Production Incentives

40%

Production tax credit on all payments to Puerto Rico Resident companies and individuals

20%

Production tax credit on all payments to Qualified Nonresident individuals

Persons engaged in qualifying film projects are eligible for the following preferential tax rates and exemptions:

Fixed income tax rate of between 4% and 10%
100% exemption on dividend taxes
90% exemption from municipal and state taxes on property
100% exemption from municipal license taxes and other municipal taxes

Tax Incentives Requirements

Qualifying film projects: Feature films, short films, documentaries, television programs, series in episodes, mini-series, music videos, national and international commercials, video games and post-production projects.
$50,000 minimum spend requirement per project ($25,000 for short films)
No principal photography requirements (full or partial development, preproduction may qualify).
If 50% or more of principal photography is shot in the island, development payments to Puerto Rico Resident companies and individuals can qualify.

Payments made to Qualified Nonresident individuals are subject to a 20% withholding over the Puerto Rico sourced income.
The annual cap on credits for payments to Puerto Rico Resident companies and individuals is $38 million per fiscal year.

FILM TAX DECREE APPLICATION PROCESS

HOW TO APPLY

Submit your application through our online portal at: https://ogpe.pr.gov/freedom/ before the end of Principal Photography with the corresponding documents requested in the application for the Puerto Rico Film Commission to evaluate your project in a timely manner. *Please note that Google Chrome is the best internet browser for our online application program.
Following an approval, the DEDC Secretary will issue the film project a decree of film tax credits. For the decree to become effective, the applicant is required to pay a mandatory filling fee equivalent of 1% of the Production Expenses of Puerto Rico, up to a maximum rate of two hundred and fifty thousand dollars ($250,000.00).
The first, 50% payment of the filing fee must be presented to the DEDC Secretary within 30 (thirty) working days from the date the decree was issued. The 50% of the filing fee must be presented with a dully notarized sworn statement accepting the decree. Failure to present evidence of payment and an acceptance of the decree shall deemed as a revocation of the decree and the film tax credits reserved shall be forfeited.
Film Project’s with a decree, must also comply with the following:
1. Set visits for DEDC officials and any other government representatives which should be coordinated in good faith with the production;
2. Set photos and behind the scenes footage/photos must be provided to the DEDC Secretary during production for promotional use;
3. Screen credit requirement at the end credits of the Film Project;
4. A copy of the film project must be available when released for the DEDC Secretary’s promotional use;
5. Joint press releases, conferences and other press related matters are encouraged.

Following the payment and acceptance of the decree, the applicant must begin principal photography within 120 (one hundred and twenty) days of the issuance of the decree. This term may be extended with evidence of reasonable cause.
Following the completion of the Film Project, an Audit Report by a certified Puerto Rico public accountant must be presented to the DEDC Secretary ninety (90) days after wrap for Film Projects that are not undergoing postproduction in Puerto Rico. This ninety (90) day period may be extended by reasonable cause with an approval of the DEDC Secretary or representative. Before the presentation of the Audit Report, the Film Project must present evidence of payment of the remaining Filling Fee. The Audit Report and Auditor must comply with the Agreed Upon Procedures established by the DEDC Secretary.
The DEDC Secretary will evaluate the Report and may request any information necessary for purposes of determining if the Audit Report complies with the Code, Regulation, Administrative Orders, Circular Letters or Agreed Upon Procedures issued by the Government of Puerto Rico or any of its agencies and representatives.
Within thirty (30) days or less after receiving the Auditor’s Report s, the DDEC Secretary will issue a Certification of Tax Credits based on the certification of expenses provided in the Audit Report subject to the maximum amount of tax credits established in the decree. This thirty (30) day period may be interrupted if the DDEC Secretary requests additional information from the Auditor.

PRFPG – Puerto Rico Film Program Decree Application Documents

The application document requires information about the entity, budget, financing, locations, and heads of department in accordance with film industry documents. Please be aware that all documents must meet industry standard applications such as Final Draft, MovieMagic Budgeting & MovieMagic Scheduling, etc.

Applicant company documents required with the application:

If the company is registered to do business in PR:
- Certificate and Articles of Organization
- Certification of registration to do business in Puerto Rico
- Corporate resolution in favor of the complying individual and/or the principal contact.
If the company is a PR entity:
- Certificate and Articles of Organization
- Certificate of no-debt from the Department of Treasury for income taxes and sales and use taxes
- Certificate of compliance of filing income taxes for the past 5 years (if applicant has existed for less than 5 years or if during this period it did not have the obligation to file income taxes, it must supplement the difference with certifications from its partners, members, or shareholders);
- Debt certificate from the Municipal Revenue Collection (CRIM);
- Copy of Municipal License or Certification of Commencement of Operations
- Merchant’s Registration Certificate (SURI);
- Corporate resolution in favor of the complying individual and/or the principal contact.

