2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1005 - Computation of Taxable Income (§§ 30101 — 30157) › Subchapter A - Determination of Net Income, General Concepts (§§ 30101 — 30105) › § 30102 - Exemptions from gross income (§ 30102) › 1

(a) The following income items shall be exempt from taxation under this Subchapter:
(1) Annuities.—
(A) Employees’ annuities.—
(i) If an annuity contract is purchased by an employer for an employee under a plan with respect to which the employer’s contribution is deductible under § 30129(a)(1)(B) of this title, or if an annuity contract is purchased for an employee by an employer exempt under § 30471 of this title, the employee shall include in his/her income the amounts received under such contract for the year received, except that if the employee paid any of the consideration for the annuity, the annuity shall be included in his/her income, as provided in § 30101(b)(11)(A) of this title, the consideration for such annuity being considered the amount contributed by the employees.
(ii) In all other cases, if the employee’s rights under the contract are nonforfeitable except for failure to pay future premiums, the amount contributed by the employer for such annuity contract on or after such rights become nonforfeitable shall be included in the income of the employee in the year in which the amount is contributed. Such amount, together with any amounts contributed by the employee, shall constitute the consideration paid for the annuity contract in determining the amount of the annuity required to be included in the income of the employee under § 30101(b)(11)(A) of this title.
(B) Education policies.— The amount received from education policies by the insured on the maturity or liquidation of the insurance, whether the total amount of the policy is received or whether the policy is paid in annual or monthly installments, shall not be treated as gross income and shall be exempt from taxation under this part up to the amount of ten thousand dollars ($10,000).
(C) Annuities from international insurers.— Amounts received by a nonresident individual or a foreign partnership or corporation not engaged in trade or business in Puerto Rico as benefits or interests of any kind under a life insurance contract issued by an international insurer.
(2) Certain fringe benefits paid by an employer to its employees.— The following amounts paid or accumulated by an employer in benefit of an employee:
(A) Life insurance premiums.— The premiums paid by an employer for group or collective life insurance policies that cover the lives of his/her employees who meet the requirements of § 1401 of Title 26, up to the amount of fifty thousand dollars ($50,000) of coverage. The premiums attributable to the cost of insurance coverage in excess of this limit shall be taxable for the employee in the taxable year when they are paid.
(B) Flexible benefit plan.— The amounts paid or accumulated by an employer for the benefit of an employee under a flexible benefit plan shall be exempt from taxation pursuant to § 30116 of this title.
(C) Payments for the care of dependants.— The amounts paid or accumulated by an employer for the benefit of an employee pursuant to the provisions § 30117 of this title, provided that said benefits are part of a flexible benefit plan established according to the provisions of § 30116 of this title.
(D) Health or accident plan contributions.— The contributions made by an employer to the health or accident group plans of its employees to cover personal injuries or illnesses of its employees, whether through insurance or that otherwise comply with the provisions of § 30118 of this title, including contributions to a health savings account of an employee pursuant to § 30394 of this title.
(3) Tax exempt interest.— Interest on:
(A) The obligations of the United States, any state or territory of the United States, or political subdivision thereof and the District of Columbia;
(B) the obligations of the Government of Puerto Rico or any instrumentality or political subdivision thereof;
(C) securities issued by virtue of the Agricultural Loans Act of 1971, or by virtue of the provisions thereof, as thereafter amended, including obligations issued by any subsidiary of the Farm Credit Banks of Baltimore directly or indirectly engaged in financing loans to farms and farmers in Puerto Rico with said funds, including loans to rural residents to finance rural housing, loans to cooperatives owned and controlled by farmers, and engaged in marketing or distributing farm produce, the purchase of materials, or to provide services to farm businesses and the acquisition of loans or discounts of notes previously granted;
(D) mortgages secured under the provisions of the National Housing Act, approved June 27, 1934, or by virtue of the provisions thereof, as thereafter amended, which are:
(i) Executed on or before February 15, 1973, and held on May 5, 1973 by residents of Puerto Rico.
(ii) Executed within the one hundred eighty (180) days following February 15, 1973, and to acquire those which a resident of Puerto Rico has on said date a contractual obligation.
