2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART III - Other Tax Incentives (§§ 10401 — 10855) › Chapter 941 - Agriculture Tax Incentives (§§ 10401 — 10410) › § 10409 - Tax credit for investment in agricultural businesses

(a) Subject to the provisions of subsection (c) of this section, every investor, including a participant in a fund, shall be entitled to an investment credit in eligible agricultural businesses equal to fifty percent (50%) of his/her eligible investment or his/her investment in shares of a securities fund or funds shares, to be claimed in two (2) installments: up to half of said credit, in the year in which the agricultural business obtained the necessary financing for its operation if financing was required; and the balance of said credit in the following year. Should an escrow account be established and it were dissolved for failure to obtain the needed financing to operate the agricultural business, the participants shall not be entitled to the credit. Every eligible investment made on or before the deadline for filing the income tax return as provided by the Income Tax Act of 1954, former §§ 3001 et seq. of this title, or by the Puerto Rico Internal Revenue Code of 1994, shall qualify for the tax credit provided in this section in the taxable year for which the abovementioned return is being filed provided that all requirements of this section are met. Said investment credit may be applied against any tax determined by the investor or participant under the Income Tax Act of 1954, former §§ 3001 et seq. of this title, or under, Act No. 120 of October 31, 1994, known as the “Puerto Rico Internal Revenue Code of 1994”, including the minimum alternate basic tax applicable to corporations and partnerships and the alternate basic tax applicable to individuals. This credit shall not be used to pay off the taxes levied under any other subtitle of Act No. 120 of October 31, 1994, known as the “Puerto Rico Internal Revenue Code of 1994” or any other act, including, but with[out] being limited to, §§ 10038—10052 of this title, known as the “Tax lncentives Act of 1987”, or to any other act of a similar nature which substitutes or complements the latter.
The credit for investment in agricultural businesses allowed by this section shall not apply nor be available in the event the participant acquires shares of a securities fund or a fund, in primary issue, to replace other shares of a fund which the participant sold, exchanged, or otherwise transferred and with respect to which the participant shall not share in whole or in part, in the profit derived from said sale, exchange, or transfer.
The investor or participant must request an administrative decision from the Secretary of the Treasury before claiming the credit for investments in the agricultural business in order for him/her to determine whether the investment the agricultural business makes or intends to make qualifies for the investment tax credit.
In the case of an existing bona fide agricultural business in operation as to the date of approval of this act, the first half of the credit may be claimed in the year in which the eligible investment was made.
In case an existing agricultural business is acquired by contributing additional capital of at least two hundred percent (200%) of the cost of said business, the investor shall be entitled to the credit granted in this subsection, provided said additional contribution is made within a period not greater than three (3) years from the date the new business is acquired. For such a purpose, the investor or participant must make not less than twenty-five percent (25%) of the eligible investment during the first year of this period; not less than thirty-five percent (35%) in the second year, and the remainder, if any, in the third year.
(b) Deferring of credit. — All credit for investment in agricultural businesses not used in a taxable year shall be deferred to subsequent taxable years until it is used in its entirety.
(c) Maximum credit amount. — The maximum amount of credit for investments in agricultural businesses, for each business, which shall be available to the investors and the participants who made an eligible investment prior to April 8, 1997, shall be fifty percent (50%) of the cash contributed through the fund, to the agricultural businesses by the investors or participants in exchange for stock or shares in said agricultural businesses. The maximum amount of the available credit available shall be distributed among the investors and participants in the proportion they determine. The agricultural business shall give notice of the credit distribution to the Secretary of Agriculture, the Secretary of the Treasury, and its stockholders on or before the date provided by the Income Tax Act of 1954, former §§ 3001 et seq. of this title, or by the Puerto Rico Internal Revenue Code of 1994, as the case may be, in order to file its income tax return for its first year of operations, including any extension granted by the Secretary of Treasury for the filing thereof. The eligible distribution shall be irrevocable and compulsory for the agricultural business, the investors, and the participants.
In the case of eligible investments made after April 8, 1997, the maximum amount of investment credits shall be as follows:
(1) If the total of the eligible investment does not exceed two (2) million dollars, the maximum amount of investment credits for each agricultural business which shall be available to the investors and the participants, shall be fifty percent (50%) of the cash contributed to each agricultural business during the taxable year.
(2) In case the eligible investment exceeds two (2) million dollars, the investor or participant shall be entitled to the investment tax credit established in clause (1) plus the total amount of the credit corresponding to the cash included in said surplus for a limit of up to ten percent (10%) of the total cost of the agricultural business, reduced by the two (2) million dollars. In no case shall the total amount of the credit for investments in agricultural business exceed five (5) million dollars per taxable year per each agricultural business.
