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 1011 - Foreign Corporations (§§ 30431 — 30451) › Subchapter B - Foreign Corporations (§§ 30441 — 30448) › § 30441 - Tax on foreign corporations and partnerships

(a) Tax on foreign corporations not related to trade or business in Puerto Rico.—
(1) General rule.—
(A) Imposition of tax.— There shall be imposed, collected, and paid for each taxable year, in lieu of the tax imposed by §§ 30071, 30072, 30073 and 30083 of this title upon the amount received or constructively received by any foreign corporation not engaged in trade or business in Puerto Rico, from sources within Puerto Rico, the tax provided below:
(i) Interests received by a related person (as this term is defined in § 30045 of this title) from rents, royalties, salaries, annuities, compensations, remunerations, emoluments, distributions from entities exempt by the provisions of subsections (a)(8)(F) or (a)(5)(A) of § 30471 of this title), incomes pertaining to the distributive share of a partner’s interest in a partnership, special partnership, limited liability company, net capital earnings, or other fixed or determinable annual or periodical gains, profits, and income (other than insurance premiums or interests), a tax of twenty-nine percent (29%).
(ii) Dividends, a tax of ten percent (10%).
(B) Special rule and definitions.—
(i) Special rule.— The tax imposed by paragraph (A) on dividends is subject to the following limitations and exceptions:
(I) In the case of corporations to which § 30281(b) of this title refers, the tax shall be limited to that portion, if any, of said ten percent (10%) that may be taken as a credit against the tax payable on said dividends to the country where the corporation was organized.
(II) A tax shall not be imposed on dividends or benefits received from income of industrial development coming from interests over obligations of the Commonwealth of Puerto Rico or any of its instrumentalities or political subdivisions, on mortgages insured by the Puerto Rico Housing Bank and Finance Agency, acquired after March 31, 1977, and on loans or other mortgage guaranteed securities granted by any general pension or retirement system established by the Legislative Assembly of Puerto Rico, the municipalities and agencies, instrumentalities, and public corporations of the Commonwealth of Puerto Rico, acquired after March 31, 1977.
(III) In the case of a corporation organized under the laws of a foreign country that is not required to pay, in any jurisdiction outside of Puerto Rico or outside of the United States, any tax whatsoever on dividends derived from industrial development income, said corporation shall not be subject to any tax with respect to the amount of such dividends derived from industrial development income.
(ii) The term “net capital gains” means the amount by which the gains derived from sources within Puerto Rico in sales or exchanges of capital assets exceed losses, allocable to sources within Puerto Rico, from such sales or exchanges. For purposes of determining capital gains, gains and losses shall be taken into account only if, and to the extent that, the same would be recognized and taken into account if said corporation was engaged in trade or business in Puerto Rico, except that such gains and losses shall be computed without the benefits of the capital loss carryover provided in § 30141(e) of this title. Any gain or loss taken into consideration upon determining the tax under subsection (b) shall not be taken into consideration upon determining the tax under this clause.
(2) Exceptions.— For purposes of clause (1), dividends derived from industrial development income received by corporations organized under the laws of any state of the United States shall be subject to the following exceptions:
(A) Investments of eligible funds in government obligations.— The principal derived from industrial development income accumulated during taxable years beginning before January 1, 1993, and invested in obligations of the Commonwealth of Puerto Rico or any of its instrumentalities or political subdivisions, or in mortgages secured by the Puerto Rico Housing Bank and Finance Agency, and on loans or other mortgage-guaranteed securities granted by any general pension and retirement system established by the Legislative Assembly of Puerto Rico, the municipalities and agencies, instrumentalities, and public corporations of the Commonwealth of Puerto Rico which is distributed in dividends, shall not be subject to the tax imposed by clause (1) of this subsection and shall be tax exempt upon meeting the following requirements:
(i) That they are possessed as of March 31, 1977, and held by the investing corporation for a period of more than eight (8) years starting from said date, or
(ii) that they are acquired after March 31, 1977, and held by the investing corporation for a period of more than eight (8) years starting from the date of acquisition.
For purposes of this paragraph, if the corporation has held the note or mortgage for more than five (5) consecutive years, the aforesaid period of possession shall not be deemed as interrupted because of the fact that the holding corporation of said note or mortgage sells, transfers, or exchanges the same, provided that it reinvests the principal in other notes or mortgages specified in this paragraph within a period not to exceed thirty (30) days. Only one transfer shall be permitted in the case of any note or mortgage during said period of eight (8) years.
When the investment is made in obligations of the Commonwealth of Puerto Rico, or any of its instrumentalities or political subdivisions, with a maturity date of more than eight (8) years beginning from the date of acquisition of such obligation, and such obligation is redeemed, retired, or prepaid by the issuing government entity before eight (8) years beginning from the date of acquisition, the investing corporation may remit the proceeds received as a dividend, which dividend shall not be subject to the tax imposed by clause (1) and shall be tax exempt.
