OPPORTUNITY ZONES PROGRAM Department of Economic Development and - PowerPoint PPT Presentation

OPPORTUNITY ZONES PROGRAM Department of Economic Development and Commerce

Our Economy Strategic Objective: Grow and diversify our economy Gross Domestic Product Share by Main Economic Sector Fiscal Year 2019 GNP $68.0 billion Construction & Utilities GDP $101.1 billion Mining 2.3 1.1 GDP Per Capita $31,022 Commerce Exports Value $60.6 billion 7.9 Agriculture Government Imports Value $46.5 billion 0.8 5.8 Services Statistical 14.3 Discrepancy TOURISM: 2.0% of GDP and estimated to 4.2%* in 0.6 2019 as a total contribution to the Economy GDP (including wider effects from investment, the supply chain and induced income impacts). *calculated by the World Travel & Tourism Council (WTTC) Finance, Contribution to Total MFG GDP FY 2019 Insurance and Manufacturing 36.3% Pharmaceutical Industry (includes Bio-Pharma) Real Estate 47.0 20.4 22.0% Computer and Electronics 26.9% Basic Chemicals 5.4% Medical Devices 2.5% Beverages & Tobacco 2.5% Food 1.5% Electrical Equipment & Components 3.0% Others Source: P.R. Planning Board

Public Policy for Economic Development “ Ease of Doing Retain/ SME’s Investment Export Technology Innovation New Business Business” Expand Business

Strategic Sectors 6 OCEAN ECONOMY 1 AGRO INDUSTRIES Ocean Technologies o Specialty Crops o Ocean-Related Activities Basic Basket o o Deep Ocean Applications o Food Processing o Competitiveness 2 7 BIO ECONOMY ADVANCED MANUFACTURING Bio-Based Raw Materials Bio Science o o Industrial Hemp Medical Devices o o Innovation Medical Cannabis Material Science o o Bio Fuels o 3 AEROSPACE Recycling o Youth & Electro-Mechanical Components o Workforce MRO o 8 EXPORT SERVICES Development Engineering & Testing o Insurance & Finance o Consulting o 4 TECHNOLOGY Technology o IOT & Smart Cities o Blockchain o 9 VISITORS ECONOMY FinTech o Groups & Conventions o Sharing Economy o Leisure & Cruise Industry o Healthcare IT o Medical Tourism o Sports & Nautical Tourism o 5 CREATIVE ECONOMY Eco & Agro Tourism o Film Productions & Streaming o Creative & Digital Content o Music, Culture, Arts and Entertainment o

Hotels: It is an economically deprived community W h a t i s a n • where new investments, under certain New constructions: 113 • O p p o rt u n i t y Z o n e ? circumstances, may be eligible for a Reopening, remodeling : 9 • preferential tax treatment. New Rooms: 7,211 The communities are certified by the United • Existing Rooms: 686 States’ Treasury Secretary, through the IRS. Operational Jobs: 9,562 Construction Jobs: 33,071 Investment: $4,305,016,552 Tax Credit: $1,194,096

Legal Background • The 2017 federal Tax Reform created the Opportunity Zones Program to attract investments and generate economic development in low income communities, known as Qualified Opportunity Zones . • 98% of Puerto Rico was designated as an Opportunity Zone, which makes the island more attractive for investments. • With the purpose of transforming the Island into an idyllic jurisdiction for investments, Puerto Rico’s Government approved Act 21-2019, known as “ 2019 Puerto Rico’s Opportunity Zones and Economic Development Act” (Act 21). • Act Number 60-2019, known as Puerto Rico’s Incentive Code, derogated Act 21. Nevertheless, the new Incentives Code adopted the regulations of that Law.

Public Policy Declaration Transform Puerto Rico into an Opportunity Zones Funds destiny, where to invest in Priority Projects in Opportunity Zones. Provide the atmosphere to create local and foreign capital to invest in Priority Projects in Opportunity Zones. Establish the legal, tax and regulatory frame to incentivize, accelerate and promote investment in Priority Projects in Opportunity Zones.

