House Bill 878 ("HB 878") was signed by the Governor and enacted into law during the past week. HB 878 amends Act 20-2012, also known as the "Act to Promote Export Services" ("Act 20") to broaden the eligible services definition and trading companies’ eligibility requirements, and to eliminate the minimum employment requirement and the need for a Certificate of Compliance.

Eligible Services

Through HB 878 the "Eligible Services" definition under Act 20 is amended to:

1. Include medical tourism services and telemedicine facilities to the currently eligible hospital and laboratory services, and
2. Broaden the trading companies’ definition to allow 80% of their gross income to be derived from trading activities and any other export service described in Act 20. Contrary to prior requirements, trading companies no longer have to derive 80% of their gross income solely from trading activities.

Employment Requirement

HB 878 removes the minimum employment requirement of five (5) direct employees and empowers the Secretary of the Department of Economic Development and Commerce of Puerto Rico (the "Secretary") to establish, through regulations or administrative orders, the criteria to be used in the evaluation of applications, which may include: (1) job creation, (2) capital investment, or (3) direct or indirect contributions to the economy. Furthermore, the Secretary may require, in case a business requires employees or independent contractors, that these be residents of Puerto Rico or that contracts be entered with local entities dedicated to business in Puerto Rico. Nevertheless, businesses with approved tax exemption decrees, or with submitted tax exemption applications, that had already hired direct employees may not dismiss such employees in light of HB 878’s approval.

Certificate of Compliance and Interagency Validation Portal

HB 878 also eliminates references to the Certificate of Compliance and to the Interagency Validation Portal for the Granting of Incentives for the Economic Development of Puerto Rico, as established by Act No. 187-2015. Instead, the Secretary, with the support of the Puerto Rico Industrial Development Company (PRIDCO) and the Department of Treasury, will establish an electronic database to store and update information regarding businesses with tax decrees under Act 20. Moreover, the Secretary, through the Office of Industrial Tax Exemption, shall perform an audit every two (2) years regarding the terms and conditions of the decrees granted under Act 20.