Territorial Economic Recovery Act

HR 363, the Territorial Economic Recovery Act, modifies U.S. tax rules to exclude specific income from certain corporations operating in U.S. territories from "tested income" calculations under the Internal Revenue Code. It directly affects qualified corporations in Puerto Rico and the U.S. Virgin Islands that earn at least 80% of their gross income from territory sources and have 75% of that income effectively connected to territory business operations. The key provision creates a new tax exclusion for this territory-sourced income, reducing the tax burden for qualifying corporations. The changes apply to taxable years beginning after December 31, 2023. This is a targeted tax policy change for businesses in U.S. territories.