2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART II - Tax Incentives Act of 1998 (§§ 10101 — 10117) › Chapter 905 - Tax Incentives Act of 1998 (§§ 10101 — 10117) › § 10106 - Distributions; sale or exchange of stock

(a) Stockholders or partners of a corporation or partnership which is an exempted business that holds a decree granted under this part, shall not be subject to income taxes on distributions of industrial development dividends or profits of the exempted business.
Subsequent distributions of industrial development income of any corporation or partnership shall also be exempt from all taxes.
Profits on the sale, exchange, or other disposition of corporate stock or shares in partnerships that are or have been exempted businesses; shares in joint ventures and similar entities constituted by several corporations, partnerships, individuals or combinations thereof; that are or have been exempted businesses, and corporate stock or shares in partnerships that in some way own the entities described above, shall be subject to the provisions of subsection (c) of this section when said sale, exchange or other arrangement, and any subsequent distribution of said profits, whether as dividends or distributions upon liquidation, shall be exempted from any additional taxation.
(b) Designation of exempted distributions. — The distribution of dividends or profits made by an exempted business that holds a decree granted under this part, even after the expiration of its tax exemption decree, shall be deemed as made from its industrial development income if upon its distribution date it does not exceed the undistributed balance of its accrued industrial development income, unless said exempted business chooses, at the time of its statement, to distribute the dividends or profits wholly or partially, from other gains or profits. The amount, year of accrual and nature of the distribution of the industrial development income shall be that designated by said exempted business through a notice sent jointly with the payment thereof to the stockholders or partners and to the Secretary of the Treasury, through an informative statement, not later than the 28th of February following the distribution year.
In the case of corporations or partnerships which, on the date they commence operations as exempted businesses have obtained profits or gains, the distributions of dividends or profits made as of said date shall be deemed to be made from the undistributed balance of said profits or gains, but once this balance is exhausted as a result of said distributions, the provisions of the first paragraph shall apply.
(c) Sale or exchange of stock. —
(1) During the exemption period. — Profits from the sale or exchange of stock of an exempted business which holds a decree issued under this part made during its exemption period and that would have been subject to the payment of income taxes under the Puerto Rico Internal Revenue Code, shall be subject to a four percent (4%) tax on the amount of the profits, if any, in lieu of any other tax levied by said Code. Any losses through the sale or exchange of said stock shall be recognized in accordance with the provisions of the Puerto Rico Internal Revenue Code.
(2) After the exemption period termination date. — In the event that said sale is made after the termination date of the exemption, the profits shall be subject to the tax provided in clause (1) above, but only up to the book value of the corporate stock as of the termination date of the exemption period (after subtracting by the amount of the exempted distributions received on the same stock after said date), minus the base of said stock. Any remainder of the profits or any loss, if any, shall be recognized according to the provisions of the Puerto Rico Internal Revenue Code in effect on the date of the sale or exchange.
(3) Exempted exchanges. — Any exchanges of stock not resulting in taxable events due to their being corporate reorganizations, shall be treated according to the provisions of the Puerto Rico Internal Revenue Code in effect on the date of the sale or exchange.
(d) Determination of the base in the sale or exchange of stock. — For businesses exempted under this part, the base of the stock in the sale or exchange shall be determined pursuant to the applicable provisions of the Puerto Rico Internal Revenue Code in effect at the time of the sale or exchange, after adding the amount of industrial development income accrued under this part.
(e) The Secretary of the Treasury shall establish the regulations needed to enforce the provisions of this section.
History —Dec. 2, 1997, No. 135, § 7, eff. Jan. 1, 1998.