(E) mortgages on residential property located in Puerto Rico executed after June 30, 1983, and before August 1, 1997, and secured or guaranteed by virtue of the provisions of the National Housing Act, approved June 27, 1934, as amended, or by virtue of the provisions of the Servicemen’s Readjustment Act of 1944, as amended;
(F) mortgages on residential properties located in Puerto Rico executed after July 31, 1997, that are newly-constructed and have been simultaneously granted with the first transfer of the mortgaged property to a new owner. For purposes of this section, the term “newly constructed” shall mean the newly-built residential property that is secured or guaranteed by virtue of the provisions of the National Housing Act, approved June 27, 1934, as amended, or by virtue of the provisions of the Servicemen’s Readjustment Act of 1944, as amended;
(G) mortgages originated to provide permanent financing for the construction or acquisition of low income housing, such as §§ 1021 et seq. of Title 17, administered by the Department of Housing, and the low-income housing programs sponsored by the federal government;
(H) mortgages insured by the Secretary of Agriculture of the United States of America by virtue of the provisions of Congress’ Bankhead-Jones Farm Tenant Act, approved July 22, 1937, or by virtue of provisions thereof as hereafter amended;
(I) obligations secured or guaranteed under the provisions of the Servicemen’s Readjustment Act of 1944, or under the provisions thereof as hereafter amended, which are:
(i) Executed not later than February 15, 1973, and held on May 5, 1973 by residents of Puerto Rico.
(ii) Executed within one hundred and eighty (180) days following February 15, 1973, and to acquire those which a resident of Puerto Rico has on said date a contractual obligation.
(J) securities issued by cooperative associations organized and operating under the provisions of §§ 4381 et seq. of Title 5, known as the “General Cooperative Associations Act of 2004”, or under the provisions of §§ 1361 of Title 7, known as the “Cooperative Savings and Credit Unions Act of 2002”, up to a maximum of five thousand dollars ($5,000);
(K) deposits in interest-bearing accounts, in cooperatives, savings associations authorized by the federal government, or by the Government of Puerto Rico, commercial and mutual banks, or in any other organization of a banking nature located in Puerto Rico, up to the total amount of two thousand dollars ($2,000) for each individual taxpayer. In the case of a taxpayer that files a joint return, the exclusion shall not exceed four thousand dollars ($4,000). If spouses who live together choose to file separate returns, the exclusion for each shall not exceed two thousand dollars ($2,000). This provision shall apply to the portion of the interest paid or accredited on deposits in interest-bearing accounts that belong to one (1) or more individuals, estates or trusts and are registered on behalf of a brokerage firm as nominee. It shall also apply to that part of any paid or distributed amount of an individual retirement account that consists of interest as described in § 30084 of this title;
(L) Obligations issued by:
(i) The Conservation Trust of Puerto Rico, as created and operated pursuant to Deed No. 5 of January 23, 1970, executed before Notary Luis F. Sánchez-Vilella;
(ii) the Housing and Human Development Trust of Puerto Rico, as created and operated pursuant to Deed No. 135 of May 15, 2004, executed before Notary José Orlando Mercado-Gelys; and
(iii) the Monument Trust of San Juan; provided, that the same obtains and maintains an exemption under Section 1101.01 of the Code, whose purpose is to raise funds for the restoration and maintenance of the San José Church in Old San Juan; and
(iv) the Puerto Rico Education and Rehabilitation Society (SER de Puerto Rico); provided, that it obtains and maintains an exemption under Section 1101.01 of the Code. The exemption from gross income and the tax exemption on interest accrued on the obligations mentioned in this subparagraph (L) shall not be affected by the fact that the source of funding for the payment of such interest originates directly or indirectly from other obligations or financial instruments whose tax treatment is different than the tax treatment of the obligations mentioned in this subparagraph (L).
