2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1010 - Estates and Trusts (§§ 30391 — 30419) › Subchapter B - Real Estate Investment Trusts (§§ 30401 — 30403) › § 30401 - Definition of real estate investment trust

(a) In general.— For purposes of this subchapter, the term “real estate investment trust” means a corporation, partnership, trust, or association that meets the following requirements:
(1) Is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;
(3) would be taxable as a domestic corporation, but for the provisions of this subchapter;
(4) is neither a financial institution referred to in § 30137(f) of this title or an insurance company subject to taxation under the provisions of §§ 30501—30512 of this title;
(5) whose shares or certificates of beneficial interest are held by not less than twenty (20) persons and, for purposes of this paragraph, the shareholders or the holders of certificates of beneficial interest in an exempt investment trust that avail themselves of the provisions of § 30522 of this title, shall be treated as shareholders of the real estate investment trust;
(6) at no time during the last half of its taxable year more than fifty percent (50%) of the total value of its shares issued and outstanding are owned (based on the tax assessment rules established by § 30137(b)(2) of this title) by or for not more than five (5) individuals; however, for purposes of this clause, the shareholders or holders of certificates of beneficial interest in an exempt investment trust that avail themselves of the provisions of § 30522 of this title, shall be treated as shareholders of the real estate investment trust;
(7) meets the requirements of subsection (c) of this section;
(8) complies with the provisions of § 30402(d)(2) of this title, and
(9) makes an election pursuant to subsection (c)(1).
(b) Determination of status.— The conditions described in clauses (1)—(4), inclusive, of subsection (a) of this section must be met during the entire taxable year, and the condition described in subsection (a)(5) of this section must exist during at least three hundred thirty-five (335) days of each taxable year of twelve (12) months, or during a proportionate part of a taxable year of less than twelve (12) months. The days during which the last condition must exist during the taxable year are not necessarily consecutive. However, the conditions set forth in clauses (5) and (6) of subsection (a) of this section shall not have to be satisfied during the first taxable year on which the election described in subsection (c)(1) of this section is made.
(c) Limitations.— A corporation, company, partnership, trust, or association shall not be considered a real estate investment trust for any taxable year unless:
(1) It files with its return for the taxable year an election to be a real estate investment trust or has made such election for a previous taxable year.
(2) At least ninety-five percent (95%) of its gross income (excluding gross income from prohibited transactions) is derived from:
(A) Dividends;
(B) interest;
(C) rents from real property;
(D) gain from the sale or other disposition of stock, securities, and real property (including interests in real property and interests in mortgages on real property) other than property described in § 30141(a)(1)(A) of this title;
(E) amounts (other than amounts the determination of which depends in whole or in part on the income or profits of any person) received or accrued as consideration for entering into agreements:
(i) To make loans secured by mortgages on real property or on interests in real property, or
(ii) to purchase or lease real property (including interests in real property or interests in mortgages on real property).
(F) gain from the sale or other disposition of a real estate asset which is not a prohibited transaction solely by reason of § 30402(c)(3) of this title.
(3) At least seventy-five percent (75%) of its gross income (excluding gross income from prohibited transactions) is derived from:
(A) Rents from real property located in Puerto Rico;
(B) interest on obligations secured by mortgages on real property or on interests in real property located in Puerto Rico;
(C) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) other than property described in § 30141(a)(1)(A) of this title;
(D) dividends or other distributions on, and gain (other than gain from prohibited transactions) from the sale or other disposition of, transferable shares (or transferable certificates of beneficial interest) in other real estate investment trusts which meet the requirements of this section;
(E) amounts (other than amounts the determination of which depends in whole or in part on the income or profits of any person) received or accrued as consideration for entering into agreements:
(i) To make loans secured by mortgages on real property or on interests in real property, or
(ii) to purchase or lease real property (including interests in real property or interests in mortgages on real property).
(F) net gain from the sale or other disposition of real estate which is not a prohibited transaction solely by reason of § 30402(e)(3) of this title;
(G) qualified temporary investment income.
(H) income derived from the purchase of property to be renovated and leased;
(4) At the close of each quarter of the taxable year:
(A) At least seventy-five percent (75%) of the value of its total assets is represented by real estate assets, cash or cash items (including receivables), and securities and obligations of the Government of Puerto Rico or the United States and any instrumentalities or political subdivisions thereof, and
(B) not more than twenty-five percent (25%) of the value of its total assets is represented by securities (other than those includible under paragraph (A)). For purposes of this computation, the real estate investment trust shall not have securities of the same issuer, except those includible under paragraph (A), not more than five percent (5%) of the value of its total assets is represented by securities of any one issuer, the trust does not hold securities possessing more than ten percent (10%) of the total voting power of the outstanding securities of said issuer.
