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PR Tax Changes 2019 – Corporations

On December 10, 2018 the Governor of Puerto Rico signed Law Act 257-2018 to amend some of the provisions of the Puerto Rico Internal Revenue Code of 2011, as amended.  Act 257 introduces various changes to the current tax regime.  The information provided does not constitute a consultation from our CPA firm.  Highlights of the changes applicable to corporations are:

Corporations

  • Regular tax rate reduced to 18.5% (previously 20%)
  • The alternative minimum tax of at least $500, or 18.5% (23% if volume of business exceeds 3 million).  This means that corporations will pay at least $500, even if they don’t report operations.
  • In addition, deductions for the purpose of the alternative minimum tax (tax rates vary between 6% and 24%) are limited to these specific expenses: 125% of salaries; services; rents; telecommunications; 50% of self-employment tax; health insurance for employees; water and electricity directly related to the business; publicity; insurances; interest, taxes, retirement plans; depreciation.  The services, rents, telephone, internet, publicity, and insurance expenses are only deductible if they have been appropriately reported on 480 forms.  Please note that no supplies or office expenses are allowed for this purpose.
  • Most importantly, to be able to claim all expenses without the above limitations, the corporation will need to submit an AUP (Agreed Upon Procedure) report prepared by a CPA licensed in PR or audited financial statements.
  • An Optional taxation method is available for corporations manly engaged in services: 6% to 20% of gross income, without deductions. 
  • The extension to file the tax return will now be 6 months (was 3 months), beginning for tax year 2018.
  • Filing a tax return is optional if 100% of gross income was subject to withholding at source.
  • Discretionary penalty of 25% (100% for repeat offenders) for claiming excessive expenses.
  • Donations are deductible only if the recipient organization provides services to residents of PR.

Changes to Individuals will be reviewed in a future post.

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