for U.S. corporations to make employment-producing investments in Puerto Rico,13 which have been a primary engine of its economic growth since the late 1940s.14 Section 1051 of the Tax Reform Act of 197615 added former Sec. 936 of the Code to streamline and consolidate several special tax provisions for U.S. possessions and connected their tax credits to employment-producing investments by U.S. corporations. Sec. 936 tax credits effectively exempted U.S. corporations’ Puerto Rico–source income from federal corporate income taxes and encouraged many U.S. pharmaceutical and life-science companies to transfer their intangible assets to Puerto Rico and elect Sec. 936 tax benefits.16

However, Sec. 936 expired in 2006. The loss of this tax benefit was considered by some as a cause of the island’s subsequent long-term recession.17 Puerto Rican officials became early advocates for opportunity zones and ultimately secured a privileged place within the federal QOZ program, which the island’s leaders hope will bring more than $600 million in new U.S. investments into an economy that has shrunk by more than 22% since Sec. 936 expired.18

As part of the Bipartisan Budget Act of 2018,19 Congress added a special rule for Puerto Rico. Under Sec. 1400Z-1(b) (3), all of Puerto Rico’s 837 low-income communities and 26 tracts contiguous with them were automatically qualified, designated, and certified as QOZs, effective Dec. 22, 2017. The special rule exempted Puerto Rico from the limitation imposed on all states, the District of Columbia, and other U.S. possessions that no more than 25% of a jurisdiction’s low-income communities could be designated as QOZs. As a result, as noted above, Puerto Rico, with less than one-twelfth the population of California, has nearly as many QOZs, and because 43% of its residents live in poverty — the highest rate in the nation — 98% of Puerto Rico is designated as a QOZ.20

Federal tax incentives for investing in opportunity zones

Opportunity zones under the TCJA provide U.S. taxpayers, who held an estimated $6.1 trillion of unrealized capital gains as of the end of 2017, with an incentive to reinvest their capital in pockets of the country where tens of millions of Americans continue to suffer economically more than a decade after the Great Recession ended in June 2009.21 Economic indicators suggest a similar or greater amount of unrealized capital gains are in the marketplace currently. New economic data also points toward a potentially significant increase in investment in opportunity zones. Assessing the initial impact of opportunity zones on investment, the Council of Economic Advisers estimated that by the end of 2019, QOFs had raised $75 billion in private capital, of which $52 billion, or 70%, was new investment.22

Taxpayers that invest in QOZ property through a self-certified QOF can defer — and in certain circumstances eliminate — the recognition of capital gains rolled over into the fund within 180 days of a capital gains recognition event.23 The QOF must file Form 8996, Qualified Opportunity Fund, to certify each year that it reinvested at least 90% of its assets into QOZ property, including tangible property acquired by purchase or lease after 2017 that is used in a trade or business in a QOZ (QOZ business property) and stock or a partnership interest in a QOZ business (QOZB) acquired after 2017 in exchange for cash.

The 90% investment standard is determined by the average of the percentage of QOZ property held by the QOF as measured on the last day of the first six-month period and on the last day of the tax year of the QOF.24 A QOZB is a partnership or corporation organized under the law of the United States or the law of one of the 50 states; a federally recognized Native American tribal government; the District of Columbia; or a U.S. possession, including Puerto Rico,25 that:

  1. Holds at least 70% of its owned or leased tangible property in QOZ business property, substantially all the use of which is in a QOZ (based on the number of days’ use between two consecutive semiannual QOF asset testing dates);
  2. Holds less than 5% of the unadjusted basis of its property in nonqualified financial property, including debt, stock, partnership interests, options, futures/forward contracts, warrants, notional principal contracts, annuities, and cash, other than reasonable amounts of working capital held in the form of cash, cash equivalents, and debt instruments with a term of 18 months or less for no more than 31 months from the date of receipt and spent in accordance with a written working capital plan and schedule (the working capital safe harbor);
  3. Derives 50% of its gross income from the active conduct of a trade or business in a QOZ (generally based on hours worked, salaries paid for work, or the physical location of tangible property and the operational or management functions performed within a QOZ);
  4. Uses at least 40% of its intangible property in the active conduct of such business; and
  5. Is not in the business of operating or leasing property to a private or commercial golf course; country club; massage parlor; hot-tub, suntan, or gambling facility; or liquor store.26

A QOZB is treated as engaged in such a “sin business” if 5% or more of its gross income, the value of its tangible personal property, or the net rentable square footage of its real property is attributable to such a business.27

Because QOZBs have a lower threshold for qualifying investments than QOFs (70% versus 90%) and are authorized to hold working capital for periods of 31 months or less, many QOZ investments employ a two-tiered structure: A QOF invests at least 90% of its assets in QOZB stock or partnership interests of an entity or several entities that reinvest at least 70% of that capital in QOZ business property. As a result, QOF investors may qualify for benefits even if as little as 63% of their deferredgain capital is invested in the zone (70% of 90% of the QOF investments).

