Hurricane María’s aftermath has generated numerous administrative orders and decisions for which we have issued several publications in order to keep our clients and friends updated. Below is a brief summary of some of the most recent tax-related pronouncements.
RESOLUTION NO. 2017-10 (NOV. 6, 2017): THE DISBURSEMENT AND TAX CONCESSION AUTHORIZATION COMMITTEE (DTCAC) ADOPTS SPECIAL RULES CONCERNING PUERTO RICO TAX CREDITS
DTCAC changed limitations imposed on tax credits (Resolutions No. 2017-05 and 2017-09). accordingly, tax credits requests submitted after March 7, 2017 will not be subject to the 25% income tax liability yearly limitation; waivers from the 25% limitation may be granted upon request regarding applications submitted on or before March 7, 2017; an annual credit cap will be imposed per tax incentives law; credit holders with 2017 losses may postpone the commencement of the 4-year term during which they can use their tax credits until 2018.
PR TREASURY’S ADMINISTRATIVE DETERMINATION 17-24: REQUISITES TO CONSIDER CERTAIN PROJECTS AS CONSTRUCTION PROJECTS FOR PURPOSE OF SALES TAX ON SERVICES
PR Treasury ruled that certain construction projects that were exempt from going through the ordinary construction or urbanization permit process and that obtained a categorical exclusion from the Office of Management of Permits pursuant to OA OGPe 2017-07, will determine the sales price of the construction services by multiplying by 35% the total invoice cost for sales and use tax purposes.
PR TREASURY’S ADMINISTRATIVE DETERMINATION 17-26: TEMPORARY SALES TAX EXEMPTION FOR SMALL AND MEDIUM BUSINESSES
Starting November 15, 2017, Temporary Exempt Merchant Certificates will be issued via SURI to registered merchants whose annual gross sales do not exceed $1 million. The sales reported in the monthly sales and use tax returns for the period of August 2016 through July 2017 will be used to determine if the merchant does not exceed the $1 million limit. Registered businesses who started operations after July 2017 will also be issued such certificate, regardless of their sales. Merchants must display the certificate somewhere visible to the public and must not charge sales tax to their customers for the period of November 20, 2017 through December 31, 2017. The exemption does not apply to payments for services received by the
exempt merchant nor does it apply to use tax.
PR TREASURY’S ADMINISTRATIVE DETERMINATION 17-28: ENTITIES HIRED BY PUERTO RICO GOVERNMENT TO RENDER SERVICES IN PUERTO RICO DURING IRMA AND MARIA AFTERMATH
Puerto Rico Treasury issued guidance regarding income tax withholding and sales and use tax responsibilities applicable to contractors that are formalizing agreements with the Government to
reestablish services affected by the passage of the hurricanes. Entities not otherwise doing business in Puerto Rico may elect to be considered as engaged in a PR trade or business with respect to
their contracts with Government and will be subject to a 7% withholding on payments for services pursuant to Section 1062.03 of the PR Internal Revenue Code of 2011. Through this determination, Treasury established a non-resident special tax rate of 10% (must be withheld at source) for non-resident U.S. citizen employees of Government contractors and subcontractors and
for individual contractors, considered U.S. citizensnot residents, rendering services in Puerto Rico. Employees that are non U.S. citizens-not residents of Puerto Rico will be subject to a withholding tax rate of 29%. Services rendered directly to the Government by contractors will not be subject to sales and use taxes, and taxable articles temporarily brought to PR as part of such services are exempt from excise and sales and use taxes, as applicable, for a period of 6 months (may qualify for additional extensions). All contractors or subcontractors subject to the treatment established in AD 17-28 must register as merchants for sales and use tax purposes.
PR TREASURY’S ADMINISTRATIVE DETERMINATION 17-29: WITHDRAWALS FROM INDIVIDUAL RETIREMENT ACCOUNTS AND QUALIFIED RETIREMENT PLANS
Pursuant to The Governor’s Executive Order OE- 2017-56, the Secretary of Treasury issued guidelines for allowed withdrawals from qualified retirement plans and IRA’s. During the period of September 20, 2017 until June 30, 2018, individuals considered Puerto Rico residents for tax year 2017 and that will be considered Puerto Rico residents for tax year 2018 will be allowed to make Eligible Distributions, to be used to compensate losses or damages suffered by Hurricane María and to pay for extraordinary and unforeseen expenses to cover their basic needs due to the disaster. A total of $100,000 Eligible Distributions may be made during the period allowed by AD 17-29. The first $10,000 of Eligible Distributions will be tax free and the excess (up to $90,000) will be subject to a flat rate of 10% that must be withheld by the employer, administrator or service provider of the trust or annuity contract making the distribution. To receive the Eligible Distribution the individual must submit a sworn statement with certain information to the employer or plan administrator or with respect to the individual retirement accounts to the bank institution. In case of qualified retirement plans, the application of AD.
PR TREASURY’S ADMINISTRATIVE DETERMINATION 17-30: REQUIREMENTS TO OBTAIN A WAIVER FROM INCOME TAX WITHHOLDING
The Secretary of Treasury issued guidance regarding what constitutes a “new business” pursuant to Section 1062.03(b)(8) of the PR Internal Revenue Code of 2011 for entities and for individuals and what documentation must be submitted by taxpayers requesting a total waiver from income tax withholding for businesses in their first 3 years of operations.
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This publication is a very concise summary of current legislation and/or administrative pronouncements and is not intended to substitute legal advice. We encourage you to contact us or the attorney of your choice if you have any questions or need assistance regarding any of the matters presented herein. An attorney-client relationship with Pellot-González, Tax Attorneys &
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