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 901 - Puerto Rico Industrial Incentive Act of 1954 (§§ 10001 — 10011) › § 10003 - Distributions

(a) The distribution of dividends or profits by a corporation or partnership that is an exempted business, if made from the industrial development income derived during the first seven (7) years of its operations covered by the exemption, and paid to the following stockholders or partners, shall be exempt from income tax in the same proportion in which such industrial development income is tax exempt in favor of the exempted business, as established in § 10001 of this title:
(1) Persons residing in Puerto Rico and domestic corporations and partnerships, or
(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) Natural or juridical 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) Natural or juridical 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 which would be imposed on 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 on them in Puerto Rico on such dividends or profits. Provided, That the exemption provided by this subsection shall apply solely to such portion of the income tax leviable in Puerto Rico on the 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 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 county 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 clauses (3) and (4) of this subsection.
(b) Any distribution of dividends or profits made by a corporation or partnership which is or was exempted from the payment of taxes in accordance with §§ 10001—10011 of this title shall be considered as made from gains or profits exempted from taxes hereunder, 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 tax-exempt corporation, which have been acquired through purchase or otherwise, are sold or exchanged 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 partnership, 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 partnership not qualifying for this exemption shall be treated, for income tax purposes, as a profit from the sale of capital assets.
(f) In case a corporation or partnership, which is or has been an exempted business, invests its industrial development income in stock or shares of another corporation or partnership which is an exempted business, then the distribution of dividends or profits of such corporation or partnership (which shall hereinafter be called the “investing corporation or partnership”), if made from the income derived from the exempted dividends or profits received from such investment and paid to the shareholders or partners provided by subsection (a) of this section, shall be exempt from the payment of income tax in the same proportion in which such dividends or profits are tax-exempt in favor of the investing corporation or partnership. For tax-exemption purposes, the shareholders of the said investing corporation or partnership shall be considered as being the shareholders of the exempted businesses of which the investing corporation or partnership is, in turn, a shareholder.
History —Dec. 15, 1953, No. 6, p. 12, § 3; June 6, 1960, No. 63, p. 97; June 9, 1961, No. 31; June 8, 1962, No. 26, p. 51, §§ 2, 3; June 28, 1966, No. 128, p. 402, § 2; June 1, 1976, No. 95, p. 281, § 1.