(M) loans granted by a commercial bank or any other organization of a banking or financial nature established in Puerto Rico to an employee-owned special corporation, whose proceeds are to be used by said special corporation for any of the following purposes:
(i) Financing the acquisition, development, construction, extension, rehabilitation, or improvements to real property located in Puerto Rico to be used for commercial purposes by the special corporation, provided that the loan does not exceed the cost of the property or improvements to be made in relation thereto;
(ii) financing the acquisition of machinery or any other tangible personal property to be used for commercial purposes by the special corporation in connection to its business operation in Puerto Rico, provided, that the loan does not exceed the purchase price of said property, or
(iii) financing the acquisition of capital stock in a corporation that is to be treated as a purchase of assets of said corporation for Puerto Rico income tax purposes;
(N) loans granted by a commercial bank or any other organization of a banking or financial nature established in Puerto Rico to a person for the acquisition and payment of membership certificates as a regular, special, or corporate member, as applicable, in a special employee-owned corporation;
(O) loans granted by a commercial bank or any other organization of a banking or financial nature established in Puerto Rico to a person for the purchase or investment by and for him/herself of preferred stock in a special employee-owned corporation;
(P) Loans for small and medium businesses.— The interest on loans of up to two hundred fifty thousand dollars ($250,000) in the aggregate per tax-exempt business to small or medium businesses, as said term is defined in §§ 10641 et seq. of this title, known as the “Economic Incentives Act for the Development of Puerto Rico”, for their establishment or expansion; provided, that the loan meets the requirements established in the Act known as the “Community Reinvestment Act of 1977”, Pub. Law 95-128, 91 Stat. 1147, as amended, and those requirements prescribed by the Commissioner of Financial Institutions through regulations;
(Q) Loans for capitalization by small and medium businesses.— The interest on loans of up to two hundred fifty thousand dollars ($250,000) in the aggregate per tax-exempt business, granted to tax-exempt business stockholders to be used in the initial capitalization or to meet the subsequent requirement of tax-exempt business capital for small or medium businesses, as said term is defined in § 10642(i) of this title, known as the “Economic Incentives Act for the Development of Puerto Rico”.
Any person who has any obligations of those listed in this clause, shall submit together with the return required by this part, a statement that shows the number of his/her obligations and the revenues earned therefrom in the manner and submitting the information required by the Secretary.
(4) Dividends.—
(A) Dividends received by corporations from industrial development income which are derived from interest on:
(i) Obligations of the Government of Puerto Rico or any of its instrumentalities or political subdivisions.
(ii) Mortgages secured by the Puerto Rico Housing Financing Authority acquired after March 31, 1977.
(iii) Loans or other mortgage-guaranteed securities granted under any general pension or retirement system established by the Legislative Assembly of Puerto Rico, the municipalities and the agencies, instrumentalities, and corporations of the Government of Puerto Rico, acquired after March 31, 1977.
(B) Distributions from limited dividend corporations.— In the case of an individual, the dividends he/she receives from a limited dividend corporation that qualifies under § 30471(a)(6)(A) of this title. The taxpayer shall file with the return a statement showing the number of shares of the limited dividend corporation which he/she owns and the dividends received on said shares during the taxable year.
(C) Dividends from cooperative associations.— The income received by residents of Puerto Rico by reason of distribution of dividends made by domestic cooperative associations.
(D) Dividends from an international insurer or international insurer holding company.— Distributions of dividends from an international insurer or international insurer holding company, in accordance with the provisions of § 4324 of Title 26.
(5) Priests or ministers.— The fair rental value of a dwelling house and appurtenances thereof, as well as the payment for water, electricity, gas, and telephone services, granted to a duly-ordained priest or minister of any religion as part of his/her compensation. In order to be eligible for the exemption provided in this clause, the expenses on this account shall be neither lavish nor extravagant, as determined by the Secretary.
(6) Incentives received by farmers.—
(A) In the case of any farmer, the incentives received from the Government of Puerto Rico for:
(i) The purchase of farm machinery used in the production of sugar cane, coffee, vegetables, rice and food crops;
(ii) the purchase of fertilizer, herbicide, fungicides, and material for soil improvement, for apiculture, mariculture, aquaculture, and others determined or added by the Secretary of Agriculture;
(iii) the purchase of wire, posts, material to fence in cattle, and others determined or added by the Secretary of Agriculture, and
(iv) for the construction of cattle, hog, and poultry facilities and fishing vessels.
(B) These incentives are to be considered as a reduction of the costs or expenses incurred by the farmer, as the case may be. The Secretary of Agriculture shall submit a report to the Secretary, annually, on or before January 31 of the year following the calendar year in which said incentives were granted, including the following information:
(i) Name, account number, and address of each farmer who has been granted incentives, and
(ii) an account and amount of the incentives.
(7) Improvements by lessee on lessor’s property.— Income, other than rent, derived by a lessor of real property upon the termination of a lease, representing the value of such property attributable to buildings erected or other improvements made by the lessee.
