The Jobs Now Act was signed into law on February 10, 2013. It purports to create jobs within 18 months by eliminating certain hurdles that delay and impede the process of establishing new businesses or expanding existing businesses in Puerto Rico, allow better access to capital, and provide incentives under Agreements between Eligible Businesses and the Government of Puerto Rico, through the Company for Commerce and Exports of Puerto Rico (the “Company”). The Statement of Motives and Article 1.2 (Public Policy Statement) emphasize the objective of providing support to local and small and medium size businesses.
In order to benefit from the Jobs Now Act, a business must be an “Eligible Business”. An Eligible Business is any person, natural or juridical, or organization that is or will be engaged in business in Puerto Rico, provided its operations are not covered by an Incentives Law (industrial, tourism, film, green energy incentives, among others).
An Eligible Business includes a New Business, an Expansion of an Existing Business and a Business in Development (employs 15 employees or less), as such terms are described in the Act. However, in order to be an Eligible Business at least 15% of the business must be owned by “local capital” or the business must deposit and maintain in local banks at least 1% of its gross sales generated in
Puerto Rico. The deposits must be made on a monthly basis and maintained in Puerto Rico at least three years.
Benefits under an Agreement with the Company of Commerce and Exports
The benefits to be granted under this part will require entering into an Agreement with the Company of Commerce and Exports, where a commitment for the creation of a specific number of incremental jobs will have to be made.
The period of time to execute an Agreement has been limited to nine months after the bill was enacted into law (ie. until November 10, 2013.)
Benefits Available to Eligible Businesses that are New Businesses, Businesses in Expansion and Businesses in Development under an Agreement
The following are the benefits available to Eligible Businesses that enter into an Agreement and that qualify as New Businesses, Businesses in Expansion or Businesses in Development, provided the specific requirements are present:
1. Two-year full real property tax exemption with respect to property that was vacant and that is acquired to establish the Business’ operations.
2. Partial reimbursement of salaries (20% of basic salary) paid to persons that had lost their jobs in government under Act 7 of March 9, 2009 and that constitute incremental jobs for the Eligible Business. The reimbursement will apply for
18 months from the date of effectiveness of the Agreement.
3. Partial reimbursement of salaries (25% of basic salary) paid to females over the age of 56 that were unemployed and are hired by Eligible Businesses. The reimbursement will apply for 18 months from the date of the effectiveness of the Agreement.
4. Nominal ($1) rent on the lease of buildings belonging to the Puerto Rico Industrial Development Company (PRIDCo) or the Company of Commerce and Exports during the first two years of the lease (three years in the case of a Business in Development). The usual terms and conditions of this type of lease will apply for the remainder of the lease term.
5. Special deduction for investment in repairs and improvements made on buildings leased from the PRIDCo.
Benefits Available to New Businesses Only
A New Business is an Eligible Business that has not commenced its principal operation at the time the Agreement is executed. A Business that has been operating in Puerto Rico through affiliates or resulting from reorganization will not be considered a New Business. The benefits include a preferential income tax rate for the first two years of operation (10% in the first year, 15% in the second year), an extended carry-over period (10 years instead of 7) for net operating losses incurred during the first two years of operation, a full municipal license tax exemption for two economic years, full personal property tax exemption for two years, partial reimbursement (50% of base salary) of salaries with respect to businesses that are organized under the Cooperatives Act and created by residents of public housing, as well as with respect to employees under the age of 25, and reduced Christmas Bonus minimum amounts for the first three years of operation.
Benefits Available to Businesses in Development Only
Businesses under Development are those that have 15 employees or less as of December 31, 2012. The benefits include discounts in the Government Insurance Fund fees, reimbursement of freight costs incurred in the exportation of certain products, and partial reimbursement of salaries relating to employees described in items 2 and 3 of above (relating to benefits applicable to New Businesses, Expansions and Businesses in Development).
Access to Capital
The Economic Development Bank of Puerto Rico is ordered to give priority to loan applications submitted by Eligible Businesses covered by the Act and to consider these applications on an expedited basis. The Bank is authorized to create programs to facilitate financing, including programs that would guarantee financing by other entities. This will be subject to eligibility criteria established by the Bank.
The Act establishes the procedure to enter into an Agreement. An Application must be submitted to the Company for Commerce and Exports of Puerto Rico.
An expedited permitting process with respect to construction and use permits is established for Eligible Businesses, provided the following requirements are complied with: (1) the proposed use for the property is consistent with existing zoning; (2) the existing utility and access infrastructure can support the new project; (3) The proposed use is not located in a flood area or other types of zones susceptible to tides or land sliding;
(4) the proposed use will not impact protected or sensitive ecologic zones, and (5) the total cost of the construction does not exceed $15,000,000. In addition, the Eligible Business will have to submit copy of the Agreement with the Company that certifies it as an Eligible Business.
The Permit Management Office (Oficina de Gerencia de Permisos, OGP) is in charge of this process and will establish a special web page for these purposes.
In addition, a Sanitary Permit will only be required to businesses that are dedicated to offering food, public health services, water or ice, pools, public spas or Jacuzzis, among others.
The impact fee (exacción de impacto) for the installation of water, sewage, electric, road or other public services will not be due until 90 days from the date the Eligible Business starts operations.
A credit is generated for each “Eligible Incremental Job”, created between January 1, 2013 and June 30, 2014, and it is to be used against the Eligible Business’ electricity bill. This benefit is available to businesses covered by the Incentives Laws, as long as they are not subject to discounts, special tariffs or credits against their electricity bills under other statutes or programs.
The maximum amount of energy credits that will be allowed per Eligible Incremental Jobs are:
$2,000 per incremental job created between January 1, 2013 and December 31, 2013.
$1,000 per incremental job created between January 1, 2014 and March 31, 2014.
$500 per incremental job created between April 1, 2014 and June 30, 2014.
The amount of credit per Incremental Job will be determined by regulation on the basis of several factors including the basic salary of the employees. However, Article 3.1(i) provides that the amount of credit per Incremental Job will be $750, to be granted as follows: 75% after the first 12 months of employment, and 25% upon completion of the following 6 months of employment. It is not clear whether this refers only to a reimbursement to be made by the Puerto Rico Treasury Department to the Puerto Rico Electric Power Authority, which is the context of Article 3.1(i), or to the amount of credits available.
Eligible Incremental Job is defined as the increment of eligible jobs, compared to the number of jobs as of December 31, 2012. The determination of the Eligible Incremental Job for purposes of the Energy Credit will be made on a quarterly basis, and a report must be filed with the Puerto Rico Electric Power Authority in order to claim the credits.
The Act provides specific rules for determining whether a job created qualifies as an Eligible Incremental Job.
There is a four-year recapture period, whereby the Eligible Business will have to repay part of the energy credit if the number of jobs that generated a credit is not maintained for four years, starting on June 30, 2014.
Because of the general nature of this newsletter, nothing herein should be considered as legal advice or a legal opinion. For further information about the contents of this newsletter, or should you need further assistance in connection with these matters, please contact the firm’s Tax Practice Group.