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) › § 30442 - Tax on dividend-equivalent amount

(a) Imposition of tax.— In addition to the taxes imposed by §§ 30071, 30072, 30073 and 30083 of this title, a tax shall be imposed, collected, and paid for each taxable year upon every foreign corporation engaged in trade or business in Puerto Rico equal to ten percent (10%) of the dividend-equivalent amount for the taxable year.
(b) Dividend-equivalent or profit distribution amount.— For purposes of subsection (a), the terms “dividend-equivalent amount” and “profit distribution” mean the effectively connected earnings and profits of a foreign corporation or partnership engaged in trade or business in Puerto Rico for the taxable year, adjusted in the following manner:
(1) Reduction due to increase in Puerto Rico net equity.— The effectively connected earnings and profits for the taxable year shall be reduced, but not below zero, by that amount which the Puerto Rico net equity of the foreign corporation or partnership as of the close of the taxable year exceeds the Puerto Rico net equity of the foreign corporation or partnership as of the close of the preceding taxable year.
(2) Increase due to decrease in Puerto Rico net equity.— The effectively connected earnings and profits for the taxable year shall be increased by that amount which the Puerto Rico net equity of the foreign corporation as of the close of the preceding taxable year exceeds the Puerto Rico net equity of the foreign corporation as of the close of the taxable year.
(A) The increase under clause (2) for any taxable year shall not exceed the effectively connected earnings and profits accumulated as of the close of the preceding taxable year.
(B) For purposes of paragraph (A), the term “effectively connected earnings and profits accumulated” means the excess of:
(i) The aggregate effectively connected earnings and profits for taxable years beginning after December 31, 1986, over,
(ii) the aggregate dividend- or profit distribution- equivalent amounts determined for such taxable years.
(3) Limitation.—
(c) Puerto Rico net equity.— For purposes of this section:
(1) In general.— The term “Puerto Rico net equity” means assets in Puerto Rico reduced, including below zero, by liabilities in Puerto Rico.
(2) Assets in Puerto Rico and liabilities in Puerto Rico.— For purposes of clause (1):
(A) Assets in Puerto Rico.— The term “assets in Puerto Rico” means the money plus the aggregate adjusted basis of property of the foreign corporation considered as effectively connected with the conduct of trade or business in Puerto Rico under the regulations prescribed by the Secretary. For purposes of the preceding sentence, the adjusted basis of any property shall be its adjusted basis for purposes of computing earnings and profits.
(B) Liabilities in Puerto Rico.— The term “liabilities in Puerto Rico” means the liabilities of the foreign corporation considered as effectively connected with the conduct of trade or business in Puerto Rico under the regulations prescribed by the Secretary.
(d) Effectively connected earnings and profits.— For purposes of this section, the term “effectively connected earnings and profits” means earnings and profits, without decrease by reason of any distributions made during the taxable year that are attributable to income that is effectively connected, or treated as effectively connected, with the conduct of trade or business within Puerto Rico. Effectively connected earnings and profits for a taxable year shall be decreased by the income tax paid under this part with respect to such taxable year, except for the tax provided in this section. The term “earnings and profits” shall not include dividends from sources within Puerto Rico.
(e) Coordination of taxation and withholding.— If, for any taxable year, a foreign corporation is subject to the tax imposed by subsection (a), no tax shall be imposed nor withholding made under §§ 30278, 30281 and 30441 of this title, upon any dividend or partnership interest paid by the foreign corporation or partnership from such year’s earnings and profits.
(f) Limitation.—
(1) The provisions of this section shall not apply to any taxable year in which the foreign corporation engaged in trade or business in Puerto Rico derives at least eighty percent (80%) of its gross income from sources within Puerto Rico or from income effectively connected, or treated as effectively connected, during the period of three (3) taxable years ending with the close of such taxable year.
(2) Industrial development income, in accordance with the provisions of the Economic Incentives Act for the Development of Puerto Rico and any previous or subsequent law similar in nature, green energy income under § 10421 et seq. of this title, known as the “Green Energy Incentives Act of Puerto Rico”, or any other previous or subsequent law of a similar nature, tourism development income exempt pursuant to the provisions of the Puerto Rico Tourist Development Act of 1993, §§ 6001 et seq. of Title 23, and income derived by international banking entities organized under the provisions of §§ 232 et seq. of Title 7, known as the “International Banking Center Regulatory Act”, shall not be subject to the provisions of this section.
(3) The provisions of this section shall not apply to partnerships, special partnerships, or corporations of individuals.
(4) The provisions in this section shall not apply to income derived by an international insurer, as defined in § 4304(4) of Title 26.
History —Jan. 31, 2011, No. 1, § 1092.02, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 108.