(8) Recovery of bad debts, prior taxes, delinquency amounts, and other items.— Income attributable to the recovery during the taxable year of a bad debt, prior tax, delinquency amounts, and other items, to the extent of the amount of the recovery exclusion with respect to such debt, tax, delinquency amounts, and other items. For purposes of this clause:
(A) Definition of bad debt.— The term “bad debt” means a debt on account of worthlessness or partial worthlessness of which a deduction [under this part or under any former income tax law] was allowed for prior taxable year.
(B) Definition of prior tax.— The term “previous tax” means tax on an account of which a deduction or credit was allowed for a prior taxable year.
(C) Definition of surcharge.— The term “surcharge” means an amount paid or accumulated with respect to which a deduction or credit was allowed for a prior taxable year and is attributable to failure to file a return or pay a tax within the term provided by this part or under any income tax law under which such tax is imposed, or failure to file a return in connection with a tax or failure to pay a tax.
(D) Definition of other item.— Means an amount paid or accumulated on account of which a deduction was allowed for a prior taxable year.
(E) Excludible recovery.— The term “excludible recovery”, with respect to a bad debt, prior tax, or delinquency amount, means the amount, determined in accordance with regulations prescribed by the Secretary, of the deduction or credits allowed, on account of such bad debt, prior tax or delinquency amounts, which did not result in a reduction of the taxpayer’s tax under this part, without including the tax under § 30075 of this title, or corresponding provisions of prior income tax laws, reduced by the amount excludible in previous taxable years with respect to such debt, tax or delinquency amount under this clause.
(F) Special applicable rules in case of tax under § 30075 of this title.— In the application of paragraphs (A), (B), (C), (D), and (E) of this clause, in determining the tax under § 30075 of this title, an excludible recovery shall be allowed for purposes of said section whether or not the bad debt, prior tax or delinquency amount resulted in a reduction of the tax under § 30075 of this title for the prior taxable year; and in the case of a bad debt, prior tax or delinquency amount not allowable as a deduction or credit for the prior taxable year under this part, except for § 30075 of this title, but allowable for the same taxable year under said section, a recovery exclusion shall be allowed for purposes of said section if said bad debt, prior tax or delinquency amount did not result in a reduction of the tax under such § 30075 of this title. As used in this paragraph, references to this part and § 30075 of this title, in case of taxable years not subject to this part shall be held to have been made to appropriate provisions of prior income tax laws.
(9) Stipends received by certain physicians during their internship period.— The stipend received by a physician during his/her period of internship under a contract signed with the Department of Health of Puerto Rico or with any municipality or political subdivision thereof to receive medical training through practice in a hospital. This exclusion shall apply as well to the stipend for monthly subsidy as to the additional subsidy for the payment of room and board, and shall be allowed for a maximum period of seventy-two (72) months.
(10) Mustering-out payments for military and naval personnel.— Amounts received during the taxable year as mustering-out payments with respect to service in the military or naval forces of the United States.
(11) Income of news agencies or syndicates.— The income of news agencies or syndicates or other press services, received from newspaper or radio broadcasting enterprises as rents or royalties for the use or publication of, or for the right to use or publish in Puerto Rico, literary or artistic property of said agencies or syndicates.
(12) Prizes from the Lottery and the Additional Lottery of Puerto Rico.— The amounts received as prizes won in the Lottery of Puerto Rico and prizes won in the Additional Lottery.
(13) The amounts received from pensions granted, or to be granted, by the retirement systems or funds subsidized by the Government of Puerto Rico, from annuities or pensions granted by the Government of the United States of America, and by the instrumentalities or political subdivisions of both governments, and from qualified pension, retirement, or annuity plans under the provisions of § 30391 of this title, granted by private sector employers up to the limit provided below:
(A) In the case of pensioners who, as of the last day of the taxable year are sixty (60) years of age or more, the exemption shall be fifteen thousand dollars ($15,000) annually.
(B) In all other cases the exemption shall be eleven thousand dollars ($11,000).
(C) The exemption allowed under this clause shall apply only to amounts received on account of separation from employment in the form of annuity or periodic payments.
(D) For purposes of this clause and § 30391 of this title, “periodic payment” means:
(i) Payments made during a fixed period of time in a substantially similar amount; or
(ii) minimum required distributions under the United States Internal Revenue Code of 1986, as amended, or any successor legal provision.