On the other hand, QOFs can invest directly in their own businesses without certain restrictions in which a QOZB could not engage directly, lending a degree of flexibility and optionality to the QOZ program where local development tax incentives for hotels, resorts, and casinos often can be accommodated within a two-tier opportunity zone investment structure. An example in final regulations issued on Dec. 17, 2019, under Sec. 1400Z-2 confirms that a QOF may operate a commercial golf course or other “sin business” directly without violating any anti-abuse rule established by those regulations, even though the business could not be carried on through a QOZB operating entity.28

Electing taxpayers that reinvest eligible gains in a QOF within 180 days of realizing the gain from a transaction with an unrelated person (using a more-than-20% relatedness test for entities)29 may exclude that gain from gross income until Dec. 31, 2026, unless the QOF investment is sold earlier, and partially eliminate up to 15% of the capital gain rolled over into the QOF from federal income tax if they hold their interest in a QOF for at least seven years.30 While taxpayers must recognize at least 85% of their deferred capital gains on or before Dec. 31, 2026, those who continue holding the QOF interest until the 10th anniversary of their investment in the QOF can dispose of the investment tax-free.31 This last incentive in particular has attracted billions of dollars of private capital into QOZs so far, including hotels, resorts, and casinos lining Puerto Rico’s shores, as well as manufacturing and services businesses that make up major sectors of the island’s economy.32

Because QOZ tax incentives are realized through gross income exclusions under Sec. 1400Z-2, not federal tax credits, investors in opportunity zone projects may efficiently combine the tax deferral and potential reduction of a QOF investment with federal income tax credits, including, as applicable, new markets tax credits for the 98% of QOZs that are also low-income communities under Sec. 45D(e); qualified historic building rehabilitation tax credits under Sec. 47; renewable-energy investment and production tax credits under Secs. 48 and 45, respectively; and low-income housing tax credits (LIHTCs) under Sec. 42, together with tax-exempt housing bonds under Sec. 142(d), through which LIHTCs may be realized, and passthrough deductions taken for qualified business income under Sec. 199A.33 Even other federal income tax exclusions, such as that for qualified small business stock, with a shorter holding period can be efficiently combined as an insurance policy against an early exit from a 10-year QOF investment.34

Puerto Rico offers a comprehensive framework for incentivizing “priority projects” in opportunity zones built to complement the federal QOZ incentives and mirror its rapid investment timeline. This framework is the subject of the remainder of this article.

Puerto Rico QOZ program

Puerto Rico has its own range of local development tax incentives to supplement the federal tax benefits achieved by rolling over capital gains into real estate development projects located in one of Puerto Rico’s opportunity zones. These local opportunity zone tax benefits extend beyond those that have long been available for investors in Puerto Rico’s tourism, manufacturing, film, and green energy sectors.

On May 14, 2019, Puerto Rico enacted Act 21-2019, the Act for the Development of Opportunity Zones (Opportunity Zone Act), to provide a comprehensive tax incentive framework for encouraging those considering opportunity zone investments to make those investments in Puerto Rico. In addition, Act 60’s provisions, which largely subsume Act 21-2019, are intended to align local tax law with U.S. tax benefits afforded QOF investors under the QOZ provisions and to supplement those benefits “to create a favorable environment to attract investment to Opportunity Zones located in their jurisdictions [in Puerto Rico]” by “aggressively establishing the most attractive tax, regulatory, and economic framework for a Qualified Opportunity Fund.”35

In addition to the preferential income tax treatment, Puerto Rico’s incentives statute for opportunity zones provides for reductions in other local taxes for a period of 15 years and a transferable tax credit of up to 25% of cash contributed to a QOF that conducts business in Puerto Rico.36 A wide array of territorial and municipal tax exemptions, reductions, and credits, including the dozen such provisions detailed below in the section headed “Tax Benefits Under Act 60,” are available to business activities of certified QOFs and QOZBs (QOF and QOZB exempt businesses). These provisions, among other benefits such as an expedited permitting process, are intended to make Puerto Rico’s market more appealing for investors looking to take advantage of opportunity zones.37

To qualify for Act 60 benefits as a QOF or QOZB exempt business, a taxpayer must undertake a priority project and then obtain an exemption certificate. These requirements are described further below.