(B) Investment of eligible funds in obligations of the Government Development Bank for Puerto Rico or any of its subsidiary corporations, for the financing of construction, acquisition, or improvements of housing in Puerto Rico.— A sum equal to the principal derived from industrial development income accumulated during tax years beginning before January 1, 1993 and invested in obligations of the Government Development Bank for Puerto Rico, or any of its subsidiary corporations, for financing through the purchase of mortgages for the construction, acquisition, or improvement of housing in Puerto Rico begun after December 31, 1984, or for refinancing mortgage obligations the interests of which are subsidized according to the provisions of §§ 651 et seq. of Title 17, §§ 851 et seq. of Title 17, and §§ 661 et seq. of Title 17, under the terms and conditions established by said Bank through regulations, could be distributed exempt from taxation and shall not be subject to taxes imposed by clause (1) of this subsection, at a rate of a fraction whose numerator shall be the number one (1) and whose denominator shall be the total number of periods established for the payment of interests on said obligations and in no case shall said fraction be less than one eighth (1/8) annually or one sixteenth (1/16) semi-annually, based on the dates established for the payment of interest on said obligations, as long as the investing corporation has possessed the obligation for the totality of the year or semester immediately preceding said dates. At the option of the investing corporation, the amounts that qualify for annual or semi-annual distribution under this clause may be accumulated for distribution at any later dates. In the case of investments described in paragraph (A) of this clause:
(i) A total amount of the principal invested in obligations described in this paragraph equal to the amount of the distributions allowed under the same shall be excluded. An amount equal to said principal (excluding from the same a total amount equal to the amount of the authorized distributions under this paragraph) shall be distributed under said paragraph (A) at the end of the period of eight (8) years provided by said paragraph. The investment shall continue to qualify for distribution under this paragraph for the time period in excess of said period of eight (8) years that it is possessed by the investing company.
(ii) Those that are sold, transferred, or exchanged at any time and the principal is reinvested within the thirty (30) days following said sale, transfer, or exchange in obligations described in this paragraph shall be considered to comply with said paragraph (A), but a total amount equal to the amount of the authorized distributions under this paragraph shall be excluded from the same, provided that the investing corporation has possessed the two (2) classes of investments for eight (8) years or more, including the thirty (30)-day period referred to in this subparagraph. A total amount equal to said principal (excluding from the same a total amount equal to the amount of the authorized distributions under this paragraph) shall be distributed under said paragraph (A) at the end of said period of eight (8) years. The investment shall continue to qualify for distribution under this paragraph for the time period in excess of said period of eight (8) years that it is possessed by the investing corporation. In the case of investments described in this paragraph that are sold, transferred, or exchanged at any time and the principal is reinvested within thirty (30) days following said sale, transfer, or exchange in obligations described in paragraph (A), shall be considered to comply with said paragraph (A), but it shall be excluded from the same a total amount equal to the amount of the authorized distributions under this paragraph, provided that the investing corporation has possessed the two (2) classes of investments for eight (8) years or more, including the thirty (30)-day period referred to in this paragraph. A total amount equal to said principal (excluding from the same a total amount equal to the amount of the authorized distributions under this paragraph) shall be distributed under said paragraph (A) at the end of said period of eight (8) years. The distributions authorized under this paragraph shall reduce, in the year in which they are made, the net income of industrial development for purposes of determining the investment requirements provided by §§ 10025 et seq. of this title, and §§ 10038 et seq. of this title, or by any other similar laws that might substitute them.
(C) Investment increase credit.— The tax imposed by clause (1)(A)(ii) or by paragraph (D) of this clause shall be credited by three percent (3%) of the investment made by the subsidiary before January 1, 1993, in the acquisition, construction, and extension of buildings and other structures used in manufacturing, in excess of the investment in such properties owned by the subsidiary as of March 31, 1977.
In the case of corporations that have not enjoyed tax exemption under the appropriate industrial or tax incentives act for two (2) taxable years, this credit shall be granted to the nonresident corporation for the increase in investments made by the subsidiary after the end of its second tax exempt year. This credit may be carried over to subsequent taxable years.
The investments in real property made for purposes of obtaining the waiver provided in paragraph (6) of Subsection (a) of Section 4 of the Puerto Rico Tax Incentives Act of 1987, as amended, may not be used for purposes of this subsection.
(D) Alternative tax.— In lieu of the tax imposed by clause (1) of this subsection, a tax of seven percent (7%) shall be imposed, collected, and paid in the case of dividends derived from industrial development income, under the following conditions:
(i) The dividend paid on industrial development income accumulated in taxable years beginning prior to October 1, 1976, shall not exceed twenty-five percent (25%) of the undistributed amount of said industrial development income available at the beginning of any taxable year. Provided, That a sum equal to the amount of the dividend distributed in the taxable year in which the distribution is made shall be invested in Puerto Rico.
(ii) The dividend paid from industrial development income accumulated during any taxable year beginning after September 30, 1976, shall not exceed seventy-five percent (75%) of the industrial development income accrued in said taxable year. Provided, That twenty-five percent (25%) of the industrial development income of said taxable year shall be invested in Puerto Rico for a period of more than eight (8) years.