A real estate investment trust which meets the requirements of this clause at the close of any quarter shall not lose its status as a real estate investment trust because of a discrepancy during a subsequent quarter between the value of its various investments and such requirements unless such discrepancy exists immediately after the acquisition of any security or other property and is wholly or partly the result of such acquisition. A real estate investment trust which does not meet such requirements at the close of any quarter of any fiscal year by reason of a discrepancy existing immediately after the acquisition of any security or other property which is wholly or partly the result of such acquisition during such quarter shall not lose its status for such quarter as a real estate investment trust if such discrepancy is eliminated within thirty (30) days after the close of such quarter and, in such cases, it shall be considered to have met such requirements at the close of such quarter for purposes of applying the preceding sentence.
(5) All its stock, shares or interests have been issued solely and exclusively in exchange for cash.
(6) The acquisition of the real property by the trust and/or its subsidiaries (as this term is defined in § 30401(c)(7)(G) of this title), or the interest of the trust on the subsidiaries, is conducted through transactions for the purchase of assets, stock or shares in partnerships that generate income from sources within Puerto Rico and that are subject (with the exception of assets purchased from the Government of Puerto Rico, its agencies, and instrumentalities), to income taxes under this Code.
(7) For purposes of this subchapter:
(A) The term “value” means, with respect to securities for which market quotations are readily available, the market value of such securities or fair value (when there is no determinable market value) as determined according to the valuation methods established by the Secretary through regulations, except that in the case of securities of real estate investment trusts such fair value shall not exceed market value or asset value, whichever is higher.
(B) The term “real estate assets” means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other real estate investment trusts that are exempt from taxation by virtue of the provisions of this subchapter. Such term also includes any property (not otherwise a real estate asset) attributable to the temporary investment of new capital, but only if such property is stock or a debt instrument, and only for the one (1) year period beginning on the date the real estate trust receives such capital.
(C) The term “interests in real property” includes fee ownership and co-ownership of land or improvements thereon, usufructs, the surface right, the mortgage, leaseholds of personal property, bare ownership, administrative concessions for trains, canals, bridges, and other works destined for public service or similar, options to acquire real property, and options to acquire leaseholds of land or improvements thereon. Mineral, oil, or gas royalty interests are not included in this term.
(D) The term “real property” means land located in Puerto Rico or any improvements thereon used as:
(i) Hospitals or facilities used by and related to the health industry;
(ii) schools or universities;
(iii) public or private housing;
(iv) transportation facilities or public or private roadways;
(v) office or housing buildings;
(vi) government facilities or buildings occupied by any agency, department or corporation of the Government of Puerto Rico;
(vii) manufacturing industry facilities, such as warehouses, distribution or manufacturing facilities or those given any other use needed for their exploitation provided the trust does not possess a tax exemption decree under §§ 10101 et seq. of this title or under any other tax or industrial incentives law with respect to those facilities;
(viii) recreational centers;
(ix) parking facilities;
(x) commercial facilities and shopping centers;
(xi) buildings or structures purchased from the Government of Puerto Rico, its agencies and instrumentalities, and
(xii) hotels.
(E) The term “qualified temporary investment income” means any income which:
(i) Is attributable to stock or a debt instrument;
(ii) is attributable to the temporary investment of new capital, and
(iii) is received or accrued during the one (1) year period beginning on the date on which the real estate investment trust receives such capital.
For purposes of this paragraph, the term “new capital” means any amount received by the real estate investment trust in exchange for stock or certificates of beneficial interests in such trust (other than amounts received pursuant to a dividend reinvestment plan), or in a public offering of debt obligations of such trust which have maturities of at least five (5) years.
(F) Treatment of certain hedging instruments.— Except to the extent provided by the Secretary through regulations, any:
(i) Payment to a real estate investment trust under an interest rate swap or cap agreement, option, futures contract, forward rate agreement, or any other similar financial instrument, entered into by the trust in a transaction to reduce the interest rate risks with respect to any indebtedness incurred or to be incurred by the trust to acquire or carry real estate assets, and
(ii) gain from the sale or other disposition of any such investment mentioned in paragraph (E)(i) of this clause, shall be treated as income qualifying under subsection (c)(2) of this section.
(G) The term “subsidiary” means a corporation, company, partnership, trust, or association wholly owned, directly or indirectly, by a real estate investment trust. For purposes of this subchapter, a corporation, partnership or special partnership that qualifies as a subsidiary, as provided in the preceding sentence shall not be treated as a separate entity, and all assets, liabilities, and items of income, deduction and credit thereof shall be treated as they belong to the real estate investment trust.
