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  • The San Juan Daily Star

Proposed tax changes to include requiring contributions from Act 22 beneficiaries

Sen. Juan Zaragoza Gómez

By The Star Staff

Legislative leaders over the weekend unveiled some of the changes to Puerto Rico’s current tax system this year, including changes to the Individual Investors Act (Act 22), which seeks to attract new residents by providing a total exemption from Puerto Rico income taxes on all accrued passive income.

The Senate Treasury Committee chairman said during a Certified Public Accountants Association event that the government should take advantage of the revisions of the Tax Revenue Code to make changes to the tax incentives given to foreign-controlled firms. He said those firms, in exchange for the preferential 4% tax on income, should be required to contribute to the local economy by buying from local suppliers.

They should also be required to transfer technology and resources to local resources and help open access to other markets for local merchants.

Senate Treasury Committee Chairman Juan Zaragoza Gómez, a former Treasury secretary, noted that any substantial amendment made to the tax system must start from the economic reality of the jurisdiction.

“We are at a historic moment where the specific question we must ask ourselves before making any change is how that contributes to the sustainable economic development of Puerto Rico,” he said.

He said requiring foreign-controlled corporations to chain with local suppliers is needed because local wealth is not created through the salaries paid to local workers.

He commented that a substitute bill will be introduced this year to amend Act 22, which later was incorporated into Act 60. Act 22 allows foreign investors to enjoy a 100% tax exemption from Puerto Rico income taxes on all dividend and interest income. Interest and dividends that qualify as Puerto Rico source income will not be subject to federal income taxation under Section 933 of the IRS Tax Code.

Zaragoza said the law will be changed in three fundamental areas. Act 22 beneficiaries must make a contribution to the economy of Puerto Rico of at least $1 million; the residents of Puerto Rico will qualify for this tax in the same way, since it is imperative to also offer benefits to locals; and finally the funds raised from the legislation will go to a special fund to capitalize the Development Bank.

House Treasury Committee Chairman Jesús Santa Rodríguez said tax reform entails many factors, and must be able to adapt to the changes that commonly arise over the years. He said it must be viewed holistically, involving education and electrical, road and communications infrastructure, among other things. The reform must acknowledge that in Puerto Rico there are certain types of economic activity that are viable, but money cannot be spent on others that are not.

He also indicated that it is necessary to start dialogues and negotiations that promote social welfare. House Speaker Rafael Hernández Montañez said tax reform must be an inclusive task that guarantees the economic development of the island and positions Puerto Rico in an optimal position for competitiveness that, at the same time, promotes participation in local business.

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