Project documents required with the application:

Synopsis
Script
Short bio of main talent
Total itemized budget
Total itemized Puerto Rico Production Expenses budget
Total itemized qualified nonresident budget
Days out of days reflecting qualified nonresident workflow
Letter from the distributor
Distribution plan

Applying for Puerto Rico
Production Tax Credits

Who applies for the production tax credits?: Any natural person, corporation, partnership, professional services corporation, association, trust, limited liability company or any other entity or organization, that is engaged in the film project in Puerto Rico may apply for tax credits under the program. The applicant may be a special purpose entity and need not be a Puerto Rico entity, provided it is authorized to do business in Puerto Rico.
How do I apply?: Applying for both the 40% tax credit for payments to Puerto Rico residents and the 20% tax credit for payments to Qualified Nonresident individuals is part of one, unified and easy process.
What important deadlines should I be aware of?: You must file the application with the Puerto Rico Film Commission before end of principal photography (or postproduction, in the case of stand-alone postproduction) through our Single Business Portal at: https://ogpe.pr.gov/freedom/.
Can I qualify eligible expenses that predate the application filing date?: Yes. Eligible expenses will only be considered for purposes of calculating the corresponding tax credit sixty (60) days before the date the application is duly filed. Notwithstanding this general rule, you may contact the Puerto Rico Film Commission in advance to express intent to file an application and request information regarding the tax credits program. Development expenses will be evaluated by the Puerto Rico Film Commission on a case-by-case basis to determine their eligibility.
Is there a filing fee?: Yes. You must pay a mandatory filing fee of 1% of your Puerto Rico estimated budget, up to a maximum amount of $250,000.
When must the filing fee be paid?: The filing fee must be paid in two installments. Fifty percent (50%) of the filing fee must be paid once your application has been approved (not at the time of filing), at which time you receive copy of the film tax decree, the contract between you and the Government of Puerto Rico confirming the production tax credits reserved and tax benefits granted to the applicable film project. The balance payment will be paid once the audit report has been completed and the Film Commissioner has confirmed that the applicable tax credits have become available. The Puerto Rico Film Commission will provide instructions on how and where to pay the filing fee as well as how to accept the grant.
Is there an audit requirement?: Yes. All productions are expected to present an audit report in conformity with the parameters set forth in our Circular Letter to obtain production tax credits under our program. The Puerto Rico Film Commission will provide instructions on how and when must the Audit Report be completed and presented.

Qualifying Expenses Under The Puerto Rico Production Tax Credit Program

What expenses qualify under the program?

Qualifying expenses include payments relating to the development, preproduction, production and postproduction of an eligible film project, including, but not limited to the following:

Any of the following goods or services provided by a vendor that is a Puerto Rico Resident:
- story and script development and revisions
- set construction and operations, wardrobe, accessories, and related services
- photography, sound synchronization, lighting, and related services
- editing and related services
- rental of facilities and equipment (including production office space and stage space)
- leasing of vehicles, including the chartering of aircraft or watercraft provided such aircraft or watercraft is registered and homeported in Puerto Rico and such leasing is limited for travel within Puerto Rico, its airspace and territorial waters
- food and lodging
- commercial airfare if purchased through a Puerto Rico based travel agency or travel company for travel to and from Puerto Rico or within Puerto Rico that is directly attributable to the film project
- insurance coverage and bonding, provided, that it is purchased through an insurance producer authorized to do business in a Puerto Rico
Wages, fringe benefits, per diems or fees for talent, management or labor to a person who is a Puerto Rico Resident or a Qualified Nonresident, including producers, writers, directors, and talent (provided that per diems for nonresident crew will also qualify); and Interest, charges and fees paid to Puerto Rico licensed financial institutions.

Are there any caps or limitations on eligible expenses?

There are no individual, project, or annual caps on expenses. However, there is an annual rolling cap on credits for payments to Puerto Rico Residents and Non-Residents of $38 million.

Are there any caps on producer fees or payments to related parties?

Payments to Puerto Rico Residents for production fees or similar budgetary items will be capped to 10% of the film project’s Puerto Rico budget for purposes of computing the film tax credits. For more information, please refer to our Circular Letters.

What is a Puerto Rico resident?

