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 1004 - Tax Rates (§§ 30061 — 30090) › Subchapter C - Preferred Rate Taxes (§§ 30081 — 30090) › § 30085 - Tax on individuals, estates, and trusts with regard to the interest paid or credited on bonds, notes, or other obligations of certain corporations or partnerships and on certain mortgages

(a) Tax rate.—
(1) Special tax rate.— Any individual, estate, corporation, partnership or trust may avail itself of the option to pay, in lieu of any other taxes imposed by this part, a tax equal to ten percent (10%) on the total amount of nonexempt eligible interest paid to it, or credited on bonds, notes, or other obligations issued by a corporation or partnership described in subsection (b)(1), on mortgages constituted on residential property located in Puerto Rico described in clause (2) of said subsection.
(2) Normal tax rate.— Any individual, estate, corporation, partnership or trust may opt to pay a tax determined according to the normal tax rates.
(3) Excess of withheld tax.— In the event that the tax withheld in accordance with this section is greater that the tax resulting from the application of the preferred tax rate provided in clause (1) of this subsection, the net income subject to such preferred tax rate, may be applied to such excess as a credit against the regular tax.
(b) Definition of eligible interest.— For purposes of this section, the term “eligible interest” means:
(1) Bonds, notes, or other obligations.— Any interest on:
(A) Bonds, notes and other obligations issued:
(i) By a domestic corporation or partnership, or
(ii) by a foreign corporation or partnership when not less than eighty percent (80%) of its gross income derived during the three (3) taxable year period ending with the close of the taxable year prior to the date of payment or crediting of the interest, constitutes income that is actually related to the operation of a trade or business in Puerto Rico.
(B) Shares in trusts that represent an interest on the bonds, notes or other obligations described in paragraph (A), provided, that the proceeds of said bond, note or other obligation is solely and exclusively used in the trade or business in Puerto Rico of said corporation or partnership, whether domestic or foreign, or its subsidiaries, within a period of not more than twenty-four (24) months following the date of issue of said bond, note or other obligation.
(2) Mortgages on residential property located in Puerto Rico.—
(A) Any mortgage loan interest on residential property located in Puerto Rico, whose mortgage has been executed after July 31, 1997, and insured or secured by virtue of the provisions of the National Housing Act, approved on June 27, 1934, as amended, or by virtue of the provisions of the Servicemen’s Readjustment Act of 1944, as amended.
(B) Any interest on mortgage loans on residential property located in Puerto Rico, that is not exempt under § 30102 of this title and shares in trusts that represent an interest on said loans (or any other instrument that represents an interest on said loans), provided, that the interest recipient is not a financial institution as such term is defined in § 30137(f) of this title.
(c) Requirements to avail oneself of the provisions of this section.—
(1) Investment report.— Every domestic or foreign corporation or partnership shall be bound to render a report to the Secretary on the investments made within ninety (90) days following the twenty-four (24) months from the date of issue of the bond, note or other obligation, or after having made the total investment, whichever occurs first.
(2) Manner of exercising the option.—
(A) The option to pay only ten percent (10%) of the tax referred to in subsection (a)(1), is available to the recipients of eligible interest that, on the date of acquiring the bond, note, or other obligation or mortgage loan described in the above subsection (b), authorize the payer thereof to withhold the tax imposed by said subsection (a).
(B) Any individual, estate, corporation or trust that does not exercise the option provided herein shall be bound to pay the income tax based on the normal rates.
(C) The withholding agent shall make the withholding with regard to interest paid or credited as of the date on which the option is exercised pursuant to the procedures established in § 30279 of this title and shall be subject to the provisions thereof. This option, once exercised, shall continue in force until the interest recipient should opt otherwise.
(D) In order to avail him/herself of the option provided in paragraph (A), the interest recipient shall render to each payor thereof a written authorization stating under his/her signature that he/she opts for the withholding of tax imposed by subsection (a).
History —Jan. 31, 2011, No. 1, § 1023.05, retroactive to Jan. 1, 2011.