Priority project

Puerto Rico’s Committee on Priority Projects Within Opportunity Zones has designated each of the following a priority project that will be eligible for Puerto Rico QOZ benefits from Aug. 19, 2019, until the committee amends the list adopted in Resolution 19-01, To Approve and Adopt the Initial Priority Projects Within Opportunity Zones List, dated Aug. 19, 2020, which remains effective as of the date of this writing: (1) the development (including the acquisition and construction and/or substantial improvement) of residential real property for sale or rent that is a “low-income housing project” as defined in Sec. 42(g) or by the Puerto Rico Department of Housing; (2) the development (including acquisition and construction and/or substantial improvement) of other residential and/ or commercial real property for sale or rent; (3) the development (including acquisition and construction and/or substantial improvement) of industrial real property for sale or rent; and (4) the substantial improvement of any existing commercial property for sale or rent.38

Although the committee’s directive does not define the “substantial improvement of existing property” that qualifies a project for Puerto Rico tax benefits, QOZ business property takes its meaning in the Puerto Rico Opportunity Zone Act and regulations thereunder from Sec. 1400Z-2(d)(2) (D), which treats tangible property as “substantially improved” by a QOF or QOZB only if, during any 30-month period beginning after the date of its acquisition, additions to the property’s basis in the hands of the QOF or QOZB exceed the property’s adjusted basis at the beginning of the 30-month period.39 It is expected that priority projects for existing buildings would likewise require more than doubling the basis of such real property within any 30 months (excluding the value of any land) for the improvements to qualify for local tax incentives.

Exemption decree

Undertaking a priority project is not enough for Puerto Rico tax benefits to accrue, however. Unlike self-certified QOFs, which confer benefits on investors without Treasury’s imprimatur, QOFs and QOZBs cannot become exempt businesses entitled to Puerto Rico tax benefits before applying for and being granted an exemption decree under Act 60 from the director of the Industrial Tax Exemption Office.40

Among other things, the business seeking such a decree must be either a QOF that exclusively invests in Puerto Rico’s opportunity zones or a QOZB in which such a QOF invests.41 Further, while the U.S. federal opportunity zone program can be effectively combined with any number of federal and local tax incentive programs, Puerto Rico’s opportunity zone incentives cannot be combined with certain Puerto Rico tax benefits provided to encourage tourism, manufacturing, green energy, and filmmaking on the island, so taxpayers must carefully weigh the value of these opportunity zone benefits against Puerto Rico’s industry-specific economic development tax incentives.

Nevertheless, the benefits offered under the Puerto Rico Opportunity Zone Act may provide a useful boost to the federal opportunity zone investment incentives for many commercial, industrial, and residential rental projects in Puerto Rico that are ineligible for these other Puerto Rico incentive programs.

Tax benefits under Act 60

The Puerto Rico QOZ program generally provides tax benefits for 15 years to an “eligible business” that has qualified as an exempt business. As noted above, an eligible business becomes an exempt business by applying for and receiving a discretionary tax-exemption decree from the director of the Industrial Tax Exemption Office.42 To be an eligible business, the business must be formed as a Puerto Rico or U.S. corporation, partnership, limited liability company, or joint venture that satisfies the requirements under Sec. 1400Z-2(d) for being a QOF or QOZB.43 Further, the QOF or QOZB’s activity must be a designated priority project, or the entity must request such a designation in a letter addressed to the Committee on Priority Projects Within Opportunity Zones.

Finally, the entity carrying on the business must not be eligible for a taxexemption decree under Puerto Rico’s Act to Promote the Export of Services, the Economic Incentives Act for the Development of Puerto Rico, the Puerto Rico Tourism Development Act of 2010, the Green Energy Incentives Act of Puerto Rico, or the Puerto Rico Film Industry Economic Incentives Act.

Investors in priority projects through such exempt businesses are eligible for the following 12 benefits for 15 years:44

Transferable investment tax credit: A taxpayer can earn a transferable Puerto Rico investment tax credit of up to 25% of the money invested by the taxpayer in an exempt business conducted directly by a QOF that carries on a trade or business in Puerto Rico or that is invested in a QOF that reinvests the money into a QOZB that is an exempt business that carries on such a trade or business. Any investors’ cash investment in a QOF conducting an exempt business or a QOZB that is an exempt business, including capital contributions from taxpayers such as Puerto Rico residents, who are ineligible to elect deferral of capital gains for U.S. tax purposes under Sec. 1400Z-2(a), can qualify for the Puerto Rico tax credit.45

The credit percentage is set by the Committee on Priority Projects Within Opportunity Zones and generally can be a minimum of 5% and a maximum of 25%.46 However, the committee may establish a credit percentage different from the general credit percentage (subject to a maximum of 25%) to exempt businesses located within qualified zones for which the committee has determined to designate a different percentage and that meet the criteria established by the committee, which take into account (1) the exempt business’s job-creation potential; (2) the exempt business’s contribution to the fields of education, health, and housing; (3) the amount of the investment the exempt business makes in lands, buildings, machinery, and equipment; and (4) the potential effect on the economy and the needs of the geographic area.47

