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 1012 - Nonprofit Organizations (§§ 30471 — 30487) › Subchapter A - Tax Exempt Organizations (§ 30471) › § 30471 - Tax exemption on nonprofit organizations and corporations

(a) Except as provided in §§ 30481-30487 of this title, the following organizations shall be exempt from taxation under this part:
(1) Churches, church conventions or associations, as well as religious and apostolic organizations, including corporations and any community chest, fund, or foundation, organized and operated exclusively for religious purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(2) Organizations that provide services to the community:
(A) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for:
(i) Charitable purposes,
(ii) scientific purposes,
(iii) literary purposes,
(iv) educational purposes,
(v) prevention of cruelty or abuse to children, the elderly or the disabled,
(vi) prevention of cruelty or abuse to animals,
(vii) prevention of domestic violence or hate crimes, or
(viii) museums.
(B) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to the purposes listed in paragraph (A).
(C) Subject to the requirements of § 192 of this title, any institution, college, academy, or school that is accredited by the Department of Education for teaching fine arts, including cinematography.
(D) Nonprofit educational organizations that maintain, in the regular course of business, a faculty, an established curriculum, and a student body that regularly attends a facility to participate in educational activities.
(E) The provisions of this clause shall apply solely to those organizations that comply with the following criteria:
(i) No part of the net earnings of the organization inures to the benefit of any private shareholder or individual, and
(ii) no substantial part of the activities of the organization is lobbying or carrying on propaganda or proselytism on behalf of or against any political party or candidate for public office.
(3) Organizations for the exclusive benefit of members:
(A) Fraternal beneficiary societies, orders, or associations:
(i) Operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and
(ii) providing for the payment of life, sick, accident or other benefits to the members of such society, order, or association or their dependents.
(B) Clubs organized and managed for pleasure, recreation, and other non-profitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder.
(C) Business leagues, chambers of commerce, real-estate boards, and boards of trade not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(D) Local employee association the membership of which is limited to employees of a specific person or persons in a municipality, and the net earnings of which are dedicated exclusively for recreational purposes.
(4) Organizations that provide benefits to employees:
(A) Voluntary employees’ beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents, if
(i) Eighty-five percent (85%) or more of its income consists of amounts collected from its members and amounts contributed to the association by the employer of said members for the exclusive purpose of making those benefit payments and covering costs, and
(ii) no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual.
(B) Voluntary employees’ beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents, or designated beneficiaries, if:
(i) Admission as member to such association is limited to individuals who are officials or employees of the Government of Puerto Rico or any instrumentality or political subdivision thereof, or of the United States or its agencies and instrumentalities that render services in Puerto Rico, and
(ii) no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual.
(C) Teachers’ retirement fund associations of a purely local character, if
(i) The income consists solely of amounts received from public taxation, amounts received from assessments on the teaching salaries of members, and income in respect of investments.
(ii) No part of the net earnings inures (other than through payment of retirement benefits) to the benefit of any private shareholder or individual.
(D) A trust forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his/her employees or their beneficiaries, or any public or private employee association that provides similar benefits to its members, and which is constituted or organized under the laws of any state of the United States of America, provided that:
(i) Said trust or association qualifies as a tax exempt organization under the Federal Internal Revenue Code, and
(ii) no part of the net earnings inures (other than through payment of said benefits) to the benefit of any private shareholder or individual.
(5) Homeowner associations:
(A) Condominium management or residential real estate management associations.—
(i) Qualified condominium or residential real estate associations organized and operated to provide for the management, construction, maintenance, care of association property, surveillance control, and similar activities for the benefit of the community, including:
(I) Condominium projects substantially all the units of which are used for residential purposes;
(II) a subdivision, development, or similar area all the lots or buildings of which may only be used by individuals for residential purposes, and
(III) property owned by a governmental unit and used for the benefit of residents of such unit.
(ii) For purposes of this paragraph, the term “properties” includes property owned by the organization, as well as property owned in common by the members of the organization.
(iii) The provisions of this paragraph shall apply only to those associations that comply with the following income, expenses, and earnings criteria:
(I) Sixty percent (60%) or more of their income for the taxable year must consist of dues, charges, or apportionments of the residential unit titleholders (condominium owners’ association) or residence or residential lot titleholders (real estate owners’ associations),
(II) at least ninety percent (90%) of their expenses for the taxable year must be attributable to the acquisition, construction, management, maintenance, and care of association property, and
(III) no part of the net earnings may inure to the benefit of any private individual or member.
