This week, Governor Ricardo Rosselló-Nevares signed into law the "Incentives for the Retention and Return of Medical Professionals Act" also known as Act No. 14 of February 21, 2017 ("Act 14"). Act 14 is meant to address Puerto Rico's healthcare crisis by creating substantial tax incentives to staunch the declining numbers of physicians in the Island. These incentives are designed not only to retain local doctors, but also to attract physicians that have left the Island to other jurisdictions due to the widening wage disparity between professionals in Puerto Rico and their stateside counterparts.
Among the benefits available to qualified physicians with a valid tax exemption decree under Act 14 are:
- A 4% tax rate on eligible income;
- An allowance to contribute up to 25% of net income for individual retirement plans or up to 25% of wages under a corporate retirement plan;
- Up to $250,000 in tax-free dividends per tax year for eligible dividends issued to the qualified physician by a medical services entity.
These benefits override current applicable regular individual tax rates of up to 33% for individuals and 15% for dividends issued by legal entities. Physicians have a limited time frame of two years after Act 14's enactment to apply for these incentives. The tax exemption decree has an initial term of 15 years, but could be extended for 15 additional years for a total maximum of 30 years. Physicians that are not bona fide residents of Puerto Rico can apply for these benefits so long as they move to the Island within the next 120 days after decree is issued. Individuals that are currently enrolled in a duly accredited residency program as well as podiatrists and individuals with a specialization within odontology can apply for an exemption under Act 14.
It is important to note that these benefits are not conferred automatically by Act 14's enactment. Act 14 requires physicians to submit a well-crafted tax exemption decree application to the Puerto Rico Office of Industrial Tax Exemption ("OITE"). Once filed, OITE begins a consultation process with the Puerto Rico Department of Health and the Puerto Rico Department of Treasury. As part of the application's evaluation the agencies review several criteria including the requesting physician's specialty or subspecialty and current demand levels, the geographic area of service and the tax decree's economic impact. Once granted, a tax exemption decree under Act 14 also requires qualified physicians to comply with certain ongoing requirements. Chief among these is the requirement to provide 180 hours of community services per year. Several routine activities can apply towards the 180 hours requirement. We can help you determine whether you already comply with these requirements or what steps you should take in order to do so.
Most of the operating provisions of Act 14 become effective 60 days after its enactment. Meanwhile, the relevant government agencies are drafting the regulations that will guide implementation of Act 14, including the application review and compliance process. At GAC, we are closely following these developments and stand ready to help you obtain a tax exemption grant under Act 14.
Please contact Francisco Dox at 787.759.4220; or Rebecca Cuevas at 787.759.4153 for an initial consult.