The Secretary of the Treasury shall authorize the credits for investments claimed by the investors or the participants, as the case may be, for a limit of up to fifteen (15) million dollars per fiscal year. However, in those cases in which the Secretary of Agriculture and the Secretary of the Treasury evaluate the activities which an agricultural business intends to pursue and decide that the latter shall substantially contribute to the development of this economic sector, the Secretary of the Treasury may authorize the credits for investments in said business even when the credits for that particular year, have already been granted up to the limit of fifteen (15) million dollars authorized by this clause.
For this purpose, from the amount of fifteen (15) million dollars investment credits of five (5) million dollars for the investors or participants whose investments do not exceed one (1) million dollars, shall be reserved during the first six (6) months of the fiscal year. Should said reserved amount not be used in its totality during the aforementioned period, the latter shall be available to any investor or participant, regardless of the total amount of their investment.
(d) Base adjustment and credit retrieve. —
(1) The base of each eligible investment shall be reduced by the amount claimed as a credit for agricultural business investments, but shall never be reduced to less than zero.
(2) During the term of three (3) years from the date of notice with regard to the distribution of credit as described in subsection (c) of this section, the agricultural business shall submit an annual report to the Secretary of Agriculture and the Secretary of the Treasury itemizing the total investment made in the business up to the date of said annual report.
(3) After the term of three (3) years from the date of the notice described in subsection (c) of this section, the Secretary of Agriculture shall determine the total investment made by the agricultural business. In the case of investments made as of April 8, 1997, the investor or participant must make not less than twenty-five percent (25%) of the eligible investment during the first year of this period; not less than thirty-five percent (35%) in the second year and the remainder, if any, in the third year. In the event the investment credit in the agricultural business claimed by the investors exceeds the credit computed by the Secretary of Agriculture, based on the total investment made by the agricultural business in the activity, said excess shall be deemed as an indebted income tax to be paid by the investors in two (2) installments, the first of which shall be due on the first taxable year following the expiration date of the above mentioned three-year period, and the second shall be due on the following taxable year.
(4) Should any bona fide agricultural business cease to conduct operations as such prior to the expiration of the ten (10) year period provided in § 10402(k)(4) of this title, the investor or participant shall owe income taxes in an amount equal to the credit for investments in the agricultural business claimed by said investor or participant, multiplied by a fraction whose denominator shall be ten (10) and whose numerator shall be the balance of the ten (10) year period required by this chapter. The amount owed on account of the income tax shall be paid in two installments beginning on the first taxable year following the date in which the agricultural business ceased its activities.
(e) Credit for losses. — Any losses experienced in the sale, exchange or other disposition made of an eligible investment or a share of a fund by an investor or participant, shall be deemed as a capital loss, but said investor or participant may chose to claim said loss as a credit against the tax determined in the taxable year in which said loss occurred and for the following four (4) taxable years. The amount of the loss that may be claimed as credit for each of the aforesaid years shall not exceed one third ( 1 / 3 ) of the loss. Any loss claimed as credit against income taxes shall reduce the base of the eligible investment or share of a fund in the same amount of the credit thus claimed, but said base shall never be reduced to less than zero. If the base of the eligible investment or the fund stock equals zero, no option to claim losses as credit against income taxes shall be allowed. For the purpose of determining the amount of the credit for losses, the base of the shares in a special partnership shall not be adjusted to reflect the increases in the base computed pursuant to Supplement P of the Income Tax Act of 1954, as amended, or to Subchapter K of Subtitle A of Act No. 120 of October 31, 1994, part of the Puerto Rico Internal Revenue Code of 1994. On the other hand, any reduction in the base determined pursuant to said Supplement P or Subchapter K, shall be recognized for the purpose of computing the credit for losses, but only up to the amount of the tax benefit derived by the investor or participant from the transaction or event which gave rise to the base reduction under said Supplement P or Subchapter K.
In the case of investment credit losses suffered with regard to investments made before April 8, 1997, the total amount of the credit for losses shall not exceed fifty percent (50%) of the investment in the agricultural business. In the case of losses for investments attributed to investments made as of April 8, 1997, the amount of the credit for losses shall not exceed ten percent (10%) of the total cost of the agricultural business. The investors and participants who claimed, or otherwise transferred investment credits in an agricultural business as a result of their eligible investment or their investment in the shares of a Fund, shall distribute among themselves the right to benefit from the credit using the mechanism provided in subsection (c) of this section. Once said distribution has been made, the provisions regarding the transfer or cession of credits provided in subsection (f) of this section shall not apply. Any surplus of the credit thus granted on the taxes determined for the aforesaid five (5) taxable years shall not be claimed as a deduction or a credit, nor may it be carried back nor carried forward to another taxable year.
(f) Cession of credit. —
(1) After the date of notice of the distribution of the credit for investments in agricultural businesses provided in subsection (c) of this section, the credit provided in this section may be ceded, sold or otherwise transferred in whole or in part, to any other person by an investor or participant.
(2) The base of the eligible investment shall be reduced by the worth of the credit for investment in agricultural businesses thus ceded.