For purposes of the program, the definition of a Puerto Rico resident is made by reference to the Puerto Rico Internal Revenue Code of 2011, in the case of individuals Under the Code, an individual is considered a Puerto Rico resident if he or she has a domicile in Puerto Rico. An individual who has been present in Puerto Rico for 183 days or more of a calendar year will be presumed to be domiciled in Puerto Rico. For purposes of determining if a juridical person is considered a Puerto Rico resident, such entity must be a corporation, partnership, limited liability company or other legal entity organized under the laws of Puerto Rico, or not organized in Puerto Rico but engaged in a trade or business in Puerto Rico, pursuant to the provisions of the Code, deriving not less than 80% of its gross income from sources within Puerto Rico. Generally speaking, entities organized in Puerto Rico or entities organized outside of Puerto Rico with a fixed place of business in Puerto Rico (owned or rented) having one or more employees working physically in Puerto Rico will be considered Puerto Rico residents for purposes of the program.

Do payments to Puerto Rico residents qualify if that work is performed outside Puerto Rico? Can I take my Puerto Rico crew to another location and qualify their payments under the program?

No. Only payments made to Puerto Rico residents for services physically performed in Puerto Rico will qualify under the program.

Yes, but only with regard to wages, fringe benefits, per diems or fees for Qualified Nonresident individuals, including producers, writers, directors, talents, and nonresident crew.

Do fringe benefits and per diems qualify?

Generally, all expenses paid by an employer associated with services provided by Puerto Rico Residents or Qualified Nonresident individuals performed in Puerto Rico relating to a film project will qualify under the program, including FICA, SUI and FUI payments. Worker’s compensation, pension contributions, health insurance premiums and paid vacation and holiday leave will also qualify. Employee contributions relating to any of the above do not qualify. Per diems paid and incurred in Puerto Rico for Qualified Nonresident individuals will qualify only with regard to the maximum amounts allowed for Puerto Rico under the per diem guidelines published by the United States Department of Defense for Alaska, Hawaii, U.S. Territories and Possessions (OCONUS rates).

Do wages paid on behalf of a production by a nonresident payroll company to an individual working in Puerto Rico on an eligible film project qualify?

Yes, provided the wages are for services physically rendered in Puerto Rico.

What expenses are specifically excluded?

The following expenses shall not qualify under the program:

Those items paid to Puerto Rico Residents with monies obtained through any public support in the form of a subsidy, donation, or fund appropriation from the Government of Puerto Rico;
The cost of equipment or other goods acquired or leased by Puerto Rico resident vendors outside of Puerto Rico for resale or lease to a production that does not comply with the criteria set forth in our Circular Letter); and
Those items paid to Puerto Rico resident entities mainly for the services rendered by individuals other than Puerto Rico residents (except for entities rendering nonresident Qualified Nonresident individual services, such as loan out companies).

What if a Puerto Rico resident vendor acquires or leases equipment outside Puerto Rico for resale or lease to the production? Do expenses relating to such transactions qualify?

Expenses incurred in acquiring or leasing equipment or other goods from a Puerto Rico Resident vendor when the latter acquired such equipment or goods from a vendor located outside of Puerto Rico may qualify under the program, provided such transactions abide by the following parameters:

The acquisition or lease is from a Puerto Rico Resident as such terms is defined under the Code, as amended (see above);
The transaction performed by the Puerto Rico Resident vendor is as a result of lack of availability of the equipment or goods in question in the Puerto Rico market, or if available in Puerto Rico, such equipment or goods can be furnished by the Puerto Rico Resident vendor at a 10% or greater discount than the price being offered by another Puerto Rico resident vendor which has the equipment or good in inventory; and
The Puerto Rico Resident vendor derives a profit from the transaction considered reasonable under the industry standards.

Does the 20% income tax on payments to qualified nonresident apply to fringe benefits and per diems?

Payments made to Qualified Nonresident individuals for wages, including paid vacation and holiday leave treated as wages, will be subject to the 20% income tax. Other non-taxable fringe benefits such as worker’s compensation, health insurance premiums and employer contributions to qualified pension plans will not be subject to the 20% income tax. Per diems paid and incurred in Puerto Rico by Qualified Nonresident individuals will be taxed as follows: (i) the maximum amounts allowed for Puerto Rico under the per diem guidelines published by the United States Department of Defense for Alaska, Hawaii, U.S. Territories and Possessions. (OCONUS rates) will not be subject to the 20% income tax; and (ii) any amounts paid and incurred in Puerto Rico in excess of these maximum amounts will be subject to the 20% income tax.

Can I opt out certain or all qualified nonresident individuals involved in a film project from the special 20% income tax?

