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PR Tax Changes 2019 – Employers Merchants

Trying to make it as simple as possible.  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, it’s just form informative purposes.  Below you will find a few highlights of the changes applicable to Employers, Merchants and Withholding Agents:

Employers, Merchants, and Withholding Agents

  • Withholding at source on payments to services is now 10% (previously 7%).
  • Exemption from withholding per person per year is $500 (previously $1,500).
  • Insurance commissions are now subject to 10% withholding at source.
  • Payments to clinical laboratories are now excluded from 10% withholding at source.
  • Payments by a Flow-through entity to a partner for services rendered are excluded from 10% withholding at source
  • Hacienda will require a new quarterly tax return to reconcile payments for services and withholding at source.  Payments for some expenses will not allowed as deductible in the tax return unless reported on these quarterly returns.  Among them: interests, services, publicity, insurance, telephone, internet, cable, rent. 
  • The threshold for a merchant to be required to sales tax withholding agent is now $200,000 (previously $50,000).
  • The concept of “admission tickets” is amended to include dues and memberships to clubs that provide facilities for purchases of goods and services. 
  • Merchants that gross commercial rent over $125,000 p/y are required to have a fiscal terminal approved by Hacienda.
  • All legal services that can only be provided by a lawyer are now included under the legal services exemption from B2B.
  • Beginning on October 1, 2019, all restaurants with proper authorization and certification by Hacienda will be exempt from charging the 4.5% SUT surtax on prepared meals, soft drinks, pastries, and sweets.
  • New concept of successor taxpayer.  A taxpayer that takes over an existing business, either through purchase or through transfer of operations, will be a joint debtor on its unpaid taxes.
  • Threshold for employers to be required to make monthly deposits of income tax withheld on salaries to Hacienda is raised to $2,500 (previously $500).

Waivers of Withholding:

  • Partial waiver for individuals with business volume under 1 million are no longer available.
  • Tax withholding under a partial waiver increases to 6% (previously 3%), even if the waiver for 2019 had already been issued and says 3%.
  • In order to obtain a partial waiver, Hacienda requires audited financial statements or an AUP (Agreed Upon Procedure) report by a CPA.
  • Total waiver can be granted only to entities with over 1 million business volume, with copy of audited financial statements by a CPA in PR.

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