(B) Timeshare owner and vacation club member associations.—
(i) The associations of timeshare or vacation clubs titleholders, organized to give maintenance, care for property, and provide surveillance control and other similar activities for the common benefit of the titleholders as this term is defined in §§ 1251 et seq. of Title 31.
(ii) For purposes of this paragraph, the term “property” includes the property owned by the association, if any, and the property owned in common by the titleholders, members of the association.
(iii) The provisions of this subsection shall only apply to those associations that meet the following criteria:
(I) That they not be covered by the provisions of the Puerto Rico Tourist Development Act, §§ 6001 et seq. of Title 23, or any similar subsequent law;
(II) that sixty percent (60%) or more of their income for the taxable year consists of dues, charges, or apportionments of the titleholders;
(III) that at least ninety percent (90%) of their expenses for the taxable year be attributable to the acquisition, construction, management, maintenance, and care of association property;
(IV) that no portion of the profits proceeding from the regular course of operation of the association or existing remainder after the association is liquidated or dissolved, inures to the benefit of any titleholder, any specific individual or partner, any developer, or any administrative entity, and
(V) that the property must be located in Puerto Rico.
(C) The Associations of Owners of a Tourism Improvement District, created as provided on September 1, 2001, in the Tourism Improvement District Act of 1998, §§ 6601 et seq. of Title 21, insofar as they do not enjoy benefits under the provisions of any other special law.
(6) Organizations providing rental housing:
(A) Limited dividend corporations, organized under the laws of Puerto Rico or any state of the United States of America, providing rental housing to low- or moderate-income families and which qualify for such limited dividend corporations under Sections 221(d)(3) or 236 of the National Housing Act, as amended (Public Law 73-479, 48 Stat. 1246, 82 Stat. 476), certified by the Department of Housing of Puerto Rico or any other agency, instrumentality, or political subdivision authorized for these purposes. Such corporations shall file, for each taxable year, an income tax return specifically showing the items of their gross income, deductions, and net income, and shall add to the return, as a part thereof, a report showing the name and address of each member of the corporation and the amount of dividends paid to each one during said year.
(B) Nonprofit associations providing rental housing to low- or moderate-income families and which qualify as such under Sections 221(d)(3) or 236 of the National Housing Act (Public Law 73-479, 48 Stat. 1246, Public Law 90-448, 82 Stat. 476, 498), when so certified by the Department of Housing of Puerto Rico or any other agency, instrumentality, or political subdivision authorized for these purposes, which have duly requested a tax exemption before January 1, 2011, and that have been declared as tax exempt by the Secretary.
(C) Nonprofit associations providing rental housing to persons over sixty (60) years of age; provided, that said corporations qualify under Section 202 of the National Housing Act, as amended (Public Law 86-372, 73 Stat. 654), when so certified by the Department of Housing of Puerto Rico or any other agency, instrumentality, or political subdivision authorized for these purposes, which have duly requested a tax exemption before January 1, 2011, and that have been declared as tax exempt by the Secretary.
(7) Cooperatives:
(A) Subject to the requirements of §§ 4381 et seq. of Title 5, known as the “General Cooperative Associations Act of 2004”, as amended, the cooperative associations organized and operated under the provisions of said sections.
(B) Subject to the requirements of §§ 1361 et seq. of Title 7, known as the “Cooperative Savings and Credit Unions Act of 2002”, the cooperative credit unions organized and operated under the provisions of said sections.
(C) Subject to the requirements of §§ 101 et seq. of Title 26, known as the “Puerto Rico Insurance Code”, the insurance cooperatives organized and operated under the provisions of said sections.
(D) Subject to the requirements of §§ 1701 et seq. of Title 18, known as the “Special Act for Youth Cooperatives”, cooperative associations organized and operated under the provisions of said sections.
(8) Other organizations:
(A) Labor, agricultural, or horticultural organizations.
(B) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation authorized exclusively for the purpose of burial as a cemetery corporation which is not permitted by its charter to engage in any business not necessarily incident to that purpose, insofar as no part of its net earnings inures to the benefit of any private shareholder or individual.
(C) Corporations organized under any statute of the Legislative Assembly, if such corporations are instrumentalities of the Government of Puerto Rico.