(14) The amounts received by pensioners of the retirement systems of the Government of Puerto Rico and its instrumentalities, the Judiciary, the University of Puerto Rico, of the system of Pensions and Annuities for Teachers on account of the Christmas and Summer Bonuses granted by § 757g and § 757h of Title 3, and the Medications Bonus granted by § 757j of Title 3 and § 383a of Title 18.
(15) Racetrack winnings.— The amount from winnings in pools, pari-mutuels, dupletas, daily doubles, exacta, subscription funds and any other gaming in racetracks in Puerto Rico.
(16) Gains in the sale or exchange of their main residence by certain individuals.—
(A) General rule.— In the case of an individual, the profits obtained from the sale or exchange of his/her main residence, up to the sum of one hundred fifty thousand dollars ($150,000) for each taxpayer. This exclusion shall apply if:
(i) The individual opts for this exclusion;
(ii) the individual is sixty (60) years of age or over on the date of said sale or exchange, and
(iii) during the 5-year period that ends on the date of the sale or exchange, the property has been owned and used by the individual as his/her principal residence for total periods of three (3) years or more.
(B) Limitations.— Paragraph (A) of this clause shall not apply to any profit from a sale or exchange, if the taxpayer has previously taken an option with respect to the exclusion of profit from the sale or exchange of his/her principal residence account pursuant to the provisions of § 30392(d)(6) of this title.
(C) Election.— An election under the provisions of paragraph (A) of this clause may be made at any time before the expiration of the limitation period for establishing a claim for credit or refund of income taxes imposed by this part for the taxable year in which the sale or exchange is made, and must be made in writing and, once the regulations are issued to that effect, in the manner that the Secretary may prescribe by regulation. In the case of a taxpayer who is married, the election may be made only if his/her spouse joins him/her in said election.
(D) Special rules.—
(i) For purposes of this clause, if the taxpayer has shares as member-participant in a cooperative housing association (as such terms are defined in § 30135(a)(2)(B) of this title), then the requirement of a period of ownership specified in paragraph (A)(iii) of this clause and the requirement of said paragraph shall apply to the house or apartment that the taxpayer was entitled to occupy as such member-participant.
(ii) For purposes of this clause, total or partial destruction, theft, seizure, or the exercise of the power of requisition or eminent domain, or the threat or imminence thereof, shall be considered as a sale or exchange of the residence.
(iii) In the case of part of a property which has been owned and used by the individual as his/her principal residence for total periods of three (3) or more years during the 5-year period which ends on the date of the sale or exchange, this clause shall apply to that part of the profit from the sale or exchange of said property attributable to the part of the property thus owned and used by the taxpayer, as determined under the regulations prescribed by the Secretary.
(iv) When applying § 30144(m) of this title (regarding the sale or exchange of residence), the sum obtained from the sale or exchange of the property shall be deemed as the determined sum without taking this clause into consideration, reduced by the amount of profits excluded from the gross income, pursuant to an option under this clause.
(v) In the case of property owned jointly by husband and wife, if said property is jointly owned by both spouses, and one of the spouses meets the requirements of age, ownership, and use of paragraph (A) with respect to such property, then both spouses shall be deemed to meet the requirements of age, ownership and use.
(vi) In the case of sale or exchange of a property acquired by the surviving spouse by inheritance from the deceased spouse, if:
(I) The deceased spouse (during the period of five (5) years ending on the date of the sale or exchange) met the requirements of ownership and use established in paragraph (A) with respect to said property, and
(II) there is no election in effect by the deceased spouse under paragraph (A) with respect to a previous sale or exchange, then the surviving spouse shall be considered as satisfying the requirements of age, ownership and use.
(vii) For purposes of this clause:
(I) The determination of whether an individual is married shall be made at the time of the sale or exchange, and
(II) a married person not living with his/her spouse or an individual legally separated from his/her spouse under a decree of divorce or separation shall not be considered as married.
(17) Certain income from the operations of special employee-owned corporations.— The following income shall be exempt from income taxes:
(A) Income from special employee-owned corporations that are credited to the collective reserve account and the joint stock.— In order for contributions to the joint stock to qualify for the exclusion granted herein, it shall be necessary for the benefits of the joint stock to be accessible to all the residents of the municipality where the special employee-owned corporation has its main office established, except for the regular and corporate members of the corporation; furthermore, the Secretary shall be given proof that the joint stock is used for the purposes indicated in Section 1507 of Act No. 144 of August 10, 1995, as amended.