The credit is available in four annual installments, generally beginning in the year in which the exempt business either (1) finishes the total construction of a priority project, or (2) commences operations, in the case of a priority project that does not require construction.48 For this purpose, the Department of Economic Development and Commerce of Puerto Rico published rules on the Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012) on Oct. 9, 2020 (the Puerto Rico opportunity zone regulations), that define a priority project’s total construction to be completed when more than 90% of the total construction has been carried out.49

In addition, if a taxpayer makes an eligible investment in a QOF or QOZB that is an exempt business after construction of the eligible project is completed, the taxpayer may qualify for the credit in four annual installments, beginning in the year in which the QOF or QOZB makes a “significant expansion” of the real property so constructed.50 The Puerto Rico opportunity zone regulations define a significant expansion as an “expansion that meets the requirements provided in Sec. 1400Z-2(d)(2) (D)(ii) of the federal Internal Revenue Code, and the federal regulations for opportunity zones published for these purposes.”51

Sec. 1400Z-2(d)(2)(D)(ii) refers to the requirements for tangible business property that has already been originally used by a taxpayer in a QOZ to be substantially improved in order to qualify as QOZ business property, as described above. Thus, under the Puerto Rico opportunity zone program, after construction of an eligible project is finalized, the QOF’s and QOZB’s ability to more than double their adjusted tax basis in a building during any applicable 30-month substantial-improvement period would allow new investors in an exempt business or a QOF that invests in a QOZB exempt business to potentially qualify for a Puerto Rico tax credit of between 5% and 25% of the cash invested in the exempt business.52

Any amount of the Puerto Rico opportunity zone investment tax credit not used in a year can be carried forward indefinitely until it is exhausted and may be sold or transferred to third parties. In the case of a sale of the credit, Puerto Rico exempts from tax the purchase price received.53

Exempt income from asset sales: Gain realized by an exempt business on the sale or exchange of any asset made during its 15-year tax-exemption period is exempt from tax in Puerto Rico if the exempt business reinvests the amount realized from the sale or exchange pursuant to the requirements of Sec. 1400Z-2(d)(1).54 As stated above, Sec. 1400Z-2(d)(1) requires that QOFs hold at least 90% of their assets in QOZ property, including QOZ business property held directly and QOZ partnership interests or QOZ stock issued by a QOZB that must hold at least 70% of its tangible property in QOZ business property, determined annually based on the average amount of assets held in the form of QOZ property on two semiannual testing dates. Sec. 1400Z-2(d)(1) does not apply to QOZB exempt businesses directly, although the conditions of Act 60 could be considered met if the proceeds of a sale or exchange by a QOZB exempt business were reinvested in accordance with its 70% QOZ business property requirement.55

In particular, the Puerto Rico opportunity zone regulations provide that a QOF or QOZB that is an exempt business will not recognize gain if it sells an asset during the 15-year exemption period covered by the Puerto Rico tax-exemption decree issued in accordance with Act 60, Section 6070.60, as long as the exempt business reinvests an amount equal to the amount realized in the sale or exchange in QOZ business property under Sec. 1400Z-2(d)(2)(A)(iii).56

In order for the exempt business to qualify for the exemption from Puerto Rico tax on a sale or exchange of property during its tax-exemption period, the total amount realized (not just the gain) must be reinvested in QOZ business property within 12 months of the sale or exchange of assets that generated the gain, and the assets must be used in the eligible activity of the exempt business in Puerto Rico for which the exemption certificate was issued.57 The Puerto Rico opportunity zone regulations also make clear that the exemption from local tax from the sale or exchange of assets during the period of an exempt business’s tax-exemption decree under the Puerto Rico QOZ program will not sunset when a census tract’s QOZ status ends under the federal Internal Revenue Code.58

Example: Corporation X is an exempt business operating under a tax-exemption decree for priority projects within QOZs, as defined in Section 6070.55(a)(23) of Act 60, engaged in the commercial rental of a building that it owns in a Puerto Rico QOZ. The effective date of the corporation’s decree is July 1, 2020. The corporation owns the building with a tax basis of $250,000 and sells it for $600,000 on Dec. 1, 2034, after the Puerto Rico QOZ’s designation as a QOZ has expired under Sec. 1400Z-1(f) but before the expiration of the Puerto Rico tax-exemption decree. Under these circumstances, the Puerto Rico opportunity zone regulations provide that the sale or exchange by Corporation X of the building will not be taxed if, and only if, the corporation invests its $600,000 realized from the sale of the building in QOZ business property located in Puerto Rico within 12 months from Dec. 1, 2034.59

