2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART I - Industrial Incentives (§§ 10001 — 10052) › Chapter 902 - Puerto Rico Industrial Incentive Act of 1963 (§§ 10012 — 10023) › § 10014 - Distributions

(a) The distribution of dividends or profits by a corporation or partnership that is an exempted business, or by a corporation or partnership as defined in part of Act June 29, 1954, No. 91, § 411, as amended, that is a partner of an exempted business, if made from the industrial development income derived from the date of commencing operations of the exempted business and paid to the following stockholders or partners, shall be exempted from income tax in the same proportion in which such industrial development income derived from the date of commencing operations of the exempted business is tax exempt in favor of the exempted business, as established in § 10012 of this title:
(1) Persons residing in Puerto Rico and domestic corporations or partnerships.
(2) Persons not residing in Puerto Rico who are not under obligation to pay in any jurisdiction outside Puerto Rico any tax on income from any source in Puerto Rico.
(2A) Persons not residing in Puerto Rico or in the United States who are not under obligation to pay in any jurisdiction outside Puerto Rico any tax on income from any source in Puerto Rico.
(3) Persons not residing in Puerto Rico or in the United States who, on account of the laws of the country where they reside, may not take, as a deduction from the income or as a credit against the tax payable in said country on the dividends or profits derived from a corporation or partnership that is an exempted business in Puerto Rico the tax that would be imposed to them in Puerto Rico on such dividends or profits, or
(4) persons not residing in Puerto Rico or in the United States who, on account of the laws of the country where they reside, may only take partially as a deduction from the income or as a credit against the tax payable in said country on the dividends or profits derived from a corporation or partnership that is an exempted business in Puerto Rico the tax which would be imposed to them in Puerto Rico on such dividends or profits. Provided, That the exemption provided in this subsection shall apply solely to such portion of the income tax leviable in Puerto Rico on dividends or profits as is not deductible from the income or creditable against the tax to be paid in such country on such dividends or profits.
Any person wishing to avail himself of the provisions of the preceding clauses (3) and (4) shall submit to the Secretary of the Treasury of the Commonwealth of Puerto Rico a translated, certified or authenticated copy, in Spanish or English, of the laws or regulations in force in the country where he resides, indicating specifically the provisions of those laws or regulations applicable to his case with any other information or evidence showing that said person qualifies under the preceding clauses (3) and (4).
(b) Any distribution of dividends or profits made by a corporation or partnership which is or has been an exempted business, from the date of commencing operations of the exempted business, shall be considered as made from gains or profits exempted from taxes under this chapter, provided on the date of distribution the latter does not exceed the undistributed balance of such gains or profits, unless, at the time of the declaration, the corporation or partnership shall choose to distribute the dividend or profit, wholly or partially, out of gains and profits not exempted from taxes as above stated. The amount of the exempted dividend or profit shall be that designated as such by the corporation or partnership in a written notice served on its stockholders or partners, and in an annual informative statement to the Secretary of the Treasury, as provided by § 148 of Act June 29, 1954, No. 91, as amended.
In the cases of corporations or partnerships which, on the effective date of the tax exemption of their first exempted business hereunder, have accumulated gains or profits, the distributions of dividends or profits made on and after said date shall be considered as made from the undistributed balance of said gains or profits, but after the latter is exhausted by virtue of such distributions the provisions of the preceding paragraph shall be applicable.
(c) No profit or loss shall be recognized if the shares of a corporation which is an exempted business and which have been acquired through purchase or otherwise, are sold or exchanged after the date of commencement of operations of the exempted business and on or before the termination date of the tax exemption granted to the corporation.
Profit or loss shall be recognized if the shares of a tax exempt corporation which have been acquired by purchase or otherwise, are sold or exchanged after the corporation’s exemption termination date. The profit derived from the sale or other disposition of such shares shall be the surplus of the amount received in such sale or disposition over the base established by subsection (d) of this section, and the loss shall be the excess of said base over the amount received, but shall be recognized up to the limit provided by the Income Tax Act in force on the date when the transaction takes place.
(d) To determine the profit or loss derived from the sale or other disposition, made after the exemption termination date, of shares of a tax exempt corporation, which shares have been acquired through purchase or otherwise before the corporation’s exemption termination date, the larger of the following bases shall be used:
(1) The value of such share on the exemption termination date according to the books of the corporation less the amount of any tax exempt distributions received on said shares after said date, or
(2) the cost of said shares, less the amount of any tax exempt distributions received on same before and after the exemption termination date.
(e) The exemption provided in subsection (a) of this section shall be applicable to the income derived by the persons therein listed as a result of the liquidation of an exempt corporation or association, provided all the requirements as to distribution of dividends and benefits established in said subsection (a) are present. That part of any income derived from the liquidation of an exempt corporation or association not qualifying for this exemption shall be treated, for the purpose of the income tax, as a profit from the sale of capital assets.
(f) In cases where one or more corporations or partnerships that own stock and/or shares in one or more corporations or partnerships, and those, in turn, directly or indirectly (through other corporations or intermediate partnerships) are the owners of stocks or shares in one or more corporations or partnerships which are or were exempted businesses, the distributions (as dividends, as distribution of profits, or distribution in liquidation) made by the corporation or partnership which is or has been an exempted business, from industrial development income, shall be subject to the payment of income taxes (if any were applicable) only once, which shall be when said shares are received by the stockholders or partners of the corporation or partnership which is or has been an exempted business, and has generated said income from industrial development. All the subsequent distributions made by any corporation or partnership, from industrial development income distributed by that corporation or partnership which is or has been an exempted business, shall not be subject to the payment of any income tax whatsoever. Provided, That in cases of exempted businesses organized as partnerships, joint ventures, or similar entities integrated by two or more corporations, partnerships, or a combination of the same, the corporations or integrating partnerships shall be deemed as the business that are or were exempted and, therefore, the only shares of income from industrial development to be subjected to the payment of income taxes, if any, are those made by said integrating corporations or partnerships. Provided, also, That the profits made in the sale, exchange or other provision of:
(1) Stocks of corporations or of shares in partnerships which are or have been exempted businesses;
(2) shares in joint ventures and similar entities integrated by two or more corporations, partnerships, individuals, or combination of the same, which are or have been exempted businesses, and
(3) stocks in corporations or shares in partnerships which, directly or indirectly (through intermediate corporations or partnerships), are owners of the entities described in clauses (1) and (2), shall be subject to the provisions of subsection (e) of this section, when said sale, exchange, or other provision is made, and all the subsequent distributions of said profits, either as dividends or as shares in liquidation, shall not be subject to the payment of any income taxes whatsoever.
When the distributions are made by an unexempted corporation or partnership, it will have the same faculties to select the exempted or taxable nature of its distributions of dividends or profits provided under § 10014(b) of this title with respect to businesses which are or which were exempted.
The term “partnership” means, also, two or more persons dedicated, under a common name or not, to a common enterprise for profit. This provision will not affect the vested rights of those firms that availed themselves of the existing provisions of this subsection, prior to the effectiveness of this amendment.
History —June 13, 1963, No. 57, p. 86, § 3; June 28, 1966, No. 128, p. 402, § 3; June 28, 1968, No. 155, p. 489, § 2; May 30, 1973, No. 61, p. 266; June 1, 1976, No. 95, p. 281, § 2; May 30, 1984, No. 37, p. 98, § 2.