P.R. Laws tit. 13, § 10408
(a) For the taxable years commencing on January 1, 1996, bona fide farmers are hereby exempted from the payment of income taxes on ninety percent (90%) of their income derived directly from the agricultural business, provided that the bona fide farmer has not availed him/herself of the provisions of Section 1023(s) of Act No. 120 of October 31, 1994, part of the Puerto Rico Internal Revenue Code of 1994. This exemption does not extend to income from interest, dividends, bonuses or profits derived from the sale of assets, including those assets used in the agricultural business, or any other income derived from bona fide agricultural businesses which is not derived directly from the agricultural activity.
(b) Any interest on bonds, promissory notes, and other debt instruments issued as of January 1, 1996, by bona fide farmers and any financial institution, as said term is defined in §§ 2001 et seq. of Title 7, or issued in transactions authorized by the Commissioner, regarding the financing of agricultural businesses, shall be exempted from the payment of income taxes.
The interest paid by a bona fide farmer shall be exempted from the payment of taxes. In order to enjoy the exemption on said interest, the lender must grant the loan directly to the farmer. If the financing is granted to an intermediary who, in turn, lends or otherwise contributes the product of the financing to an agricultural business, the loan to the intermediary shall not constitute an eligible loan for the purposes of this exemption. The term “intermediary” includes, but is not limited to, related persons 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.
In case the bona fide agricultural business is disqualified as such, the interest generated by the debt instruments shall not be deemed eligible for the exemption provided in this subsection.
The term “financing” does not include the refinancing of a debt in the degree that the product is used to liquidate existing debts be they of the agricultural business or others. Therefore, the income tax exemption on the interest of bonds, notes and other debt instruments does not apply to said refinancing.
(c) In the case of those agricultural sectors that have been subject to a code which establishes a specialized office and a fund for the development of the industry, it shall be an indispensable requirement to be covered by said legal code in order to receive the benefits provided in this chapter.
New farmers and agricultural entrepreneurs shall be subject to the provisions of § 10404a of this title.
History —Dec. 1, 1995, No. 225, § 9, renumbered as § 10 by § 3 and amended on Apr. 30, 1996, No. 35, § 8; Apr. 8, 1997, No. 8, § 3.