If Corporation X invests only $550,000 of its $600,000 realized from the sale of the building, the entire $350,000 gain will be taxable in Puerto Rico, subject to the application of other tax rules, including the basis step-up available under Puerto Rico and U.S. law under Sec. 1400Z-2(c).60

Although not free from doubt, it also appears that this Puerto Rico tax exemption may apply to gain from the sale of any tangible or intangible asset and to gain treated as ordinary income, rather than capital gain, for Puerto Rico income tax purposes.61

Exempt interest income: Interest income is exempt from commonwealth and municipal taxation on amounts loaned to QOFs and QOZBs that are exempt businesses, thus decreasing their cost of capital.62

Exempt dividend income: Dividend income and distributions from earnings and profits attributable to the opportunity zone net income generated by a QOF or QOZB that is an exempt business in a Puerto Rico QOZ are exempt from tax. The exemption for dividend distributions extends to subsequent distributions of earnings and profits from opportunity zone net income made by a taxpayer that received a tax-exempt dividend from an exempt business. Such distributions are also exempt from Puerto Rico’s alternative minimum tax, the alternative basic tax on individuals, and the accumulated earnings tax penalty on corporations that improperly accumulate surplus corporate earnings instead of distributing their earnings to shareholders. Dividends and distributions from exempt businesses are not subject to municipal tax in Puerto Rico.63

Reduced rate income tax: A fixed 18.5% tax rate applies to net income earned by certain QOFs and QOZBs that are exempt businesses from Puerto Rico QOZs.64 This is a significant reduction from the maximum income tax rate in Puerto Rico of 37.5% for corporations and 33% for individuals.65

Reduced rate on withholding tax: A fixed 18.5% rate applies to withholding tax on rents, royalties, and licensing fees paid by an exempt business to nonresident individuals, corporations, and foreign partnerships engaged in a Puerto Rico trade or business.66 Like Puerto Rico’s exemption for interest earned on exempt businesses’ debt, this Puerto Rico tax exemption applies to parties contracting with a QOF and QOZB exempt business so that priority projects cost less to construct or substantially improve.

Exemption from property tax: This is a 25% exemption from municipal and state personal and real property taxes that municipalities can raise to 75% with respect to the property of a QOF or QOZB exempt business used in its development, organization, construction, establishment, or operation, which municipalities may increase to 75%.67

Exemption from municipal tax: This is a 25% exemption for QOFs and QOZBs that are exempt from municipal license, excise, and other taxes levied by municipal ordinance on the business activities of exempt businesses, which municipalities can raise at their discretion to 75%.68

Exemption from other municipal taxes, including construction excise taxes: A 25% exemption is available for QOFs and QOZBs that are exempt businesses and their contractors and subcontractors from any tax; levy; fee; license; excise tax (including construction excise tax imposed by municipalities, which is generally approximately 4% to 5% of the cost of the project); duty; or rate69 imposed by a municipal ordinance on construction of works that are to be used by the applicable business in the municipality.70 Municipalities, at their discretion, can also increase these tax exemptions for exempt businesses, contractors, and subcontractors to a maximum of 75%.

Municipalities, subject to the 75% maximum, can also vary additional exemptions established for all exempt businesses by municipal ordinance, provided that the municipality deems it beneficial to promote certain business activities or a specific geographic area.71 To do so, the exempt business developing a priority project must submit an application to the municipality in which the project is located. Municipalities are required to maintain an inventory of such applications, setting forth information including the additional exemption requested, the type of project or business activity, the total investment in the municipality, the direct jobs created by the project in the municipality, and any other information the municipality requests.72

Priority of payment: Puerto Rico has also established a credit priority system for priority projects within opportunity zones, whereby approval of investment credits under the opportunity zone program comes first in order of priority, behind only investment credits established in prior incentives law.73

Tax-deferred capital gain and appreciation basis step-up: This is a tax deferment on capital gains for amounts invested in a QOF in Puerto Rico and appreciation basis step-up under similar rules to those under federal legislation. Thus, taxpayers that invest in priority projects in Puerto Rico through QOFs may realize federally and locally tax-free gains on a sale of the QOF after a holding period of at least 10 years.