(D) Subject to the requirements of §§ 10013 et seq. of this title; of §§ 10024 et seq. of this title; §§ 10038 et seq. of this title; of §§ 10101 et seq. of this title; of §§ 10641 et seq. of this title; of §§ 693 et seq. of Title 23; of §§ 6001 et seq. of Title 23, all of them as amended, and any other law substituting or complementing them, and to the extent provided therein, the entities that have obtained or may obtain tax exemption under said laws, or subject to the requirements of any similar law to be approved in the future.
(E) Subject to the requirements of §§ 371 et seq. of this title, and any other law substituting or complementing it, and to the extent provided therein, the entities that have obtained or may obtain tax exemption under said law, or subject to the requirements of any similar law to be approved in the future.
(F) Any entity created or organized under the laws of the United States of America, or those of any state of the United States of America, and that, during the taxable year, qualifies as a registered real estate investment company or investment trust under the United States Internal Revenue Code of 1986, as amended, including persons that are part of the group of related entities of the real estate investment trusts. In the case of these real estate investment trusts, including persons that are part of its group of related entities, the exemption on all income from sources within or outside Puerto Rico shall be granted to the real estate investment trust and persons that are part of the related entities only if all the assets in real property held by the trust and persons that are part of its group of related entities in Puerto Rico constitute real property as such term is defined in §30401(c)(7)(D) of this title, and assets related to the possession and operation of said properties, and the acquisition or development of said real property by the trust and persons that are part of its group of related entities or the interest of the trust in its subsidiaries, occurred after December 31, 2010, and through transactions concerning the development or construction of such property, or the purchase of assets, stocks, or interests in partnerships that generate income from sources within Puerto Rico and subject (except for assets purchased from the Government of Puerto Rico, its agencies, and instrumentalities) to taxation under this part, or its equivalent under preceding laws. For purposes of this paragraph:
(i) In determining whether a person is part of a group of related entities, rules similar to those provided in § 30045 of this title shall be applied regarding related entities or persons.
(ii) The development of a property shall be deemed as constituting a transaction that generated income from sources within Puerto Rico subject to taxation.
(iii) The date of acquisition or development of a property developed by the trust or the related entities thereof shall be the date on which the use permit was granted.
(iv) If a trust has more than one related person engaged in trade or business in Puerto Rico, but not all related persons comply with the provisions of this paragraph, the exemption provided herein shall only be granted to the trust and those related persons that comply with the provisions of this paragraph.
(9) Organizations exempted under Act No. 120 of October 31, 1994:
(A) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax established under this part, which duly requested a tax exemption prior to January 1, 2011, and were declared tax exempt by the Secretary.
(B) Nonprofit organizations or entities devoted exclusively to promoting and developing sports for recreational purposes that have duly requested a tax exemption prior to January 1, 2011 (be it understood that if a franchise that was declared tax exempt before the date set forth herein changes its owner or manager under another juridical entity, but the franchise survives without altering its purpose and mission, the tax exemption awarded to said franchise prior to January 1, 2011, shall be valid for the new owner or acquiring manager) and were declared tax exempt by the Secretary, provided that they do not do business with the general public in a manner similar to that of for-profit organizations, and meet the following conditions:
(i) The exempt entity uses its income for expenses related to trainers, managers, administrative operations, sports clinics for children and youths, minor team programs, such as, among others, exhibition games, tournaments for children and youths, social programs related to basketball and other activities related to the development of sports that promote a benefit for general society, as well as for recreational activities.
(ii) Operations devoted to the management of taxable activities, such as the payment of professional or semi-professional players, income from ticket sales, the sale of snacks, private sponsorships, or transactions that are not devoted to the development of sports, shall remain within a separate taxable entity.
(iii) Donations received by the Commonwealth of Puerto Rico, its agencies, instrumentalities, public corporations, or municipalities must remain accountably separate from other funds generated by the exempt entity. The entities or organizations exempt under the provisions of this paragraph may receive government donations that have been separated, appropriated, or which are pending disbursement, even when the exemption for the entity or organization has been granted after the designation, identification, or appropriation of the government donations.
(iv) The exempt entity shall submit the financial statements, audited by a certified public accountant licensed to practice in Puerto Rico, to the Department every year.
(v) The net income of the exempt entity shall not inure, in whole or in part, to the benefit of private individuals or shareholders.
