Bonds issued by the government of Puerto Rico and its subdivisions are exempt from federal, state, and local taxes (so called "triple tax exemption"). However, unlike other triple tax exempt bonds, Puerto Rican bonds uphold such exemption regardless of where the bond holder resides. This has made Puerto Rican bonds extremely attractive to municipal investors as they may inure from holding a bond issued by a state or municipality different from the one where they reside. This advantage strives from the restriction typically imposed by municipal bonds enjoying triple tax exemption where such exemptions solely apply for bond holders that reside in the state or municipal subdivision that issues them.
This factor, along with many others, led Puerto Rico to issue bonds up to today's outstanding debt of US$71 billion—an amount approximately equal to about 68% of Puerto Rico's
gross domestic product
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is of ...
* The Puerto Rico Sales Tax Revenue Bonds (commonly known as COFINA bonds) are
government bonds
A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments'','' and to repay the face value on the maturity dat ...
government of Puerto Rico
The government of Puerto Rico is a republican form of government with separation of powers, subject to the jurisdiction and sovereignty of the United States.Government Development Bank and the Public Financing Corporation. They are issued under resolutions adopted by COFINA's board of directors will be payable from and secured by a security interest created by the Resolution in a specified portion of the
Puerto Rico Sales and Use Tax
Taxation in Puerto Rico consists of taxes paid to the United States federal government and taxes paid to the Government of the Commonwealth of Puerto Rico. Payment of taxes to the federal government, both personal and corporate, is done through ...
("Pledged Sales Tax"). Legislation enacted in 2006 approved for the first time in Puerto Rico a sales and use tax of 5.5% for the benefit of the central government, and a separate 1.5% for the benefit of
municipalities of Puerto Rico
The municipalities of Puerto Rico ( Spanish: ''municipios de Puerto Rico'') are the second-level administrative divisions in the Commonwealth of Puerto Rico. There are 78 such administrative divisions covering all 78 incorporated towns and citie ...
Law No. 91 of 2006 also created a dedicated sales tax fund, to be held and owned by COFINA separate and apart from the government's general fund, and provided, among other things, that each fiscal year the first receipts of the government's Sales and Use Tax, in the amount specified in the law, be deposited in this special dedicated fund and applied to the payment of the Sales Tax Revenue Bonds.
* Tax Revenue Anticipation Notes (TRANS)