Expedited permitting: A swift permit evaluation and issuance process for exempt businesses established by the Puerto Rico Opportunity Zone Act consolidates all permit processing in Puerto Rico at all levels of government under the exclusive jurisdiction of the Permit Management Office.74>/a> Most nonenvironmental permits for priority projects within opportunity zones must be issued under the Permit Management Office’s streamlined procedures within 10 business days after the permit application has been filed with the office by an exempt business, including permits for urban development, construction, land subdivision, and others for the development of the priority project.75

A streamlined environmental review and compliance certification process for priority projects in opportunity zones provides that most environmental evaluations, impact studies, adjudications, and certifications will be completed by the Permit Management Office within 20 business days.76 Moreover, any requirement under Puerto Rico law to notify interested parties with respect to the priority project or work connected with the project shall be deemed satisfied by publication of a single notice in two newspapers of general circulation in Puerto Rico.77

Although QOZBs that are delayed in their expenditure of working capital assets in accordance with a written plan and schedule while waiting for governmental action on a complete application — or for up to 24 months after a federally declared disaster in the QOZ census tract where a project is being developed78 — may continue to rely on the working capital safe harbor under Regs. Sec. 1.1400Z2(d)-1(d) (3)(v), such delays may cause delays in funding of a QOZB that are not so protected and could cause benefits under the federal opportunity zone program to be lost.79 This might occur, for instance, if governmental delays cause such uncertainty with respect to the viability of a project that investors delayed funding a QOF until after the Dec. 31, 2021, deadline for reducing capital gains rolled over into a QOF.80 Puerto Rico’s streamlined procedure for issuing permits to QOZ projects helps reduce delays that might otherwise prove costly to investors and fund managers on the island.

This powerful constellation of tax incentives may offer many U.S. investors in Puerto Rico a wide array of potential opportunities. In addition, legislation enacted by Puerto Rico in April 2020 will ensure that bona fide residents of Puerto Rico are eligible to receive local tax benefits that mirror for Puerto Rico income tax purposes the tax deferral and partial elimination of capital gains invested in a QOF, along with the permanent exclusion of post-acquisition gains that such investors would be able to achieve for federal income tax purposes if they were subject to federal income tax.81

The Puerto Rico legislation was enacted after the IRS and Treasury made clear in final regulations issued under Sec. 1400Z-2 that individuals and entities not subject to federal capital gains are ineligible for the federal tax benefits under the QOZ program.82 This new feature of Puerto Rico’s opportunity zone tax break, combined with the local tax credits and income tax benefits described above, should provide additional incentives for Puerto Rico residents to invest in QOZ projects, even if they cannot receive U.S. federal income tax benefits from their QOF investments.

An opportunity for economic transformation

The government of Puerto Rico sees in the federal opportunity zone program an incentive with the power to transform its economy by attracting private capital from the United States into potential new business opportunities on the island.83 It hopes that the federal incentives for businesses, combined with recently enacted local development incentives, will attract private investment to the island that otherwise may not exist, thus stimulating its economic development and recovery from Hurricanes Maria and Irma and creating jobs at a critical time for Puerto Rico’s economy.

Under Act 60, Puerto Rico has established a highly competitive local tax, regulatory, and economic framework, in addition to the opportunity zone federal tax benefits, for U.S. investors who reinvest capital gains into a Puerto Rican business. These new incentives for Puerto Rico’s opportunity zone investors allow U.S. taxpayers to receive local tax benefits for projects not otherwise entitled to tax exemptions, credits, and other incentives under other local development incentive programs in Puerto Rico for those engaged in the tourism, manufacturing, and green energy sectors. Because of Puerto Rico’s status as the most highly concentrated area of opportunity zones in the United States, these new local opportunity zone incentives will be closely watched by investors as well as by state lawmakers looking to craft legislation to promote investment in their own opportunity zones.


1 The law known as the Tax Cuts and Jobs Act, P.L. 115-97, §13823(a).

2 Puerto Rico Act No. 60-2019 (Act 60), at §6070.54 et seq. (July 1, 2019), establishing various incentives for “priority projects in opportunity zones,” including but not limited to a transferrable Puerto Rico tax credit, reduced tax rates for certain businesses operating in Puerto Rico QOZs that receive tax-advantaged capital, and expedited permitting procedures for all such businesses.

3 State and territorial governors and the mayor of the District of Columbia nominated eligible tracts in their respective jurisdictions to Treasury, which designated the QOZs under Sec. 1400Z-1(b).

4 Secs. 1400Z-1(c)(1) and 45D(e).

5 Sec. 1400Z-1(e). For listings of qualifying census tracts, see Notices 2018-48 and 2019-42.

6 Bipartisan Budget Act of 2018, P.L. 115-123, codified, as amended, at Sec. 1400Z-1(b)(3).

7 Besides Puerto Rico: American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands.

8 See, e.g., Ohio Rev. Code §122.84 and Conn. Gen. Stat. §32-9t(g). Puerto Rico’s legislation is discussed below.

9 Notices 2018-48 and 2019-42.

10 Secs. 1400Z-2(a)(1), (b)(2)(B)(iii), (b)(2)(B)(iv), and (c).

11 Sec. 933(1).

12 Secs. 7701(a)(4) and (9).

13 Income derived from operations of U.S. corporations in U.S. possessions has been subject to special tax provisions since the Revenue Act of 1921, P.L. 67-98.