All Qualified Nonresident individuals shall be subject to this 20% income tax—independently of whether the film project avails itself or not of the 20% tax credit for that individual. Qualified Nonresident individuals may not opt out of this special tax.

Are qualified nonresident individuals required to file income taxes in Puerto Rico?

No. Assuming the 20% income tax is withheld and remitted to the Puerto Rico Treasury Department on the full payment for services rendered in Puerto Rico, the Qualified Nonresident individuals will have no obligation to file or report on any other form with the Puerto Rico Treasury Department, unless such Qualified Nonresident individuals receive other income from sources in Puerto Rico.

Are payments to qualified nonresident individuals subject to U.S. Federal Income Tax?

Qualified Nonresident individuals who are U.S. residents or U.S. citizens will be subject to U.S. Federal Income Tax on income from worldwide sources, including income from sources within Puerto Rico. Since payments for services rendered in Puerto Rico are considered Puerto Rico sourced income, payments to Qualified Nonresident individuals for services rendered in Puerto Rico will also be subject to the special 20% income tax in Puerto Rico. However, a foreign income tax credit will be available in the U.S. for the special 20% income tax paid in Puerto Rico with respect to the services rendered in Puerto Rico by the Qualified Nonresident individuals. Qualified Nonresident individuals who are neither U.S. residents nor U.S. citizens will not be subject to U.S. Federal Income Taxes on payments for services rendered in Puerto Rico.

Who performs the withholding of the special 20% income tax?

Any person that has control, receipt, custody, disposition, or payment of the amounts paid to any Qualified Nonresident individual must deduct and withhold the 20% tax income tax and deposit the amounts withheld with the Puerto Rico Treasury Department as set forth above. This could include, for example, the production entity managing the film project in Puerto Rico or the payroll company processing all wages for personnel engaged in the production. A Federal Employment Identification Number is sufficient to file the required forms with the Puerto Rico Treasury Department. The person performing such withholding and depositing such payments, or its agent should also prepare the informative returns Form 480.6 (or provide the required information to the entity preparing such forms).

When loan out companies are representing qualified nonresident individuals, can the informative returns be made in the name of the individuals even if the withholding is made on the loan out companies?

No. If the loan out company does not provide the entity making the payment a certification assuming responsibility for the withholding on the Qualified Nonresident individual and stating which portion of the payment will be paid by the loan out company to the Qualified Nonresident individual, then the informative return with respect to such payment must be made under the name of the loan out company. However, if the certification is provided by the loan out company to such entity, the portion of the payment made by the loan out company to the Qualified Nonresident individual for which the 20% income tax withholding is made will be reported to the Qualified Nonresident individual in an informative return under his name. Any portion of the payment made by such entity to the loan out company that is not relayed to the Qualified Nonresident individual (even in cases in which the certification is provided) would be reported in an informative return to the loan out company.

Is there a preference with regard to the type of entity a loan out should be for eligibility under the program?

There is no legal requirement on the type of entity the loan out company should be. Loan out companies should consult their own tax advisor for possible tax consequences depending on the type of legal entity used.

Do payments to foreign loan-out companies qualify?

Yes, provided such entities are registered to do business in Puerto Rico.

Using Puerto Rico
Production Tax Credits

How long does it take from the moment I submit my application to the moment I receive the tax credits?: The Puerto Rico Film Commission will have a reasonable period to review and approve your duly filed application, at which point you will receive a copy of your tax grant. The tax grant becomes effective by the presentation of the first installment of the filing fee and the acceptance of the tax grant by means of a sworn statement. The grant will reserve your tax credits (subject to the completion of the mandatory audit requirement, screen credit and balance of filing fee). Upon completion of your film project and the filing of the mandatory audit report, the Puerto Rico Film Commission will have a period of thirty (30) days or less to review and approve the audit report and certify to you that the tax credits and benefits set forth in your grant are available for use and/or transfer.
Can I advance payment of the tax credits?: Yes. You may obtain an advance of 50% of the tax credits reserved pursuant to your tax grant by either: (1) placing a bond for the face value of the 50% of the tax credits reserved, at the time of the issuance of the tax grant, or (2) upon certification of the auditor that 50% or more of your Puerto Rico budget has been disbursed.
How does a tax credit work?: A tax credit can be used to offset income tax liability in Puerto Rico. The tax credits are not refundable. Since most entities engaged in film projects (who will be applying for and receiving tax credits under the program) generally do not have Puerto Rico tax liability, the credits may not be beneficial to such entity. In such cases, the tax credits may be sold or transferred. Puerto Rico has a very active tax credit market.
Who receives the tax credits?: The entity engaged in a film project that applied for and obtained a tax grant, will receive the tax credits.
Can the tax credits be transferred?: Yes. Puerto Rico production tax credits may be transferred, sold, or otherwise assigned, in whole or in part, subject to a one-time transfer limit. The transfer of tax credits will be subject to the terms and conditions set forth in Internal Revenue Circular 11-03 of the Puerto Rico Treasury Department.
Can the tax credits be carried forward?: Yes. The tax credits will be available in the year they are granted. Tax credits issued and available before the due date of an income tax return (including time extensions) will be available for use against taxes for the tax year associated with such income tax return. Any unused tax credits may be carried forward until exhausted.
Who can use the tax credits?: Any person subject to Puerto Rico income taxes can use the tax credits in a Puerto Rico income tax return.
What do tax credits usually sell for?: Tax credits typically sell for between 85 and 92 cents on the dollar. Plan early with your broker or ultimate purchaser to maximize the sale price.
Does the tax credit allocation under the program need to be reauthorized every year?: No. The Puerto Rico production tax credit program is fully funded. *Legal and Tax Disclaimer: The questions and answers above are provided by the Puerto Rico Film Commission as guidance for understanding the Puerto Rico production tax credit program. They are not intended or written to be used as legal or tax advice. For further guidance, please consult your attorney and CPA.