Puerto Rico = 98% Opportunity Zone

If an eligible taxpayer has an eligible profit and invests it in a Qualified Opportunity Fund (QOF ), does not have to pay taxes during the year it was generated. The QOF is an investment vehicle created to invest in Qualified Opportunity Zones. Deferral and Exclusion of Hotels: The deferred earnings should be recognized before December 31, 2026. Capital Profits New constructions: 113 • Reopening, remodeling : 9 • If the investment in a QOF is maintained for 5 years , the • 5 investor will tribute for the 90% of the capital earnings New Rooms: 7,211 years invested in the QOF. Existing Rooms: 686 If the investment in a QOF is maintained for 7 years , the • 7 investor will tribute for the 85% of the capital earnings Operational Jobs: 9,562 invested in the QOF. years Construction Jobs: 33,071 If the investment in a QOF is maintained for 10 years , the • Investment: $4,305,016,552 10 earnings generated by the investments in QOF will be totally exempted from taxation. years Tax Credit: $1,194,096

Services Rates and Exemptions Benefits to Exempted Tax rate over eligible income 18.5% fixed Hotels: Businesses Dividend Payment 100% exempted New constructions: 113 • 25% exempted with the possibility Patents, excise taxes and other Reopening, remodeling : 9 • to increment it to 75% municipal taxes Municipal and state payments 25% exempted with the possibility New Rooms: 7,211 over property taxes to incremented to 75% Existing Rooms: 686 Any tax, rights, licenses and 25% exempted with the possibility excised taxes (including to increment it to 75% Operational Jobs: 9,562 construction taxes) Investment credit 5%-25% Construction Jobs: 33,071 Investment: $4,305,016,552 Tax Credit: $1,194,096

Committee “ Priority Projects in Opportunity Zones Committee”, assigned to the Governor’s Office Chief Financial Officer AAFAF Chief PR’s House of P3 Executive DEDC’s PR’s Senate Executive Investment Representatives Director Secretary Member Director Officer Member If asked by the Committee President, the Governor can designate other members to the Committee to attend specific requests, related to the business nature.

What is an eligible activity? It is a Priority Project in Opportunity Zones. This means • Eligible Activity Hotels: that a business, industry or other production activity which generates income and will contribute to the New constructions: 113 • eligible community’s diversification, recuperation and Reopening, remodeling : 9 • socio-economic transformation. New Rooms: 7,211 Which are the eligible business activities in Priority Projects? Existing Rooms: 686 Property acquisition and/or construction or substantial • Operational Jobs: 9,562 improvements to existing properties for sale or rent: Construction Jobs: 33,071 Housing for low income people o Residential, commercial or industrial use properties o Investment: $4,305,016,552 Tax Credit: $1,194,096

Committee • Priority Projects: Eligible Activities • Development activities (construction or substantial improvements) for sale or rent: • Affordable housing Committee’s • Residential or commercial property 19-01Resolution • Industrial use property • Substantial improvement of existing projects for commercial use

Any person interested in an activity to be considered as a Priority Project in an Opportunity Zone, which is not listed as Activities which are not so in the Committee’s published list: published as Priority by Hotels: • Will apply for its designation as so, writing a letter to the Committee. A copy the Committee of the letter should be sent to the Secretary of Economic Development and New constructions: 113 • Commerce. Reopening, remodeling : 9 • In the request, the person interested in stablishing and economic activity in • a geographic zone, including the Municipal Majors, will explain and present a description of the activity proposed, its location, its merits and any other New Rooms: 7,211 information required by the Committee trough regulations or administrative orders. Existing Rooms: 686 • In 30 days, after de request date, the Committee will approve or denied it; Operational Jobs: 9,562 or will write a request to provide the necessary additional information. Construction Jobs: 33,071 The Committee will evaluate the information presented to designate the • activity as Priority Project or expand the geographic zone to and activity Investment: $4,305,016,552 already approved in other region. Tax Credit: $1,194,096 In case the request is approve, an amended Priority Projects list will be • published, including the new activity.

An Eligible Business: Hotels: • The business activity is totally done in an Eligible Zone. Eligible Business New constructions: 113 • • The activity is not eligible for a tax exemption under prior Reopening, remodeling : 9 • incentives’ laws. New Rooms: 7,211 • The business is carried trough the Fund or and entity where Existing Rooms: 686 the Fund invests under the IRS Code, Section 1400Z-2(d)(2). Operational Jobs: 9,562 • The activity is a Priority Project in a Qualified Opportunity Construction Jobs: 33,071 Fund (QOF) . Investment: $4,305,016,552 Tax Credit: $1,194,096