14 Joint Committee on Taxation, An Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options (JCX-24-06), pp. 50–57 (June 23, 2006); Finance Oversight and Management Board for Puerto Rico, Revised Fiscal Plan for Puerto Rico, pp. 11–12 (March 27, 2019).

15 Tax Reform Act of 1976, P.L. 94-455.

16 General Accounting Office, Report to the Chairman of the U.S. Senate Committee on Finance, Puerto Rico and the Section 936 Tax Credit (GAO/ GGD-93-109), p. 4 (June 1993); Joint Committee on Taxation, An Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options (JCX-24-06), pp. 50–53 (June 23, 2006).

17 Greenberg and Ekins, “Tax Policy Helped Create Puerto Rico’s Fiscal Crisis,” Tax Foundation (June 30, 2015); Finance Oversight and Management Board for Puerto Rico, Revised Fiscal Plan for Puerto Rico, pp. 11–12 (March 27, 2019).

18 Letter from Rep. Jenniffer González-Colón, D-P.R., and Rep. José E. Serrano, D-P.R., to Rep. Kevin Brady, R-Texas, and Sen. Orrin Hatch, RUtah, Dec. 12, 2017; news release, Puerto Rico Fiscal Agency and Financial Advisory Authority, “Government Reveals List of Commercial Activities for Opportunity Zones” (Aug. 21, 2019).

19 Bipartisan Budget Act of 2018, P.L. 115-123.

20 News release, Puerto Rico Fiscal Agency and Financial Advisory Authority, “Government Reveals List of Commercial Activities for Opportunity Zones” (Aug. 21, 2019); Financial Oversight and Management Board for Puerto Rico, Revised Fiscal Plan for Puerto Rico, p. 6 (March 27, 2019).

21 The Promise of Opportunity Zones: Hearing Before the Joint Economic Committee, S. Hearing 115-297, 115th Cong., 2d Sess., pp. 3, 10 (May 17, 2018).

22 White House Council of Economic Advisers, The Impact of Opportunity Zones: An Initial Assessment, pp. 15–18 (August 2020).

23 Secs. 1400Z-2(a)(1), (b)(2)(B)(iii), (b)(2)(B)(iv), and (c). For more on QOZs generally, see Nitti, “Opportunities Beckon in New Qualified Opportunity Zones,” 50 The Tax Adviser 356 (May 2019).

24 Sec. 1400Z-2(d)(1); Regs. Sec. 1.1400Z2(a)-1(b)(4).

25 For this purpose, a corporation or partnership that is organized in Puerto Rico or another U.S. possession may qualify as a QOZB only if it is organized for the purpose of investing in QOZ property that relates to a trade or business operated in the U.S. possession in which the entity is organized (Regs. Sec. 1.1400Z2(d)-1(a)(1)(ii)(B)(1)).

26 Sec. 1400Z-2(d)(3); Regs. Secs. 1.1400Z2(d)-1(d)(2)(i), 1.1400Z2(d)-1(d) (3)(i), 1.1400Z2(d)-1(d)(3)(ii)(A), 1.1400Z2(d)-1(d)(3)(iv), 1.1400Z2(d)-1(d)(3)(v), 1.1400Z2(d)-1(d)(4)(i), and 1.1400Z2(d)-2(d)(4)(i).

27 Regs. Sec. 1.1400Z2(d)-1(d)(4)(ii).

28 Regs. Sec. 1.1400Z2(d)-1(d)(4)(iv)(B), Example (2).

29 Sec. 1400Z-2(e)(2).

30 Secs. 1400Z-2(a)(1)(A), (b)(1), (b)(2)(B)(iii), and (b)(2)(B)(iv).

31 Sec. 1400Z-2(c).

32 See National Conference of State Housing Boards, Opportunity Zone Fund Directory; Fox, “JLL: Puerto Rico Offers Opportunities for Hotel Investors,” Hotel Management (June 18, 2019).

33 Sec. 1400Z-1(c)(1), referencing Sec. 45D(e).

34 Talansky and Karetnyi, “Get in the Q: The Alphabet Soup of QOZ and QSBS Tax Benefits,” 164 Tax Notes Federal 2217 (Sept. 30, 2019).

35 Puerto Rico S.B. 1147, An Act to Create the Puerto Rico Economic Development and Opportunity Zones Act of 2019 (Act 21-2019), Statement of Motives, p. 2 (April 14, 2019).

36 Act 60, §§6070.56(i)(1)–(3).

37 Act 21-2019, Statement of Motives, pp. 3–4.

38 News release, Puerto Rico Fiscal Agency and Financial Advisory Authority, “Government Reveals List of Commercial Activities for Opportunity Zones” (Aug. 21, 2019).

