Branch Profit | Deemed Dividend Distribution Tax
Home Office advances subject to deemed dividend tax
Income taxation of a US branch is the same as for a US subsidiary, except for a deemed dividend distribution tax (known as a “branch profit tax” or “BPT”) assessed on the branch for any advances made to its home office. The deemed dividend or BPT rate is 10% of the “dividend equivalent amount”. Broadly speaking, the BPT would be imposed if the earnings and profits derived by the Branch were not reinvested in Puerto Rico at the end of the taxable year. A comparison of net equity at the end of the taxable year to the net equity at the beginning of the taxable year will determine the amount reinvested and the corresponding tax. BPT is reported on Form AS 2877.
Exceptions to deemed dividend tax
Puerto Rico deemed dividend tax does not apply to:
- non-for-profit organizations listed in Section 1101.01 of the Puerto Rico Internal Revenue Code
- an International Insurer as defined by Article 61.040(4) of the Puerto Rico Insurance Code
- an International Financial Entity as defined by Act 273-2012, and
- any other foreign corporation subject to the tax on dividend equivalent amount prescribed by Section 1092.02 of the Code
The income from an entity with a tax exemption grant is excluded from earnings and profits when computing the deemed dividend tax. The exclusion affects the net equity basis and results in a direct reduction of the deemed dividend tax.