Winter 2004-01 Tax rates on debt interest reduced

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Number 54
Winter 2004

Tax rates on debt interest reduced

Law Number 239 of September 3, 2003, expands the applicability of a lower tax rate to be paid on interest received from bonds, promissory notes and other obligations.

This law amended Section 1013A of the Puerto Rico Internal Revenue Code in order to extend to corporations and partnerships what theretofore was available only to individuals, estates and trusts: a reduced tax rate applicable to non-exempt interest received from issuers of bonds, promissory notes and other obligations. Moreover, the pertinent rate was also lowered from 17% to 10%.

The issuer

In order for the special rate to apply, the issuer of the bonds, notes or other obligations must be either-

corporations or partnerships organized under the laws of Puerto Rico, or

other corporations or partnerships, if not less than 80% of their gross incomes during the previous three tax years were effectively connected to the operation of an industry or business on the island.

Use of funds

Furthermore, the product of the bonds, notes or obligations must be used exclusively in the issuer's operations in Puerto Rico during a period not to exceed 24 months from their date of issue. The issuer must report the use of the funds to the Secretary of the Treasury within 90 days from the end of the 24-month period, or from the date on which all such funds were used, whatever occurs first.

The issuer must withhold the 10% tax from the interest to be paid.

© 2004 Goldman Antonetti