(3) The investor or participant who has ceded all or part of his/her credit by investing in agricultural businesses, as well as the person [who is the] acquirer of said credit, shall notify the Secretary of the Treasury of the cession through a statement to such effects, which shall be included in the income tax return for the year in which the cession of the credit by investing in agricultural business was made. The statement shall include such information that the Secretary of the Treasury deems pertinent through regulation promulgated to such effects.
(4) The money or the worth of the property received in exchange for the credit for agricultural business investments shall be exempted from taxation under Act No. 120 of October 31, 1994, known as the “1994 Internal Revenue Code of Puerto Rico”, and under any successor act, up to an amount equal to the amount of the credit ceded.
(5) The tax credit for investments granted by this chapter may be transferred, exchanged or sold only once. Said transfer, sale or exchange shall be that one made by the investor or the participant to any other person. A transfer, exchange or sale to a related person constitutes a transfer for the purposes of said limitation. The term “related person” shall be determined pursuant to the criteria established in Sections 1024(b) and 1028 of Act No. 120 of October 31, 1994, known as part of the “Puerto Rico Internal Revenue Code of 1994.”
(6) When the investment tax credit granted by §§ 10401 et seq. of this title, is transferred, exchanged or sold, the difference between the total amount of the credit and the amount paid for said credit shall not be considered as income for the purchaser of the credit.
A person who acquires a tax credit for investments in one of the activities described in § 10402(k) of this title, from an investor or a participant, shall not be subject to the retrieval provisions of subsection (d)(3) of this section.
(7) An investment in an agricultural business which, in itself, does not constitute an eligible investment does not confer upon the investor or the participant the right to claim, transfer, sell or exchange the investment tax credit described in subsection (a) of this section. Should a taxpayer claim a credit for investments in an agricultural business against his/her tax liability, and it is subsequently determined that the latter was not valid because on the basis of the nature of the investment, said credit could not have been generated thereby, the insufficiency in the payment of the tax shall be governed by the provisions of Subtitle F of Act No. 120 of October 31, 1994, known as part of the “Puerto Rico Internal Revenue Code of 1994”, and not by the provisions of subsection (d)(3) of this section regarding the retrieval of the tax credit.
(g) Taxation of profits in case of sale. — Any profit resulting from a sale, exchange or any other disposal of an eligible investment or worth of a Security or Capital Investment Fund, shall be deemed a capital gain and the excess of net long-term capital gains over net short-term capital losses shall be subject to taxation, as provided in Act No. 120 of October 31, 1994, the 1994 Internal Revenue Code of Puerto Rico.
(h) Special rules for investments made by [the] Capital Investment Fund, created under §§ 1241 et seq. of Title 7, as amended, known as “Capital Investment Fund”, or under any other act of similar nature that replaces or complements it:
(1) Any capital investment fund created under §§ 1241 et seq. of Title 7, known as the “Capital Investment Fund Act of 1996”, or under any other law of a similar nature that replaces or complements the latter, which is an investor or participant in agricultural business projects shall be subject to all the provisions of this section, except that:
(A) For investments made before April 8, 1997, it have shall the right to an agricultural business investment credit equal to twenty-five percent (25%) of its eligible investment or its investment in stock of the Fund, instead of the fifty percent (50%) referred to in § 10408 of this title. The total credit of twenty-five percent (25%) of its investment can be claimed in the year in which the business obtained the necessary capital to develop the agricultural activity; Provided, That for investments made as of April 8, 1997, the credit shall be equal to ten percent (10%) of the total cost of the agricultural business instead of fifty percent (50%) granted by subsection (a) of this section.
(B) For the purposes of the limitation imposed in subsection (c) of this section, to the effect that the total credit for agricultural business investments shall not exceed fifty percent (50%) of the cash contributed by the investors or participants, or fifty percent (50%) of the cash contributed up to two (2) million dollars plus the excess of two (2) million dollars of the cash contributed up to the limit of ten percent (10%) of the total cost of the agricultural business, as the case may be, the computation shall be made as if the capital investment funds created under §§ 1241 et seq. of Title 7, known as the “Capital Investment Funds Act of 1996”, or under any other act of a similar nature that replaces or complements it, had claimed the fifty percent (50%) of their eligible investment.
(C) The capital investment funds created under §§ 1241 et seq. of Title 7, known as the “Capital Investment Funds Act of 1996”, or under any other act of a similar nature that replaces or complements it, shall not be entitled to the credit for losses provided in subsection (e) of this section.
(2) Report, obligation to file. — Every fund shall file the reports required by the Commissioner of Financial Institution of Puerto Rico who shall be responsible of regulating the contents thereof and the date they shall be filed. The Commissioner shall remit a true and exact copy of said report to the Secretary of Agriculture and the Secretary of the Treasury within thirty (30) days following its filing date.
History —Dec. 1, 1995, No. 225, § 10, renumbered as § 12 by § 3 and amended on Apr. 30, 1996, No. 35, § 10; Apr. 8, 1997, No. 8, § 4.