(b) An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt under any subsection of this section based on the fact that all of its profits are payable to one or more organizations exempt from taxation under this section. For purposes of this subsection, the term “trade or business” shall not include the rental by an organization of its real property (including personal property leased with the real property). Moreover, an organization shall not be exempt from taxation under this part unless such organization shows, to the satisfaction of the Secretary, that it serves the public interest. For purposes of this subsection, it shall be presumed that an organization serves a private interest and such organization shall show, to the satisfaction of the Secretary, that it is not organized nor operated for the benefit of the private interest of the creator of the entity, his/her family, stockholders of the corporation or persons controlled, directly or indirectly by the same.
(c) Notwithstanding the provisions of §§ 30481—30487 of this title, an organization described in this section (except in subsection (b)) shall be considered an organization exempt from income tax for purposes of any law making reference to organizations exempt from income tax.
(d) In the case of organizations declared as tax exempt under clauses (2), (3), (4)(A), (4)(B), (4)(C), (5), (6), (8)(A), (8)(B), and (9) of subsection (a):
(1) They shall begin benefiting from the tax exemption as of the first day of the taxable year of the organization in which the tax exemption request was filed before the Secretary. However, the date of effectiveness established herein shall never be a prior date to that on which the organization was legally instituted or was registered in the Department of State.
(2) The operations of the exempt organization shall be governed by a Board of Directors composed of at least three (3) members, less than fifty percent (50%) of which may be members of the family circle of the person that establishes, or is one of the chief executive officers, of the organization or who holds the position of Chair of the Board. For these purposes, the term “family circle” includes, but is not limited to the mother, father, brother or sister (whether whole- or half-blood sibling), spouse, son or daughter (biological or adopted), father-in-law or mother-in-law, grandparents, aunt or uncle (by consanguinity or affinity), and any person who lives under the same roof as the person who organizes, or is one of the chief executive officers of, the organization or who holds the position of Chair of the Board.
(3) The Secretary may revoke any tax exemption determination previously granted when he/she determines that the organization:
(A) Does not comply with the purposes on which the granting of the exemption was based, or
(B) Has failed to meet any of the requirements established in this section for said exemption, including those established in clause (2),
(C) Has violated any of the provisions of this Code, or applicable law, except when it is shown, to the satisfaction of the Secretary, that such violation is due to reasonable cause and not to willful disregard or gross negligence, or
(D) Incurs expenses that are extravagant; expenses that are not clearly related to the exempt purposes of the organization; expenses that are intended to make profit by directors, officers, officials, or employees; or expenses incurred for personal, living, and family expenses of directors, officers, officials, or employees.
(4) The process of revoking a tax exemption determination pursuant to clause (3) shall be governed by the provisions of the Commonwealth of Puerto Rico Uniform Administrative Procedures Act, §§ 2101 et seq. of Title 3.
(5) The Secretary shall prescribe through regulations, administrative determination, or circular letter the information that such organizations shall submit in order to determine compliance with the provisions of paragraphs (A) and (B) of clause (3) of this subsection. In all cases, the organization shall be required to present, to the satisfaction of the Secretary, proof that it renders services to Puerto Rico residents.
(e) For the loss of the exemption under certain circumstances, in the case of organizations exempt under clauses (2)(A) and (4)(D) of this subsection, see §§ 30486 and 30487 of this title.
(f) Transitory provisions.— Nonprofit organizations that, on the effective date of this Code, have failed to obtain a determination from the Secretary approving the tax exemption granted under the provisions of Section 1101 of Act No. 120-1994, as amended, known as the “Puerto Rico Internal Revenue Code of 1994”, may request that such exemption be granted retroactively to the date of organization of the entity; provided, that the tax responsibilities of said entity are up to date and it complies with the requirements set forth in this Section. Such request shall be submitted not later than June 30, 2012. Entities that have obtained a determination approving their tax exemption under the provisions of Section 1101 of the Puerto Rico Internal Revenue Code of 1994, but that, as of the effective date of this Code, fail to comply with the provisions of §§ 30471-30487 of this title, may request a new tax exemption determination under the provisions of this Code, insofar as they show to the satisfaction of the Secretary that they meet the requirements of §§ 30471-30487 of this title.
History —Jan. 31, 2011, No. 1, § 1101.01, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 111; Sept. 30, 2015, No. 159, § 10.