Puerto Rico’s stunning natural landscapes and world-renowned attractions position it as an exceptional vacation destination. However, beyond its breathtaking scenery and cultural richness, the island offers a compelling incentive package aimed at the tourism and hospitality sectors. This initiative is not only designed to attract visitors but also to enhance the local economy by fostering a robust tourism industry. One of the primary goals of the Code is to elevate Puerto Rico’s status as a premier global tourist destination, which in turn strengthens the island’s economic foundations through tourism-driven growth.

While tourism has a long-standing presence in Puerto Rico, Act 74 introduces substantial tax incentives that make establishing a tourism-related business on the island particularly appealing. This legislation identifies a variety of business activities that qualify as eligible tourism activities, thereby encouraging investment and development in this sector. Under the provisions of the Act, various forms of accommodation and recreational facilities are included, creating a diverse landscape of opportunities for entrepreneurs. This approach not only promotes growth but also enhances the overall visitor experience by ensuring a variety of offerings that cater to different preferences and interests.

·     Eligible tourism activities include owning and/or operating a range of accommodations such as hotels, condo hotels, timeshares, vacation clubs, hostels, and guesthouses, while specifically excluding casino operations. Additionally, the Act covers theme parks, golf courses, marinas designed for tourism, and port facilities that support tourism initiatives. The utilization of natural resources for entertainment purposes is also recognized under this Act. Furthermore, businesses engaged in rental or leasing activities that facilitate these tourism-related operations are included, thereby broadening the scope of eligible enterprises.

·     Another avenue for participation in the tourism sector under Act 74 involves acquiring existing businesses that already hold an Act No. 74 decree and making significant renovations. This provision opens the door for investors to revitalize hotels, small inns, timeshares, golf courses, theme parks, and marinas, enhancing their appeal and operational efficiency. By focusing on upgrading existing facilities, the Act promotes sustainability and the efficient use of resources, contributing to the overall enhancement of Puerto Rico’s tourism landscape.

The Act No. 74 decree provides various tax exemptions that serve as significant incentives for businesses in the tourism sector. Among these benefits is a remarkable 90 percent exemption on net income generated from qualifying activities under Act No. 74. Additionally, a 12 percent withholding tax applies to royalty payments made to non-residents of Puerto Rico, thereby facilitating financial transactions related to eligible activities. Distributions made by businesses from earnings related to these activities are subject to a one-time tax at the standard Puerto Rico income tax rates, ensuring that any subsequent distributions remain untaxed. Furthermore, businesses benefit from a 90 percent exemption on both real and personal property taxes, making it financially feasible to operate in the tourism sector.

Moreover, Act 74 offers a 100 percent exemption on municipal license taxes for new businesses and a 90 percent exemption for those already established. This significant reduction in