Puerto Rico - Indirect Tax Guide

As a general rule all supplies are subject to the SUT payment with certain exceptions, such as: school supplies acquired during the back-to-school tax-free holiday; supplies used to render health services by hospital facilities; supplies acquired by government agencies.

What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?

Excise tax: depends on the category of goods.

Sales and use tax:

11.5 percent on most goods and services
10.5 percent on goods and services not subject to municipal SUT
4 percent on designated professional services and services rendered to other merchants (Special SUT).

Designated professional services:

agronomists
architects and landscape architects
certified public accountants
agents, vendors and real estate companies
professional draftsmen
professional appraisers of real estate
geologists
engineers and surveyors
tax returns specialist.

VAT/GST registration

Who is required to register for VAT/GST and other indirect taxes?

All entities engaged in a trade or businesses are required to register with the Merchant’s Registry of the Puerto Rico Treasury Department. In order to determine if an entity is considered to be in the business of selling taxable items or has nexus in Puerto Rico, the following factors shall be considered:

if the merchant has establishments or offices in Puerto Rico
if the merchant has employees, agents or representatives in Puerto Rico who solicit business, carry out business or carry out transactions in the name of said retail seller
if the merchant owns tangible personal property or real property in Puerto Rico
if the merchant creates a nexus with Puerto Rico in any way, including, but not limited to: the execution of purchase deeds in Puerto Rico; direct marketing; purchases by mail or radio; distribution of unsolicited catalogs; purchases online, via television or other electronic means; or advertisements in magazines or newspapers
if the merchant accepts, expressly or implicitly, the tax levied by subtitle BB of the code
if the merchant has sufficient connection, or a relationship, with Puerto Rico or its residents of some sort, other than those described in the above mentioned clauses, with the purpose or objective of creating a sufficient nexus with Puerto Rico to impose on the merchant the responsibility of collecting sales and use tax.

Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?

Yes, merchants who do not have a commercial establishment in Puerto Rico and for any reason have created a nexus with Puerto Rico due to (but not limited to) the following:

the execution of direct marketing; purchases by mail or radio; distribution of unsolicited catalogs; purchases online, via television or other electronic means; or advertisements in magazines or newspapers or any other means
the existence of an agreement or reciprocity with their origin jurisdiction.
the merchant’s acceptance, expressly or implicitly, of the tax levied by the code
the creation of a sufficient connection or relationship with Puerto Rico or its with the purpose or objective of creating a sufficient nexus with Puerto Rico.

Are there any simplifications that could avoid the need for an overseas company to register for VAT?

Foreign merchants not registered in Puerto Rico that will be considered non-withholding agents may request to be considered as voluntary withholding agents by filing a request with the Puerto Rico Treasury Department and thus avoid applicable reporting and notifications. For this a Closing Agreement must be filed with them to voluntary collect and remit the SUT.

Does an overseas company need to appoint a fiscal representative?

No.

Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?

Application for merchant’s registration certificate and exemption certificate (form AS 2914.1).

Is grouping* for VAT/GST and other indirect taxes possible?

No.

VAT/GST compliance

How frequently are VAT/GST and other indirect tax returns submitted?

Monthly.

What are the exchange rate rules in your country?

Puerto Rico uses the US dollar. There are no specific rules on exchange rates.

International Supplies of Goods and Services

Exports – Goods

How are exports of goods treated?

Exported goods sold for use and consumption outside Puerto Rico shall be exempt from the SUT payment but they must be exported within 60 days from the date of the sale.

Exports – Services

How are exports of services treated for VAT/GST purposes?

The export services that are sold for use and consumption outside Puerto Rico shall be exempt from the SUT payment when the purchaser receives such services outside Puerto Rico.

Imports – Goods

How are goods dealt with on importation?

As a general rule, the 11.5 percent import use tax is applicable to goods imported into Puerto Rico by any importer of record of such goods, except items introduced by postal service or air carrier, which shall be paid before the taxpayer takes possession of the article.

Imports – Services

How are services brought in from abroad treated for VAT purposes?

As a general rule, in the case of services rendered by a non-resident to a person in Puerto Rico, the person responsible for payment of the 4 percent Special SUT is the person receiving the service in Puerto Rico, provided that service bears a direct or indirect relationship with the operations or activities carried out in Puerto Rico by that person.

VAT/GST recovery

Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?

No.

Are there any exemptions with the right to recover or deduct input VAT?

Any merchant who claims a credit against his or her obligation to pay the sales tax will keep, and have available for the secretary, all of the documentation needed to verify the merchant’s right to such credit.

The secretary may reject a credit claimed in the monthly sales and use tax return insofar as it is not supported by the information required, in which case the amount owed will be considered a loss.

Are there any restrictions to the deduction of input VAT?

Merchants who are resellers and who do not hold an exemption certificate at the moment of paying the sales tax for items that they resell shall not be entitled to claim a credit for taxes paid for such items.

Tax points

When is VAT/GST due on a supply of goods or services?

The SUT should be remitted to the Puerto Rico Treasury Department no later than the tenth day of the month following the month in which the taxes are collected.

Invoices

Is a business required to issue tax invoices?

No.

Is it possible/mandatory to issue invoices electronically?

It is possible but not mandatory.

Is it possible for the vendor to issue an invoice, (i.e. self-billing)?

Yes.

Record-Keeping Requirements

How long must records and invoices be retained?

The invoices shall be kept for no less than 6 years.

Can the invoices be stored abroad?

The law does not specify the place in which the invoices may be stored. However, they must be made available in case of an audit.

Audits

Do tax audits take place on a regular basis?

The indirect tax is the most active tax pursued by treasury. Frequency depends on industry. An annual communication or request for information could be expected.

Are audits done electronically in your country (e-audit)? If so, what system is in use?

Treasury is currently implementing this.

What penalties can arise from non-compliance?

Depending on the infringement, specific penalties may apply.

Special Indirect tax rules

Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?

The sale of a company is not subject to SUT.

Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?

Puerto Rico has a sales and use tax.

Does a reverse-charge mechanism apply for goods or services?

Yes, on services rendered by non-residents.

Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?

Yes, for back-to-school goods. On or before 1 June of each year, the Secretary of Treasury will issue a circular letter specifying a period of 3 days in the month of July during which the retail sale of those covered articles as defined by the Puerto Rico Internal Revenue Code of 2011 as amended (the Code), are exempt from the payment of sales tax. In those years for which no circular letter is issued, it shall be understood that the period begins at 12:01 a.m. on 15 July and ends at midnight on 17 July of each year.

Rulings

Are rulings and decisions issued by the tax authorities publicly available?

Effective 30 September 2016, the Puerto Rico Treasury Department started to publicly release rulings on a no name basis. Publication has been scarce.

For further information please contact:

Rolando López
Partner
KPMG in the US
T: +1 787 756 6020
E: rlopez@kpmg.com

Footnote

^*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).