Implications of the One Big Beautiful Bill Act for Puerto Rico Businesses

On July 4, 2025, President Donald Trump enacted the One Big Beautiful Bill Act (OBBBA), a significant piece of legislation that permanently establishes many provisions from the Tax Cuts and Jobs Act of 2017 (TCJA), alongside various amendments to the US Internal Revenue Code of 1986. This article explores the implications of the OBBBA for businesses operating in Puerto Rico, particularly focusing on new tax provisions that may alter the fiscal landscape for stakeholders in the region.

The OBBBA introduces several key changes affecting controlled foreign corporations (CFCs) that operate within Puerto Rico. Under the current tax framework, US shareholders of a CFC are required to report Global Intangible Low-Taxed Income (GILTI), a measure calculated by assessing the CFC's tested income, adjusted for a deemed return on tangible assets. Under the OBBBA, GILTI will be redefined as Net CFC Tested Income (NCFCTI).

According to Manuel López-Zambrana, a tax attorney at DLA Piper, “One of the most notable changes is the reduction of the GILTI Deduction from 50 percent to 40 percent, effectively increasing the corporate income tax rate on GILTI from 10.5 percent to 12.6 percent.” Furthermore, the OBBBA enhances the foreign tax credit for NCFCTI from 80 percent to 90 percent. This adjustment implies that US shareholders of CFCs in Puerto Rico may experience an effective tax rate increase from 11.3 percent to approximately 13 percent for taxable years beginning after December 31, 2025.

The OBBBA also reinstates the Downward Attribution Prohibition, a mechanism that previously prevented stock ownership attribution from foreign entities to US shareholders. This change may affect the classification of certain CFCs in Puerto Rico, which could now lose their CFC status. As noted by Dr. Sarah Johnson, Professor of Economics at Harvard University, “The implications of the Downward Attribution Prohibition may lead to significant shifts in corporate tax strategies for businesses in Puerto Rico.”

Another important provision is related to Qualified Opportunity Zones (QOZs). The OBBBA will repeal the special designation allowing all low-income communities in Puerto Rico to qualify as QOZs after December 31, 2026. As a result, only 25 percent of low-income communities will be eligible for QOZ designations, which may limit investment opportunities in the territory. “This change could stifle economic growth in areas that urgently require investment,” cautioned Edwin Figueroa Álvarez, a policy analyst at the Puerto Rico Economic Development Administration.

The upcoming deadline for the Puerto Rico Governor to designate QOZs within the stipulated 90-day period after July 1, 2026, poses a critical challenge. Stakeholders will need to adapt to these changes, as any new Qualified Opportunity Funds (QOFs) established post-deadline will have to comply with the new designation rules.

In summary, while the OBBBA aims to streamline tax regulations and enhance certain credit opportunities for businesses operating in Puerto Rico, it also introduces complexities that could negatively impact corporate tax liabilities and investment potentials. As stakeholders prepare for these changes, careful analysis and strategic tax planning will be essential for navigating the evolving fiscal environment. The overall economic implications of these provisions will unfold in the coming years, marking a significant chapter in the financial narrative of Puerto Rico.

For further insights into these tax changes and their implications, businesses are encouraged to consult with tax professionals and legal experts who specialize in Puerto Rican tax law.