(8) A corporation, company, partnership, trust, or association that fails to meet the requirements of clauses (2) and (3) of this subsection, or both, for any taxable year shall nevertheless be considered to have satisfied such requirements for such taxable year if:
(A) The nature and amount of each item of its gross income described in such clauses is set forth in a schedule attached to its income tax return for such taxable year;
(B) the inclusion of any incorrect information in the schedule referred to in paragraph (A) is not due to fraud with intent to evade tax, and
(C) the failure to meet the requirements of clauses (2) or (3), or of both, is due to reasonable cause and not due to gross negligence.
(d) Rents from real property.—
(1) In general.— For purposes of clauses (2) and (3) of subsection (c) of this section, the term “rents from real property” includes subject to clause (2) of this subsection:
(A) Rents from interests in real property;
(B) charges for services customarily furnished or rendered in connection with the rental of real property, whether or not such charges are separately stated, and
(C) rent attributable to personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed fifteen percent (15%) of the total rent for the taxable year attributable to both the real and personal property leased under, or in connection with, such lease.
For purposes of this paragraph, with respect to each lease of real property, rent attributable to personal property for the taxable year is that amount which bears the same ratio to total rent for the taxable year as the average of the fair market values of the personal property at the beginning and at the end of the taxable year bears to the average of the aggregate fair market values of both the real property and the personal property at the beginning and at the end of such taxable year.
(2) Amounts excluded.— For purposes of clauses (2) and (3) of subsection (c), the term “rents from real property” does not include:
(A) Except as provided in clauses (3) and (4) of this subsection, any amount received or accrued, directly or indirectly, with respect to any real or personal property, if the determination of such amount depends in whole or in part on the income or profits derived by any person from such property except that any amount so received or accrued shall not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage of gross receipts or percentage of sales (regardless of whether said total gross receipts or sales have been adjusted with respect to returned merchandise or with respect to any type of taxes or levies), and
(B) any amount received or accrued directly or indirectly from any person if the real estate investment trust owns, directly or indirectly:
(i) In the case of any person which is a corporation, stock of such person possessing ten percent (10%) or more of the total combined voting power of all classes of stock entitled to vote, or ten percent (10%) or more of the total value of shares of all classes of stock of such person, or
(ii) in the case of any person which is not a corporation, an interest of ten percent (10%) or more in the assets or net profits of such person.
(C) any impermissible tenant service income (as defined in clause (7) of this subsection).
(3) Independent contractor defined.— For purposes of this subsection, the term “independent contractor” means any person:
(A) Who does not own, directly or indirectly, more than thirty-five percent (35%) of the shares, or certificates of beneficial interest, in the real estate investment trust, and
(B) if such person is a corporation, not more than thirty-five percent (35%) of the total combined voting power of whose stock (or thirty-five percent (35%) of the total shares of all classes of whose stock), or, if such person is not a corporation, not more than thirty-five percent (35%) of the interest in whose assets or net profits is owned, directly or indirectly, by one or more persons owning thirty-five percent (35%) or more of the shares or certificates of beneficial interest in the trust.
(4) Contingent rents.— Where a real estate investment trust receives or accrues, with respect to real or personal property, any amount which would be excluded from the term “rents from real property” solely because the tenant of the real estate investment trust receives or accrues, directly or indirectly, from subtenants any amount the determination of which depends in whole or in part on the income or profits derived by any person from such property, only a proportionate part (determined pursuant to regulations prescribed by the Secretary) of the amount received or accrued by the real estate investment trust from that tenant shall be excluded from the term “rents from real property”.
(5) Constructive ownership of stock.— For purposes of this subsection, the rules prescribed by § 30403 of this title for determining the ownership of stock shall apply in determining the ownership of stock, assets, or net profits of any person.
(6) Property subleased by tenant of real estate investment trusts.—
(A) In general.— If:
(i) A real estate investment trust receives or accrues, with respect to real or personal property, amounts from a tenant which derives substantially all of its income with respect to such property from the subleasing of substantially all of such property, and
(ii) a portion of the amount such tenant receives or accrues, directly or indirectly, from subtenants consists of qualified rents, then the amounts which the trust receives or accrues from the tenant shall not be excluded from the term “rents from real property” by reason of being based on the income or profits of such tenant to the extent the amounts so received or accrued are attributable to qualified rents received or accrued by such tenant.
(B) Qualified rents.— For purposes of paragraph (A), the term “qualified rents” means any amount which would be treated as rents from real property if received by the real estate investment trust.
(7) Impermissible tenant service income.— For purposes of subsection (d)(2)(B) of this section:
(A) In general.— The term “impermissible tenant service income” means, with respect to any real or personal property, any amount received or accrued directly or indirectly by the real estate investment trust for:
(i) Services furnished or rendered by the trust to the tenants of such property, or
(ii) managing or operating such property.
(B) Disqualification of all amounts where more than de minimis amount.— If the amount described in paragraph (A) with respect to a property for any taxable year exceeds one percent (1%) of all amounts received or accrued during such taxable year directly or indirectly by the real estate investment trust with respect to such property, the impermissible tenant service income of the trust with respect to the property shall include all such amounts.