(B) The portion of the notices of credit for productivity and patronage that special employee-owned corporations capitalize in the regular and special members’ internal accounts and that may not be distributed or paid until the regular or special member ends all relations with the special employee-owned corporation. Any amount in the notices of credit for productivity and for patronage that enjoy the exclusion provided in this section, and that is subsequently distributed to the regular or special member prior to his/her discontinuance of all relations with the special employee-owned corporation, shall be subject to a penalty in the amount of ten percent (10%) of the distributed amount and shall be included as gross income for that year. The ten percent (10%) penalty shall be withheld by the special employee-owned corporation and immediately remitted to the Secretary.
(C) Ninety percent (90%) of the income received by a person from the rental of real and personal property of any kind, used by the special employee-owned corporation in its development, organization, construction, establishment or operations.
(18) Cost-of-living allowance.— The cost-of-living allowance received by employees of the Government of the United States of America who work in Puerto Rico, up to the amount exempt from taxation for purposes of the income taxes levied by the U.S. Internal Revenue Code. The taxpayer shall enclose with the tax return the evidence that proves the amount of cost-of-living allowance received during the year. The Department shall be responsible for verifying that the taxpayers have met their tax duties in the four (4) years preceding the year of filing the return. In case they have failed to meet their tax duty, the Department may revoke the privilege granted in this paragraph, and the taxpayer shall be required to pay the amount owed plus penalties and surcharges.
(19) Unemployment compensation.— The amounts received as unemployment compensation under a law of the United States, a state of the Union, or the Government of Puerto Rico.
(20) Active military service rendered in “combat zone”.— This exemption does not apply to military personnel mobilized outside of Puerto Rico to relieve military personnel sent to the combat zone.
(A) Enlisted personnel.— The exemption includes the maximum basic pay received by enlisted personnel for active military service in a combat zone.
(B) Commissioned officers.— In the case of commissioned officers, the exemption provided in paragraph (A) shall be limited to the maximum basic pay received by the enlisted personnel.
(C) Definitions.— For purposes of this clause:
(i) The term “commissioned officer” does not include warrant officers.
(ii) The term “military personnel” includes the Members of the United States Armed Forces, as well as the members of the Puerto Rico National Guard in active service during a period of conflict and serving in combat zones.
(iii) The term “combat zone” means an area which the President of the United States has designated by Executive Order as an area in which Armed Forces of the United States shall engaged in combat during a period of conflict.
(21) Income received or earned in connection with the holding of sports events organized by international associations or federations.— Any income received or earned by teams that are members of international associations or federations or entities affiliated to such teams and any income earned by entities contracted by said teams or associations or entities affiliated to them to organize and take charge of the operation, promotion or administration of such games in Puerto Rico. These provisions shall apply to the following international associations or federations:
(A) Major League Baseball, including, but without limitation, the Office of the Commissioner of Major League Baseball, Major League Baseball Properties, Inc., Major League Baseball Enterprises, Inc., Baseball Television, Inc., Major League Baseball Advanced Media, L.P., and their successor entities related to the holding of Major League Baseball games in Puerto Rico.
(B) The National Basketball Association of the United States, better known as “NBA”, including but without limitation, the Office of the Commissioner of the National Basketball Association, NBA TV, NBA Latin America, Inc., Women’s National Basketball Association, better known as “WNBA”, or the National Basketball Development League, better known as “NBDL”, and their successor entities related to the holding of NBA basketball games in Puerto Rico.
(22) Income earned by participants in the Caribbean Series.— Income earned by the nonresident players, coaches, technical personnel, and foreign teams, who participate in the Caribbean Series of professional baseball held in Puerto Rico.
(23) Income derived by an international insurer or an international insurer holding company, subject to the provisions of § 4324 of Title 26, including the income derived from the liquidation and/or dissolution of their operations in Puerto Rico.
(24) Federal subsidy for prescription drugs plans.— The payments on account of the subsidy received under the provisions of Section 1860D-22 of the Social Security Act, as amended or subsequently amended. This gross income exemption shall not affect the determination of any deduction allowed under § 30121 of this title. Thus, a taxpayer may claim a deduction under § 30121 of this title, even when said taxpayer also receives an exempt subsidy related to the deduction allowed under § 30121 of this title.
