PUERTO RICO FILM INDUSTRY DEVELOPMENT ACT
Act No. 362 of December 24, 1999, as amended

The Puerto Rico Film Industry Development Act provides benefits in the form of investment tax credits to investors in film projects licensed with the Puerto Rico Film Commissioner. The government fees for the license are 1% of the total budget. The Department of the Treasury must also endorse the projects. In order to qualify, not less than 50% of a project's principal photography must take place in Puerto Rico.

Tax credits may be sold or otherwise transferred by the investor to any person or entity, which may in turn apply the full value of the tax credit against its Puerto Rico income tax liability. A market exists for the purchase and sale of tax credits. Tax credits are generally sold at a discount ranging between approximately 8% and 12%.

A tax credit is granted to the investors in a Film Project equivalent to 40% of budget items paid to Puerto Rico residents, up to 50% of the cash invested as equity in the project. 50% of the estimated tax credits may become available to the investors upon investment, if a completion bond or a letter of credit is obtained that includes the Puerto Rico Secretary of the Treasury as one of the beneficiaries. In the absence of a bond, 50% of the estimated tax credits become available when a certified public accountant appointed by the government certifies that 40% of the budget to be paid to Puerto Rico residents has been paid. The balance of the tax credits becomes available when a certified public accountant appointed by the government certifies actual payments to Puerto Rico residents. The balance is adjusted upwards or downwards to reflect actual payments.

In projects with budgets of more than $4,000,000, the project manager must certify to the Secretary of the Treasury and the Film Commissioner that the project has been edited in final form and is ready for commercial exhibition. The project manager must also provide copy of executed distribution agreements.

We assist clients with the structuring of the transaction to maximize the tax credits available taking into consideration the project's financing sources and objectives. We also draft, apply and negotiate the license with the Puerto Rico government, and find purchasers for the tax credits.

For more information, contact:
Antonio J. Sifre-Sein. ajsifre@tcmrslaw.com

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