2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART III - Other Tax Incentives (§§ 10401 — 10855) › Chapter 941 - Agriculture Tax Incentives (§§ 10401 — 10410) › § 10402 - Definitions

For the purposes of this chapter, the following terms and phrases shall have the meaning and scope stated below:
(a) Bona fide farmers. — Shall mean every natural or juridical person who during the taxable year for which he/she claims the deductions, exemptions, or benefits provided by this chapter, has a certificate in force issued by the Secretary of Agriculture upon consultation with the Secretary of the Treasury, which certifies that during said year he/she was engaged in the operation of an activity which qualifies as an agricultural business as said term is defined in subsection (b), and derives fifty percent (50%) or more of his/her gross income from the agricultural business as an operator, owner or lessee, as declared in his/her income tax return.
(b) Agricultural business. — Shall mean the operation or development of one or more of the following businesses:
(1) Farming and/or cultivation of land for the production of fruit and vegetables, spices for condiments, seeds, and all kinds of foodstuffs for human beings and animals.
(2) Raising of animals for the production of meat, milk and eggs.
(3) Breeding of thoroughbred race horses; breeding of paso fino horses, and breeding of saddle horses.
(4) Agricultural industries that buy raw materials produced in Puerto Rico; agro-industrial and farming and animal breeding operations; including the milk, manufacturing, pasteurization and sterilization operation and their agents, defined as such in §§ 1092 et seq. of Title 5, known as the “Act to Regulate the Milk Industry in Puerto Rico”, and any other agro-industrial, farming or animal breeding operation in Puerto Rico.
(5) Operations engaged in the packing, crating or labeling of fresh agricultural produce that are part of the same agricultural business; Provided, That the operations that are exclusively devoted to the packing, crating or labeling of agricultural produce do not constitute an agricultural business per se.
(6) Commercial marine fishing and aquaculture.
(7) Commercial production of ornamental flowers, plants, and grasses for the local and export market, without including the professional services of landscape designers.
(8) Cultivation of vegetables by hydroponic methods, the buildings and other equipment used for these purposes.
(9) Production of grain by bona fide farmer’s associations to be consumed by agricultural enterprises.
(10) Breeding of fighting cocks and for the production of spurs.
(11) Any other business the Secretary of Agriculture considers an agricultural business through regulations.
(c) Excise tax. — Means the tax established in Subtitle A of Act No. 120 of October 31, 1994, known as the “1994 Internal Revenue Code of Puerto Rico”, which applies to the articles for the use or consumption, imported to or to be manufactured in Puerto Rico, acquired by a bona fide farmer for use in agricultural business as defined in § 10403(b) of this title.
(d) Property taxes. — Taxes imposed by §§ 5001 et seq. of Title 21, known as the “Municipal Property Tax Act of 1991”, on the value of all real property and chattels used in the operation of agricultural business by bona fide farmers.
(e) Real property and chattels. — Means the definition set forth in § 5061 of Title 21, known as the “Municipal Property Tax Act of 1991”, to be used for the development of agricultural activities.
(f) Income tax. — Tax imposed by Subtitle A of Act No. 120 of October 31, 1994, part of the 1994 Internal Revenue Code of Puerto Rico.
For the purposes of this chapter, net income shall be determined pursuant to the provisions of Sections 1021, 1022 and 1023 of Act No. 120 of October 31, 1994, part of the 1994 Internal Revenue Code of Puerto Rico.
(g) Municipal license tax. — Municipal tax on the sale of products generated by agricultural activity, established in §§ 651 et seq. of Title 21, known as the “Municipal License Tax Act of 1994”.
(h) Securities or capital investment funds. — Shall mean any fund, corporation or partnership, including a special partnership as the term is defined in subsection (l) of this section, which operates as an investment entity, pursuant to the purposes and incompliance with the requirements established in this subchapter and in §§ 1241 et seq. of Title 7, known as the “Investment Capital Fund”, or in any other act of a similar nature which replaces or complements it, and the regulations in force or promulgated thereunder.
