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Winter 2007-03 Puerto Rico REIT law relaxed

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Number 66
Winter 2007

Puerto Rico REIT law relaxed

Act Number 289, enacted on December 26, 2006, has the effect of liberalizing the requirements imposed on Real Estate Investment Trusts by the Puerto Rico Internal Revenue Code. The express purpose of the law is to encourage the use of this type of investment vehicle on the island.

Hotels and shopping centers

One of the principal changes is an amendment of the code's definition of "real estate," which results in granting REITs authorization to purchase hotels and shopping centers, both of which had previously been without their realm.

Related is the deletion of the limitation that REITs invest only in real estate built or substantially renewed after June 30, 1999.

Taxes

Also deleted is the provision that used to deprive REITs of a deduction for net losses, as allowed in code § 1023(g).

Finally, the amendment fixes at 10% the tax rate applicable to taxable local REIT distributions.

As conditions to qualify for the tax benefits granted to REITs-both local and those organized in the U.S.-by the code:

all acquisitions of real estate by REITs must be made after the effective date of Act 289: January 1, 2007, and

targets of acquisitions (be them of assets or securities) must be limited to:

companies that generate income from Puerto Rico sources and are subject to the payment of income tax, and

  • government assets.

© 2007 Goldman Antonetti & Cordova, LLC

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