Puerto Rico’s R&D Tax Credit: The Overlooked Advantage for Science-Driven Innovation
By Colton Wandke, CAIA
Many involved with science-driven innovation understand the challenge of balancing Research & Development (R&D) investment with capital efficiency. The need for non-dilutive funding is at an all-time high. Venture markets are more selective. Capital efficiency is critical. Puerto Rico presents an opportunity that few are taking full advantage of, despite the fact that its R&D tax credit program is one of the most attractive in the world.
In Puerto Rico, eligible companies can recover up to 50% of their R&D costs in the form of transferable tax credits. Unlike most tax incentives that can only be utilized to reduce a company’s tax burden, Puerto Rico’s credits can be monetized, turning R&D expenditures into non-dilutive capital. With a well-established secondary market for these credits, businesses can sell them to investors looking to optimize their tax liability, typically receiving $0.90+ per dollar.
This is not a theoretical advantage. In the last twelve months, the Puerto Rico Innovation Fund has invested over $27 million leveraging R&D tax credits as collateral, demonstrating how these credits function to create a unique asset class. However, while the financial opportunity is clear, execution is not simple. Investors and companies that fail to structure their claims correctly and maintain proper compliance leave millions on the table.
Puerto Rico is not just an incentives market. It is a strategic financial ecosystem for innovators and investors who understand how to navigate its regulatory and capital landscape.
The Opportunity That Most Are Missing
Puerto Rico’s R&D tax credit program is designed to support local entrepreneurs and attract innovation-driven businesses by subsidizing R&D expenditures. The credits are granted annually and can be used, sold or transferred. This creates a unique advantage for companies looking to maximize cash flow and investors seeking tax-efficient capital allocation.
To qualify, R&D activities must meet strict criteria:
Scientific and Technical Uncertainty: The project must address a problem that cannot be resolved by an expert without systematic experimentation.
Experimental Process: The work must follow the scientific method, requiring hypothesis development, testing, and iteration.
Commercial Application: The outcome should result in a new or improved product, process, or technology of commercial value.
These requirements align with global R&D credit frameworks, yet many companies misunderstand the qualification process. Mistakes in classification can lead to denied claims, lower credit valuations, and ultimately, lost capital.
Puerto Rico’s Edge in Science-Driven Investment
R&D in specialized sectors such as deep technology, life sciences, and data-intensive industries demand highly specialized talent, robust intellectual property protections, and infrastructure that facilitates translational research into commercial applications. Puerto Rico offers an investment ecosystem that meets these requirements while simultaneously providing a tax-advantaged structure that enhances capital efficiency.
The island has long been a center for biopharmaceutical manufacturing, medical device innovation, and advanced process engineering. More than $53 billion in pharmaceuticals are exported from Puerto Rico annually, with six of the world’s top ten biologics produced on the island. Companies operating here benefit from federal regulatory alignment, strong intellectual property protections under U.S. law, and access to a highly skilled STEM workforce at a lower operational cost than mainland U.S. hubs.
What distinguishes Puerto Rico is its unique opportunity at the intersection of scientific innovation, financial incentives, and regulatory advantages. Companies conducting R&D on the island remain within the U.S. jurisdiction for FDA compliance, NIH collaboration, and federal research grants while simultaneously benefiting from a low fixed corporate tax rate and monetizable R&D credits that convert directly into deployable capital. This allows firms to stretch their research budgets further while retaining the ability to scale manufacturing and commercialization within the same tax-optimized jurisdiction.
For capital allocators seeking to partially de-risk investments into R&D-intensive companies, Puerto Rico is not just a location. It is a platform for sophisticated capital deployment, tax optimization, and high-value research commercialization.
Execution is Everything
Accessing Puerto Rico’s R&D tax credit program is not automatic. It requires careful planning, structuring, regulatory compliance, and financial optimization. Missteps in project eligibility, expense allocations, or documentation can lead to missed opportunities. Many businesses attempt to navigate this process alone and fail to capture the full value of available incentives.
The approval process involves:
Technical Validation: Ensuring that R&D activities align with regulatory definitions and meet eligibility thresholds.
Financial Documentation: Preparing the supporting financial analysis and submitting an Agreed Upon Procedures (AUP) report by a licensed CPA in Puerto Rico.
Regulatory Compliance: Securing approval from the Department of Economic Development and Commerce (DDEC) and the Puerto Rico Treasury Department.
Puerto Rico is an Asset, Not Just an Incentive
Puerto Rico is one of the most overlooked jurisdictions in the alternative investment landscape. It provides non-dilutive capital for R&D-intensive companies and tax-advantaged opportunities for investors.
For investors focused on science-driven businesses, Puerto Rico should be seen as more than just an incentives market. It is a platform for capital efficiency, tax optimization, and strategic growth. Those who recognize the opportunity now will be ahead of the market.
Colton Wandke, CAIA
Co-Founder & Partner
DECA | Partner - PR Innovation Fund
DECA - Pioneering Strategic Investment Analysis, Non-Dilutive Capital Structuring, and Low-Cost Specialized Financing Programs for Puerto Rico’s Dynamic Market