Documents & Forms

Circular Letter 2021-005

Application for Puerto Rico Film Project Decree

Supplemental Agreed Upon Procedures Instructions

Frequently Asked Questions

Eligibility Requirements for the Puerto Rico Production Tax Credit Program

For further information on any of the topics below, please contact the Puerto Rico Film Commission. All program rules, circulars and documents referred to below are available for download at our website.

What types of film projects qualify under the program?

Eligible film projects include feature films, short films, documentaries, television programs, series in episodes, mini-series, music videos, national and international commercials, video games and post-production projects.

What projects do not qualify?

Productions that include pornographic material, productions that primarily consist of religious or political advertising, productions that primarily market a product or service other than a national or international commercial (such as infomercials), radio programs, productions with the primary purpose of fund-raising, productions that primarily consist of employee training or in-house corporate advertising and productions that receive substantial public support in the form of subsidies, donations or appropriation from the Government of Puerto Rico.

What are the minimum requirements for an eligible film project to qualify?

Production or postproduction of the film project must be carried out in whole or in part in Puerto Rico;
The applicable Film Project must demonstrate $50,000 in eligible expenses, except for short films, which must demonstrate $25,000 in eligible expenses;
The film project must be intended for airing, commercial distribution, or exhibition to the general public outside of Puerto Rico;
Film projects must include a screen credit in connection with Puerto Rico’s Film Incentive Program with the exception to national and international commercials and music videos;
Set visits must be coordinated on behalf of the production team for the Film Commission and/or any other government representative;
Set photos and behind the scenes footage/photos must be provided to the Film Commission during production for promotional use;
When released, a copy of the film project must be available for the Film Commission’s promotional use.
Joint press releases, conferences and other press related matters are encouraged.

Is there a principal photography requirement?

No. There is no minimum requirement regarding the number or percentage of production or postproduction days that must take place in Puerto Rico, provided the film project satisfies the other requirements specified above. However, in order for eligible development payments to qualify, 50% or more of principal photography must be shot in Puerto Rico.

Does stand-alone postproduction qualify under the program?

Yes. Stand-alone postproduction of any eligible film project will qualify, regardless of whether any portion of the project was shot in Puerto Rico.

What is required to demonstrate a film project is intended for airing, distribution, or exhibition outside Puerto Rico?

The Puerto Rico Film Commission will require evidence of a distribution plan as well as a letter from the distributor confirming such plan. For more information, please contact the Film Commission.

Do film projects distributed through the internet or other viral media qualify under the program?

Yes. Film projects may be distributed by any media, including electronic information transmission media such as the internet. However, the Puerto Rico Film Commission will evaluate such projects on a case-by-case basis.

Can I aggregate various film projects to satisfy the minimum spend requirement?

No. The only exception to this general rule are national and international commercials and the postproduction of various otherwise eligible film projects aggregated in a single contract or purchase order with aggregate eligible expenses of at least $50,000.

Can I opt out of the screen credit requirement?

Except for national and international commercials and music videos, all film projects must include the Puerto Rico Screen Credit in order to receive production tax credits under the program. The Puerto Rico Screen Credit will be placed in a prominent position within the credit roll of the finished Film Project. The Puerto Rico Film Commission will provide the corresponding artwork in high resolution along with the required specifications. Productions must provide evidence of the actual placement of the Puerto Rico Screen Credit in the completed Film Project when available.

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