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) › § 30402 - Method of taxation of real estate investment trusts and beneficiaries

(a) In general.— Every real estate investment trust that complies with the provisions of § 30401 of this title shall be subject to taxation under §§ 30041 et seq of this title, except if during the taxable year it distributes to its beneficiaries, as taxable dividends, an amount of not less than ninety percent (90%) of its net income (determined without regard to the credits provided in §§ 30072(d) and 30139 of this title); and as exempt dividends, an amount of not less than ninety percent (90%) of its exempt net income as defined in subsection (d)(4)(C).
(b) In computing the net taxable income of a real estate investments trust:
(1) The deduction for net losses provided in § 30134 of this title shall not be taken into account; and
(2) the provisions of § 30264(c) of this title shall not be taken into account.
(c) For purposes of subsection (a) any taxable dividend or any exempt dividend declared by a real estate investment trust after the close of the taxable year and prior to the due date for filing its tax return for the taxable year (including any extension thereof) shall be, if the trust so chooses in said return, treated as though it had been paid during such taxable year, provided said dividend is in fact distributed to the stockholders within the period of three months (3) following the close of said taxable year.
(d) Taxation of Stockholders or Beneficiaries of a Real Estate Investment Trust.—
(1) Residents of Puerto Rico or citizens of the United States.— Every individual resident of Puerto Rico or citizen of the United States, and every domestic corporation or partnership subject to taxation:
(A) Shall exclude from its gross income the exempt dividends as defined in clause (4)(A) of this subsection, and
(B) shall include in its gross income and pay taxes at a tax rate of ten percent (10%), in lieu of any other tax imposed by this part:
(i) The real and effective total amount of the taxable dividends, as defined in clause (4)(C) of this subsection, or
(ii) in lieu of the amount that may be included under the preceding subparagraph (i), the total of said dividends, plus the proportional part corresponding to the beneficiary of any income taxes and excessive benefits paid to the United States, to any possession or any other part of the United States other than a state or to any foreign country, by the real estate investment trust with respect to the benefits from which it is considered that said dividends have been paid. If a stockholder or beneficiary should opt to include in the gross income such dividends plus such taxes allocable to the same, said beneficiary shall be entitled to credit the tax imposed with the total amount of said allocable taxes, subject to the limitations of § 30201 of this title, except that, when applying said section, the foreign residents of Puerto Rico shall be treated in the same manner as the residents of Puerto Rico who are citizens of the United States.
(2) Requirement to withhold.— The trustee(s) or director(s) who has/have been entrusted with the management of the real estate investments trust, must deduct and withhold an amount equal to ten percent (10%) of the distributed taxable dividends. The deduction, withholding, and payment of said tax shall be governed by the provisions of subsections (e), (f), (g) and (h) of § 30086 of this title.
(3) Foreign individuals and foreign corporations and partnerships.— Any real estate investment trust that pays dividends to a stockholder or beneficiary subject to taxation shall be subject to the tax rate of ten percent (10%) imposed by subsection (d)(1)(B) of this section, and shall deduct and withhold, subject to the limitation of § 30201 of this title said tax according to the provisions under §§ 30278 and 30281 of this title, and accredit said tax with the proportional part pertaining to said stockholder from the income taxes and benefits paid in excess to the United States, to any possession or any other part of the United States other than a state or any foreign country, by such a real estate investment trust on or with respect to the benefits from which it is considered that such dividends have been paid. For the purpose of determining the gross amount of the tax that must be deducted and withheld prior to said credit, the dividends paid during the taxable year by the real estate investment trust to the beneficiary shall be considered:
(A) Not to include the exempt dividends, as defined in clause (4)(A), and
(B) as including the real and effective total of all other dividends, plus the proportional part pertaining to the beneficiary of any of the income taxes and benefits paid in excess to the United States, to any possession or to any other part of the United States other than a state or to any foreign country, by said real estate investment trust on and with respect to the benefits about which said dividends are deemed to have been paid.
(4) Definitions.— For purposes of this section:
(A) Exempt dividends.— “Exempt dividends” means any dividend or benefit, or a part thereof, designated as such by a real estate investment trust in a notice sent by mail to its stockholder or beneficiaries on any date prior to the expiration of the period of sixty (60) days following the close of the taxable year, or the date of the statement of dividends, whichever is later. If the total aggregate thus designated with respect to a taxable year of the trust is greater than its current or accumulated assets and benefits attributable to exempt income under § 30102(a)(4) of this title.
The part of each distribution that shall constitute exempt dividends shall be only that proportion of the thus designated total that such current or accumulated assets keeps with the thus designated total aggregate.
(B) Taxable dividends.— “Taxable dividends” means any distribution of dividends, or a part thereof, made by a real estate investment trust of its current or accumulated assets or benefits attributable to sources other than those specified in paragraph (A) of this clause.
(C) Exempt net income.— “Exempt net income” means the total current or accumulated assets or benefits attributable to income exempt from taxation under § 30102 of this title.
