Wednesday, September 18, 2019

Incentive Offsets Recovery Costs of Puerto Rico Tourism Businesses

By on April 18, 2019

Tourism Sector Companies Receive Tax Credit on Investment to Rebuild, Renovate Facilities

Editor’s note: The following was first published in the April 18-24, 2019, issue of Caribbean Business.

It has been more than a year and half since hurricanes Irma and Maria devastated the island of Puerto Rico; however, with more than a dozen properties that have still not reopened or are only open in a limited capacity, the recovery of Puerto Rico’s tourism sector is not complete.

As a response to damages from the September 2017 hurricanes, and the complications thereafter, such as the scarcity of building materials, Carla Campos, executive director of the Tourism Co. (PRTC), signed Administrative Determination 2018-001 to allow businesses in the tourism sector to receive a tax credit on the investment needed to rebuild or renovate their facilities, even if the funding was a result of an insurance payment.

Yarisa Díaz and Francisco Bonnet, consultants from Integra Group, who expressed concern over the tourism sector’s lack of awareness about the credit, mentioned that the credit, which was established in September, will be available until September of this year.

In the determination’s memorandum, Campos argues that the “extraordinary circumstances” produced after the hurricanes led the Tourism Co. to establish this credit as a way to ensure speedier recovery of the tourism sector.

“Although the tourism industry has been able to quickly recover in many areas, countless tourism facilities have yet to reopen or have done so partially. Furthermore, these businesses face great recovery challenges because of the magnitude of damages caused by hurricanes Irma and Maria, increased costs for construction, shortages of available materials on the island, the high cost of the required investment and the complexity of the insurance claims,” reads Administrative Determination 2018-001.

“Every day that the reopening of a lodging gets delayed, Puerto Rico’s capacity to receive visitors is lower, and the economic spillover resulting from the delay is lower,” the entity’s internal notice adds.

As for the calculations, Díaz explained that the tax credit applies to businesses using alternative formulas to calculate their already existing regular deduction for investments in the development and opening of a lodging or tourism business, and not the original formula.

“This administrative determination only applies to alternative formula 1 and alternative [formula] 2. It doesn’t apply to the original formula because the law and regulation are very specific about the original formula about how to calculate the tax credit. [In] the eligible investment, there has to be cash provided by the investors; there has to be an injection of capital, but in alternative 1 and alternative 2, it is not so specific,” Díaz said.

Díaz explained that the costs previously related to what is known in the insurance world as an “act of God or natural disaster” were not eligible for the tax credit. To that, Bonnet added, “At the end of the day, this administrative determination…proposes that the money received by the hotelier, paid by the insurance policy for the… damages they had [after the hurricanes], is considered an injection of capital for the purpose of this law.

“This administrative determination is making the exception because, without a doubt, all hotels and hoteliers in Puerto Rico were affected, and many are still closed and need this help to finish fixing their facilities, their hotels,” Díaz said. This incentive, she added, is not just applicable for hotels but also for any business that is considered a tourism activity.

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