(iii) For purposes of subparagraphs (i) and (ii), the industrial development income accumulated during taxable years prior to October 1, 1976, and the industrial development income accumulated in each taxable year beginning after September 30, 1976, shall be as the same appears in the income tax returns of exempt corporations filed by the corporation.
For taxable years beginning after December 31, 1992, the alternative tax herein provided shall not be applicable in those cases in which the taxpayer avails him/herself of the provisions of § 10027(h) of this title.
(E) Distribution order.— For purposes of this clause, dividends shall be considered as made in the following order:
(i) The distribution of industrial development income to which paragraph (A) of this clause refers, the distribution of interests derived on obligations of the Commonwealth of Puerto Rico or any of its instrumentalities or political subdivisions, the distribution of interests on mortgages secured by the Puerto Rico Housing Bank and Finance Agency, acquired after March 31, 1977, and on loans or other mortgage-guaranteed securities granted by any general pension or retirement system established by the Legislative Assembly of Puerto Rico, the municipalities and agencies, instrumentalities, and public corporations of the Government of Puerto Rico, acquired after March 31, 1977.
(ii) The distribution of industrial development income accumulated in taxable years beginning before October 1, 1976, or the distribution of industrial development income accumulated in taxable years beginning after September 30, 1976, as it may be designated by the corporation paying the dividend in a written notice sent to its stockholders and in the annual return of income tax withheld at the source filed with the Secretary of the Treasury.
(F) In any case in which election is made for the provisions of paragraph (D)(ii) for any taxable year and, subsequently, the requirements established in said paragraph are not met, the dividends shall be subject to the tax imposed by clause (1). The corporation shall file an annual return of the income tax withheld at the source, amended for any year in which the distribution of the dividend of that particular year was made, and shall pay the unpaid tax. The statute of limitations for assessment regarding any tax thus owed shall not begin to run prior to the date on which the amended return mentioned in the preceding sentence is filed.
(3) Definition of “related person”.—
(A) General rule.— For purposes of clause (1), a foreign corporation not engaged in trade or business in Puerto Rico shall be treated as a related person in accordance with §30045 of this title.
(B) Any foreign corporation not engaged in trade or business within Puerto Rico shall also be considered a related person when the debtor of the obligation possesses fifty percent (50%) or more of the value of the stocks of said corporation. For the purpose of determining whether the debtor of the obligation possesses fifty percent (50%) or more of the value of the stocks of a foreign corporation not engaged in trade or business within Puerto Rico, the rules of § 30045 of this title shall be applied, but substituting the phrase “foreign corporation” where it appears in said clauses, with the phrase “debtor of the obligation”.
(4) The provisions of clause (1) of this section shall not apply to the interests (including the original issue discount, letters of credit, and other financial guarantees), dividends, interest in a partnership, or other items of income similar to those received from an international insurer or from an international insurer holding company that complies with § 4304 of Title 26, or to the amount of any benefits or interests received by virtue of a life insurance or annuity contract issued by an International Insurer.
(b) Tax on foreign corporations engaged in trade or business within Puerto Rico.— A foreign corporation engaged in trade or business within Puerto Rico during the taxable year shall pay taxes as provided in §§ 30071, 30072, 30073 and 30083 of this title on net income effectively connected with the conduct of trade or business within Puerto Rico.
(c) Gross income.— In the case of a foreign corporation, gross income only includes:
(1) Gross income derived from sources within Puerto Rico, and
(2) gross income effectively connected with the conduct of trade or business within Puerto Rico.
(d) Option to treat real estate income as income connected with business within Puerto Rico.—
(1) In general.— A foreign corporation not engaged in trade or business in Puerto Rico that, during the taxable year, derives any income from real estate located in Puerto Rico owned for the production of income, or from any interest in said property, including gains from the sale or exchange of said real property or any interest therein and that, if not for this subsection, would not be treated as income effectively connected with the conduct of trade or business within Puerto Rico, may elect, for such taxable year, to treat all such income as income effectively connected with the conduct of trade or business within Puerto Rico. In such case, such income shall be taxable as provided in subsection (b). An election under this clause for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked, with the consent of the Secretary, with respect to any taxable year.
(2) Election after revocation.— If an election made under clause (1) has been revoked, a new election may not be made under such clause for any taxable year before the fifth (5th) taxable year that begins after the first taxable year for which such revocation is effective, unless the Secretary consents to such new election.
(3) Form and time of election and revocation.— An election under clause (1) and any revocation of such an election may be made only in such manner and at such time as the Secretary may provide through regulation.
(4) Special rules.— For purposes of this part:
(A) With respect to other income from sources within or outside Puerto Rico derived by a foreign corporation, an election under clause (1) by itself does not have the effect of treating such corporation as engaged in trade or business in Puerto Rico, and
(B) A foreign corporation that is a partner in a partnership or special partnership may not effect an election under clause (1) with respect to its distributive share in the net income of a partnership or special partnership with respect to any real property owned by such partnership or special partnership.
History —Jan. 31, 2011, No. 1, § 1092.01, retroactive to Jan. 1, 2011; June 20, 2011, No. 98, § 10; Dec. 10, 2011, No. 232, § 107.