(C) Exceptions.— For purposes of paragraph (A):
(i) Services furnished or rendered, or management or operation provided, through an independent contractor from whom the trust itself does not derive or receive any income shall not be treated as furnished, rendered, or provided by the trust, and
(ii) there shall not be taken into account any amount which would be excluded from unrelated business taxable income under § 30482(b)(3) of this title if received by an organization described in § 30481(a)(2) of this title.
(D) Amount attributable to impermissible services.— For purposes of paragraph (A), the amount treated as received for any service (or management or operation) shall not be less than one hundred fifty percent (150%) of the direct cost of the trust in furnishing or rendering the service (or providing the management or operation).
(E) Coordination with limitations.— For purposes of clauses (2) and (3) of subsection (c), amounts described in paragraph (A) shall be included in the gross income of the corporation, trust, or association.
(e) Interest.—
(1) In general.— For purposes of clauses (2)(B) and (3)(B) of subsection (c) of this section, the term “interest” does not include any amount received or accrued, directly or indirectly, if the determination of such amount depends in whole or in part on the income or profits of any person except that:
(A) Any amount so received or accrued shall not be excluded from the term “interest” solely by reason of being based on a fixed percentage of gross receipts or percentages of sales, and
(B) where a real estate investment trust receives any amount which would be excluded from the term “interest” solely because the debtor of the real estate investment trust receives or accrues any amount the determination of which depends in whole or in part on the income or profits of any person, only a proportionate part (determined pursuant to regulations prescribed by the Secretary) of the amount received or accrued by the real estate investment trust from the debtor shall be excluded from the term “interest”.
(2) Special rule.— If:
(A) A real estate investment trust receives or accrues with respect to an obligation secured by a mortgage on real property or an interest in real property amounts from a debtor which derives substantially all of its gross income with respect to such property (not taking into account any gain on any disposition) from the leasing of substantially all of its interests in such property to tenants, and
(B) a portion of the amount which such debtor receives or accrues, directly or indirectly, from tenants consists of qualified rents (as defined in subsection (d)(6)(B) of this section), then the amounts which the trust receives or accrues from such debtor shall not be excluded from the term “interest” by reason of being based on the income or profits of such debtor to the extent the amounts so received are attributable to qualified rents received or accrued by such debtor.
(f) Termination of election.—
(1) Failure to qualify.— An election under subsection (c)(1) made by a corporation, partnership, trust, or association shall terminate if the corporation, partnership, trust, or association is not a real estate investment trust to which the provisions of this section apply for the taxable year with respect to which the election is made, or for any succeeding taxable year. Such termination shall be effective for the taxable year for which the corporation, partnership, trust, or association is not a real estate investment trust to which the provisions of this section apply, and for all succeeding taxable years.
(2) Revocation.— An election under subsection (c)(1) made by a corporation, partnership, trust, or association may be revoked by it for any taxable year after the first taxable year for which the election is effective. A revocation under this clause shall be effective for the taxable year in which made and for all succeeding taxable years. Such revocation must be made not later than ninety (90) days after the first day of the first taxable year for which the revocation is to be effective. Such revocation shall be made in such manner as the Secretary shall prescribe by regulations.
(3) Election after termination or revocation.— Except as provided in clause (4), if a corporation, partnership, trust, or association has made an election under subsection (c)(1) and such election has been terminated or revoked under clause (1) or (2), such corporation, partnership, trust, or association (and any successor corporation, partnership, trust, or association) shall not be eligible to make an election under subsection (c)(1) for any taxable year prior to the fifth (5th) taxable year which begins after the first taxable year for which such termination or revocation is effective.
(4) Exception.— If the election of a corporation, company, partnership, trust, or association has been terminated under clause (1) by reason of its failure to meet the requirements of clause (2) or (3) of subsection (c), or of both subsections, clause (3) of this subsection shall not apply, if:
(A) The corporation, partnership, trust, or association does not willfully fail to file within the time prescribed by law an income tax return for the taxable year with respect to which the termination of the election under subsection (c)(1) occurs;
(B) the inclusion of any incorrect information in the return referred to in paragraph (A) is not due to fraud with intent to evade tax, and
(C) the corporation, partnership, trust, or association establishes to the satisfaction of the Secretary that its failure to qualify as a real estate investment trust to which the provisions of this section apply is due to reasonable cause and not due to gross negligence.
(g) Applicability of the Uniform Securities Act.— None of the provisions of this Code shall be construed as to exempt real estate investment trusts from complying with the provisions of §§ 881 et seq. of Title 10, known as the “Puerto Rico Uniform Securities Act”.
History —Jan. 31, 2011, No. 1, § 1082.01, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 101; Jan. 24, 2014, No. 20, § 3.