39 The Department of Economic Development and Commerce of Puerto Rico has published Reglamento de Zonas de Oportunidad en Puerto Rico, Reg. No. 9222 (Regulation of Opportunity Zones in Puerto Rico), MO-DEC-012 (Oct. 9, 2020), establishing that terms not otherwise defined in the Internal Revenue Code of Puerto Rico or the Puerto Rico opportunity zone regulations “will have the same meaning that they have in … the federal Internal Revenue Code” (Article 6070.55-1(b) (author’s translation)).

40 Act 60, §6070.60.

41 Id., §§6070.55(a)(20)–(21).

42 Id., §6070.60.

43 Id., §§6070.55(a)(20)–(21).

44 Id., §6070.55(a)(20)(B).

45 Id., §§6070.55(a)(9), 6070.55(a)(16), and 6070.56(i).

46 Id., §6070.56(i)(7)(A).

47 Id., §6070.56(i)(7)(B).

48 Id., §6070.56(i)(1).

49 Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Article 6070.56(i)(1)-2(c)(1).

50 Act 60, §6070.56(i)(1).

51 Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Article 6070.56(i)(1)-3 (author’s translation).

52 Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Article 6070.56(i)(1)-3.

53 Act 60, §§6070.56(i)(2), (i)(3)(A), and (i)(6).

54 Id., §6070.56(f).

55 Id.

56 Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Article 6070.56(f)-1(a).

57 Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Articles 6070.56(f)-1(a)(1)–(3).

58 See Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Article 6070.56(f)-1(b) (stating that if the sale or exchange occurs after a census tract’s QOZ status terminates under Sec. 1400Z-2(f), the requirements applicable to QOZ business property under Sec. 1400Z-2(d)(2)(A)(iii) will continue to apply for purposes of the Puerto Rico Incentives Code).

59 Regulation of Opportunity Zones in Puerto Rico (MO-DEC-012), Article 6070.56(f)-1(c).

60 Id.

61 See Secs. 1400Z-2(d)(1) and 1400Z-2(d)(3)(A)(i); Regs. Sec. 1.1400Z2(d)- 1(d)(2).

62 Act 60, §6070.56(h)(1).

63 Id., §§6070.56(e) and 6070.58(f).

64 Id., §6070.56(a).

65 P.R. Laws tit. 13, §§30061(a), 30071, and 30072.

66 Act 60, §6070.56(c)(1).

67 Id., §6070.57(b), as amended by P.R. Act No. 40-2020 (April 16, 2020).

68 Act 60, §§6070.58(a) and 6070.58(e).

69 Id., §6070.58(d); Alemar-Escabí and Ríos-Méndez, Bloomberg Tax Portfolio 7320-2d, Business Operations in Puerto Rico, Chapter 4.J (2019).

70 Act 60, §6070.58(d).

71 Id., §6070.58(e).

72 Id., §6070.58(g).

73 Id., §§6070.56(j) and 6070.69(i).

74 Id., §6070.69.

75 Id., §6070.69(f).

76 Id., §§6070.69(d)–(e).

77 Id., §6070.69(g).

78 See Notice 2020-39, as modified by Notice 2021-10 (providing a 24-month extension to the 31-month working capital safe-harbor period for projects with a written working capital plan and schedule in place before June 30, 2021, that provides for the expenditure of working capital held in the form of cash, cash equivalents, or debt instruments with a term of 18 months or less on the development of a trade or business in a QOZ).

79 Compare Regs. Sec. 1.1400Z2(d)-1(d)(3)(v)(C) (deeming property consumption by a QOZB to be consistent with a reasonable working capital plan and schedule expending such capital within 31 months if the delay is caused by waiting for governmental action on an application completed by the entity) with Regs. Sec. 1.1400Z2(d)-1(b)(2)(i)(B) (including no such exception for the QOF’s safe-harbor period for expending recently contributed property converted to working capital assets).

80 See Sec. 1400Z-2(b)(2)(B)(ii) (allowing an increase in basis for investors that invest in a QOF and hold that investment for at least five years before Dec. 31, 2026, i.e., pre-2022 investors).

81 Internal Revenue Code of Puerto Rico, §1031.06.

82 Regs. Sec. 1.1400Z2(a)-1(b)(11)(i)(B) (defining gain eligible for deferral and reduction potential under Sec. 1400Z-2 as capital gains and qualified Sec. 1231 gains that “would be recognized for Federal income tax purposes and subject to tax under subtitle A of the Code before January 1, 2027 (subject to Federal income tax), if Sec. 1400Z-2(a)(1) did not apply to defer recognition of the gain”).

83 News release, Puerto Rico Fiscal Agency and Financial Advisory Authority, “Government Reveals List of Commercial Activities for Opportunity Zones” (Aug. 21, 2019).