2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART III - Decedent’s Estate and Gifts (§§ 31001 — 31176) › Chapter 1022 - Decedent’s Estate; Residents of Puerto Rico (§§ 31011 — 31044) › Subchapter C - Taxable Decedent’s Estate (§§ 31031 — 31038) › § 31034 - Deduction in connection with estates invested or to be invested in activities conducive to greater development of Puerto Rico’s economy

(a) General rule. — For purposes of the tax imposed by § 31011 of this title, in what concerns decedent’s estates described in § 31068 of this title, the value the taxable decedent’s estate shall be determined by deducting from the gross decedent’s estate fifty percent (50%) of the value of the following eligible investments:
(1) Bonds of the Government of Puerto Rico;
(2) outstanding common or preferred stock, the share of a partner in equity, or the net capital that an individual, a trust or any other entity holds in an enterprise directly engaged in any of the following qualified economic activities, insofar as at least eighty percent (80%) of the enterprise’s capital is being used in such activity:
(A) Exporting items and services;
(B) tourism;
(C) supply of items and services that are being imported in Puerto Rico;
(D) farming, animal husbandry or poultry breading;
(E) supply of items and services to enterprises engaged in the activities described above, and
(F) construction, reconstruction or remodeling of buildings to be leased to the Government of Puerto Rico to be used as public schools and for facilities complimentary thereto, such as libraries, book stores, housing for students and professors, and multiple uses centers, such as cafeteria facilities, or for meetings or for leisure, or for public hospitals or health houses and facilities complimentary to such hospitals and health houses, such as housing for nurses, cafeteria, laundry services, physical and vocational rehabilitation centers or to be leased to nonprofit entities that will use them as hospitals, health houses, and facilities complimentary thereto, and which are located in a plot of land with a maximum capacity of one (1) cuerda.
(b) Limitations. —
(1) The deduction granted by subsection (a) shall only be granted in cases in which eligible investments have been held by the decedent or by the decedent and his/her heirs during a continuous term of not less than three (3) years before the sale or exchange of such eligible investments. However:
(A) If the decedent dies before three (3) years have elapsed from the date of having made the eligible investments, in order for his/her estate receive the deduction granted under subsection (a), it shall be necessary to post a bond to the satisfaction of the Secretary in the amount set by him/her in order to ensure payment of any deficiency that may arise in the course of the sale or exchange of the eligible investment.
(B) In case that the eligible investments are sold or exchanged before three (3) years have elapsed from the date the decedent made such investments, any deduction that has been or that could be granted under subsection (a) shall be revoked or denied and the amount of any reduction in taxes on account of the deduction granted under subsection (a) must be paid to the Secretary.
(C) If within thirty (30) days after the date of the sale or exchange of the eligible investments, the net proceeds of such sale is reinvested in other eligible investments, or if the value acquired in the exchange is an eligible investment and the acquirer retains the same, such sale or exchange shall not be taken into consideration for purposes of paragraph (B), and the period elapsed from the date on which the decedent originally made the eligible investments shall considered as a continuous term for purposes of clause (1) and paragraph (A).
(2) Substituting an eligible investment by another eligible investment within a term of ninety (90) days shall not interrupt the three (3)-year period. Such three (3)-year period shall be computed separately in respect of each eligible investment.
(3) As for taxable decedent’s estates of Puerto Rico residents, whose estate is fully taxable in the United States or is fully or partially taxable in any foreign country, the benefits established in subsection (a) shall be determined pursuant to the provisions of § 31068 of this title when dealing with nonresidents.
(4) When dealing with an enterprise engaged in different activities, this deduction shall be granted only if the enterprise separate books and records in connection with such activities, identifying the assets used and the income earned from these. These books shall be at all times available for the Secretary for any audit that in his/her judgment is necessary for the proper application of this part.
(c) Definitions. — As used in this part, the following terms shall mean:
(1) Net capital. — The term “net capital” means the value of the asset minus the liability of the individual business of a decedent.
(2) Net proceeds. — The term “net proceeds” means the gross proceeds of a sale or exchange minus taxes and fees payable directly from such proceeds, except that the amount to be deducted on account of such fees shall not exceed five percent (5%) of the gross proceeds.
(d) Designation of qualified economic activity. —
(1) Powers. — The Governor, with the advice of the Secretary, the Chairperson of the Planning Board, the Secretary of Agriculture, the Secretary of Economic Development and Commerce, the Executive Director of the Industrial Development Company, the Secretaries of Health and Education, as he/she may deem necessary, is hereby authorized to designate which economic activities are to receive stimulus.
(2) The Governor, with the advice of the Secretary, the Chairperson of the Planning Board, the Secretary of Economic Development and Commerce, the Executive Director of the Industrial Economic Development Company, the Secretaries of Health and Education, as may be necessary, may eliminate prospectively any economic activity previously qualified for purposes of this section, when he/she determines that it is no longer necessary or desirable to provide stimulus for investments in such activities, which would otherwise qualify under this section.
(e) Effect of eliminating a qualified economic activity. — The deduction granted under subsection (a) shall by no means be denied due to the fact that the qualified economic activity has lost its qualification as such at any time after the time of death of the decedent pursuant to subsection (d)(2).
(f) The deduction granted by this section shall be determined on the basis of the market value of the eligible investments made in a qualified enterprise as such value can be proven by the Secretary of Economic Development and Commerce to the satisfaction of the Secretary.
History —Jan. 31, 2011, No. 1, § 2023.04, retroactive to Jan. 1, 2011.