(25) The amounts received by an employee in accordance with §§ 36 et seq. of Title 8, known as the “Act for the Creation of Child Day Care Centers in the Government”, provided that the expenses are related to a dependent over which the employee is entitled to claim an exemption under § 30138(b) of this title. No other deduction under any other provision of this part shall be allowed for any amount exempt under this clause.
(26) The compensation received by an eligible investigator or scientist for services rendered to the University of Puerto Rico and to all those higher education institutions accredited in Puerto Rico for scientific research up to a sum equal to the maximum established by the National Institutes of Health for grants for salaries of investigators who receive grants from any of the organizations that constitute the National Institutes of Health for the applicable period in accordance to the notices published by the Institutes; Provided, That for the calendar year beginning on January 1, 2008, the amount to be excluded shall be one hundred ninety-five thousand dollars ($195,000). Any income received by the investigator or scientist for services rendered to natural or juridical persons other than the University of Puerto Rico or any other higher education institution is excluded from this benefit.
(A) Higher education institution.— Means a public or private educational institution duly accredited by the Council on Higher Education in accordance with Act No. 17 of June 16, 1993, as amended, or by the Middle States Commission on Higher Education of the Middle States Association of Colleges and Schools.
(B) Eligible investigator or scientist.— Means an individual who is a resident of Puerto Rico during the taxable year, contracted by the University of Puerto Rico or any other higher education institution in Puerto Rico, engaged mainly in conducting eligible scientific research and who has submitted a scientific research proposal to the National Institutes of Health or to other organizations of the Federal Government of the United States or Government of Puerto Rico, and that due to the approval of said proposal, the academic institution receives a grant for research under the R01 Research Project or its equivalent, whose amount covers the costs of the research, including the compensation of said investigator and of key personnel, purchase of equipment and supplies, publications and other related expenses; Provided, That with the exception of the cases of Multiple Principal Investigators (PI’s) there shall be more than one individual eligible for this deduction for approved grant.
(C) Eligible scientific research.— Means any research that is conducted by the University of Puerto Rico or any other higher education institution in Puerto Rico that receives a grant under the RO1 Research Project or other similar project of any of the organizations that constitute the National Institutes of Health or under similar programs or mechanisms sponsored by any other organization that promotes competitive scientific research, including but not limited to the National Science Foundation.
(27) The compensation received by an eligible investigator or scientist for rendering services related to science and technology research and development activities to the District established in § 695e of Title 23, up to the amount of two hundred fifty thousand dollars ($250,000). For purposes of this clause, the term “eligible investigator or scientist” shall mean an individual residing in Puerto Rico during the taxable year, contracted by an institution within the District established in § 695e of Title 23, engaged mainly in conducting eligible scientific and technology research and development. The initial recommendation of whether the individual is an “eligible investigator or scientist” for purposes of this paragraph and the number of eligible investigators or scientists that may avail of the exemption granted under this paragraph shall be made with the [advice] of the council of trustees, as such term is defined in §§ 695—695i of Title 23. The initial recommendation shall be submitted for final approval before the Secretary and the Secretary of Economic Development and Commerce. The Secretary may delegate in the Secretary of Economic Development and Commerce the final determination if the Secretary so provides through Circular Letter, administrative determination or any other informational document. If the Secretary does not make a decision within twenty (20) days after the recommendation of the council of trustees was submitted for his/her approval, the Secretary of the Department of Economic Development and Commerce shall make the final decision regarding whether or not to accept the recommendations of the council of trustees.
(28) Rents in historic zone.— Subject to the requirements of Act No. 7 of March 4, 1955, as amended, and of any other law substituting or complementing it, up to the limit provided in said laws, the rents (or payments) received as the result of the lease of buildings located in the Historic Zone of the City of San Juan Bautista of Puerto Rico or in any historic zone established in Puerto Rico by the Institute of Puerto Rican Culture or the Planning Board, which have been substantially improved, restored, restructured or rebuilt or newly built in accordance with the rules established by the Institute of Puerto Rican Culture to harmonize with the characteristics of the historic zone where they are located, having obtained the appropriate permits from the pertinent agencies and a certificate from the Institute of Puerto Rican Culture attesting to its conformity with the work as completed.
(29) Per diems and travel expenses of legislators.— The amounts received by the members of the Legislative Assembly of the Government of Puerto Rico on account of per diems and travel expenses, which represent reimbursements for expenses actually incurred.