(i) Investor. — Means any person who makes an eligible investment. When the person who makes the eligible investment is a Fund, the participants of the Fund shall be deemed as the investors, and not the Fund.
(j) Participant. — Means the person who invests in the primary issue of stock of a fund.
(k) Eligible investment. — Means:
(1) The cash amount furnished to be used in an agricultural business in exchange for:
(A) Stock in the corporation, if the agricultural business is a corporation, or
(B) the participation or the increase in the participation, in an association or joint venture or individual business.
(2) The value of the land provided to be used in an agricultural business in exchange [for]:
(A) Stocks in the corporation, if the agricultural business is a corporation, or
(B) the participation [or] the increase in the participation, in an association or joint venture or individual business. The value of said land shall be the fair market value less the balance of the mortgages that burden the land at the moment of the contribution. The fair market value shall be determined based on an appraisal of said land carried out by one or more professional appraisers duly certified in Puerto Rico. The Secretary of Agriculture shall approve the value of the land pursuant to the determination of the appraiser, before it is donated to the agricultural business.
(3) Cash contributions made by a fund of a public corporation of the Commonwealth of Puerto Rico or any of its subsidiaries, in exchange [for]:
(A) Stocks or shares in an agricultural business that has said corporations or subsidiaries, or
(B) a subordinated debt the agricultural business has with said corporations or subsidiaries.
(4) The cash or the value of the land provided for the primary issue of stock or shares in an agricultural business engaged in said operations during a period of at least ten (10) consecutive years, shall constitute an eligible investment provided the funds obtained through said issue be used in their totality, solely and exclusively to:
(A) Establish and operate new agricultural businesses. — The term “new agricultural business” means any agricultural business as defined in this chapter, initiated or begun on or after the initial capitalization of said business. The funds used for the acquisition of an existing agricultural business shall not qualify as an eligible investment. However, the total purchase price of an existing agricultural business shall be considered as an eligible investment when, as part of said acquisition, the acquiring party contributes additional capital to the agricultural business in an amount of not less than two hundred percent (200%) of the purchase price. The former provisions do not apply to the purchase or acquisition of an existing agricultural business by related persons. The term “related person” shall be determined pursuant to the criteria established in Sections 1024(b) and 1028 of Act No. 120 of October 31, 1994, part of the Puerto Rico Internal Revenue Code of 1994.
The term “eligible investment” shall not include an investment made with the cash derived from a loan secured by the agricultural business itself or by its assets.
(B) Substantial renewal or expansion of existing agricultural businesses. — The funds contributed for the substantial renewal or expansion shall qualify as an eligible investment only if said renewal or expansion equals at least twenty-five percent (25%) of: (i) the value of the land used in the existing agricultural business, or (ii) the book value of the real property used in the existing agricultural business, not including the land. The term “eligible investment” shall not include an investment made with the cash derived from a loan secured by the agricultural business itself or by its assets.
(C) Acquisition of machinery, equipment or working capital to be used during regular operations. — The funds contributed for the acquisition of machinery, equipment or working capital shall qualify as an eligible investment provided the machinery, equipment or working capital is used exclusively in the agricultural business. For these purposes, the acquisition of machinery or equipment previously used in an agricultural business in Puerto Rico shall not be considered as an eligible use of funds. Furthermore, the term “working capital” does not include funds used for the establishment of reserves.
In those cases in which machinery and equipment, or an existing agricultural business which would have otherwise qualified as an eligible investment, are acquired, said acquisition shall not constitute an eligible investment if a purchase and sale contract with an agreement for the resale to the original seller is involved.
In case any of the contributions described in clause (1) or (2) of this subsection, is carried out, said contribution shall be considered as an eligible investment only if said investment is made in the primary issue of stock or shares.
(l) Special partnership. — Shall mean that entity which has exercised an option under Supplement P of the Income Tax Act of 1954, as amended, or under Subchapter K, §§ 8630 et seq. of this title.
History —Dec. 1, 1995, No. 225, § 3; Apr. 30, 1996, No. 35, § 1; Apr. 8, 1997, No. 8, § 1.