(5) The deduction provided in § 30139 of this title shall neither be available nor apply to the distributions of dividends made by a real estate investment trust subject to the provisions of this subchapter.
(e) Taxation of net income from prohibited transactions.—
(1) Imposition of tax to trust.— There is hereby imposed for each taxable year of every real estate investment trust a tax equal to one hundred percent (100%) of the net income derived from prohibited transactions.
(2) Definitions.— For purposes of this section: For purposes of this section, the term “prohibited transaction” does not include the sale of property which is a real estate asset as defined in § 30401(c)(7)(B) of this title, if:
(A) The term “net income derived from prohibited transactions” means the excess of the gain from prohibited transactions over the deductions allowed by this part which are directly connected with prohibited transactions;
(B) in determining the amount of the net income derived from prohibited transactions, there shall not be taken into account any item attributable to any prohibited transaction for which there was a loss, and
(C) the term “prohibited transaction” means a sale or other disposition of property described in § 30141(a)(1)(A) of this title.
(3) Certain sales not to constitute prohibited transactions.—
(A) The trust has held the property for one (1) year or more; Provided, That such term shall be computed taking into account the amount of time that such property was held by the juridical entity that made an election to file as a real estate investment trust, notwithstanding it has previously made an election to file as a real estate investment trust under Section 1081.01[sic];
(B) aggregate expenditures made by the trust, or any partner, stockholder or beneficiary of the trust, during the one (1)-year period preceding the date of sale which are includible in the basis of the property do not exceed thirty percent (30%) of the net selling price of the property;
(i) During the taxable year the trust does not make more than fifty (50) sales of property; or
(ii) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property sold during the taxable year does not exceed ninety percent (90%) of the aggregate bases of all of the assets of the trust as of the beginning of the taxable year; and
(C) the trust has held the property for one (1) year or more for production of rental income in the case of property, which consists of land or improvements.
(D) If the requirement of paragraph (B)(i) of this clause is not satisfied, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor (as defined in § 30401(d)(3) of this title) from whom the trust itself does not derive or receive any income.
(4) Special rules.— The following rules shall apply to the provisions of clause (3):
(A) The holding period of property acquired through foreclosure or termination of the lease, includes the period for which the trust held the loan secured by such property or the lease of such property.
(B) In the case of a property acquired through foreclosure or termination of a lease, expenditures made by, or for the account of, the mortgagor or lessee after default became imminent shall be regarded as made by the trust.
(C) Expenditures will not be taken into account if they are made solely to meet the standards or requirements of any government or governmental authority having relevant jurisdiction, or if they are made to restore the property as a result of losses arising from fire, storm or other casualty.
(D) The term “expenditures” does not include advances on loans made by the trust.
(E) The sale of more than one property to one buyer as part of one transaction constitutes one sale.
(F) The term “sale” does not include any transaction in which the net selling price is less than ten thousand dollars ($10,000).
(5) Sales not meeting requirements of clause (3).— In determining whether or not any sale constitutes a “prohibited transaction” for purposes of clause (1), the fact that such sale does not meet the requirements of clause (3) of this subsection shall not be taken into account; and such determination, in the case of a sale not meeting such requirements, shall be made as if clauses (3) and (4) had not been enacted.
(6) Other sales that are not a prohibited transaction.— Notwithstanding the provisions of this section, the sale of a property that is a real estate asset, as defined in § 30401(c)(7)(B) of this title, shall not be considered a “prohibited transaction” for purposes of clause (1), if the total amount realized from such sale is used for the acquisition of other real property within a term not to exceed twenty-four (24) months, or for the construction of real property, whose construction begins within a period not to exceed thirty-six (36) months and has been previously notified to the Department of the Treasury. Provided, That the trust must show to the satisfaction of the Secretary that the construction:
(A) Said construction shall be completed within a reasonable timeframe after it begins, taking into account the circumstances of the market and the nature of the project; and
(B) any delay in such construction is not due to gross negligence or to evade the restrictions of this section.
(f) Imposition of tax in case of failure to meet certain requirements.— If a real estate investment trust fails to meet the requirements of clause (2) or (3) of subsection (c), or both clauses, for any taxable year, but its option under subsection (c)(1) is not deemed to be terminated by virtue of § 30401(f)(4) of this title, then there shall be imposed on such trust a one hundred percent (100%) tax to the greater of:
(1) The excess of:
(A) Ninety-five percent (95%) of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, over
(B) the amount of such gross income which is derived from sources referred to in § 30401(c)(2) of this title; or
(2) the excess of:
(A) Seventy-five percent (75%) of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, minus
(B) the amount of such gross income which is derived from sources referred to in § 30401(c)(3) of this title, multiplied by a fraction the numerator of which is the real estate investment trust taxable income for the taxable year (determined without regard to any net operating loss deduction) and the denominator of which is the gross income for the taxable year (excluding gross income from prohibited transactions).
History —Jan. 31, 2011, No. 1, § 1082.02, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 102; Jan. 24, 2014, No. 20, § 4; Feb. 27, 2015, No. 25, § 3.