(30) Per diems and travel expenses of municipal legislators.— The amounts received by the members of municipal legislatures on account of per diems and travel expenses, which represent reimbursements for expenses actually incurred.
(31) Income of international banking entities.— The income derived from any activities described in subsection (a) of § 232j of Title 7, known as the “International Banking Center Regulatory Act”, carried out by an international banking entity duly authorized to carry out such activities under the provisions of said act, including the income derived from the liquidation or dissolution of operations in Puerto Rico.
(32) Compensation to citizens and nonresident aliens of Puerto Rico for producing film projects.— Any wages, fees or compensation paid by any foreign natural person or corporate entity to citizens or nonresident aliens of Puerto Rico, on account of technical services rendered by them during a cinematographic production, for the purpose of distributing them to film or television production companies.
(33) Amounts paid by an employer to an employee on account of travel expenses, meals, lodging, entertainment and other expenses in connection with employment.— The amounts paid by an employer on account of reimbursable expenses paid or incurred by the taxpayer in connection with the performance by him/her of services as an employee, which consist of travel expenses, meals, lodging while away from home, entertainment (except those amounts considered excessive or extravagant under the circumstances), and other expenses connected with the employment; provided that such reimbursement is made under a expense reimbursement plan established by the employer that meets the requirements established by the Secretary through regulations to those purposes.
(34) Miscellaneous items.—
(A) Income from sources outside of Puerto Rico.—
(i) Nonresident of Puerto Rico during the entire taxable year.— In the case of a nonresident individual who is a United States citizen and establishes to the satisfaction of the Secretary that he/she has not been a resident of Puerto Rico during the entire taxable year, the amounts received from sources outside of Puerto Rico; however, no deduction shall be allowed to such individual from gross income properly allocable to or chargeable against amounts excluded from gross income under this clause.
(ii) Change of residence status during taxable year.— In the case of an individual who has not been a resident of Puerto Rico and changes his/her residence to Puerto Rico, the amounts received from sources outside of Puerto Rico attributable to the period of residence outside of Puerto Rico, however, no deduction shall be allowed to the individual from gross income properly allocable to or chargeable against amounts excluded from gross income under this clause.
(B) Income from the United States Government or foreign governments and international organizations.— The income from the United States Government, foreign governments or international organizations received from investments in Puerto Rico in stocks, bonds, or other domestic securities owned by such governments or international organizations, or interest on deposits in banks in Puerto Rico of moneys belonging to such governments or international organizations of any source within Puerto Rico.
(C) Income from states, municipalities, and other political subdivisions.— Income derived from any public service enterprise or from any essential government service performed generated in any state, territory, of the District of Columbia, or any political subdivision of an state or territory or income generated by the government from any possession of the United States or political subdivision thereof.
(D) Receipts of ship owner’s mutual protection and indemnity associations.
(E) Compensation of employees of foreign governments or international organizations.—
(i) Exclusion rule.— The wages, fees or salaries of any employee of a foreign government, including consular or other officers or nondiplomatic representative, received by them for official services rendered to such foreign government or international organization:
(I) If the employee is not a United States citizen;
(II) if, in the case of an employee of a foreign government, the services are of a character similar to those performed by employees of the Government of the United States in foreign countries, and
(III) if, in the case of an employee of a foreign government, the foreign government whose employees are claiming [the] exemption grants an equivalent exemption to employees of the Government of the United States performing similar services in that foreign country.
(F) Income from buildings leased or rented to the government of the Commonwealth of Puerto Rico for government hospitals, health or nursing homes and facilities complementary to said hospitals and health or nursing homes, such as dwellings for nurses, cafeteria, laundry services, physical and vocational rehabilitation centers; for public schools and physical facilities complementary to education, such as libraries, bookstores, residences for students and professors and multiple service centers for cafeteria, meeting and leisure; or in the construction of buildings to be leased to nonprofit entities to be used as hospitals, health or nursing homes and complementary physical facilities. This exemption shall be available only and exclusively to those buildings that had a leasing contract in effect as of November 22, 2010.
(G) Income derived from the resale of personal property or services whose acquisition by the taxpayer was subject to taxation under § 31771 of this title or Section 2101 of Act No. 120 of October 31, 1994, as amended, known as the “Internal Revenue Code of 1994”.
Notice This section has more than one version with varying effective dates. First of two versions of this section.