Puerto Rican Sales and Use tax changes

Puerto Rican Sales and Use tax changes

Puerto Rico currently have a Sales and Use Tax (SUT) or Impuesto sobre ventas y uso (IVU), the global rate is 7%. This is made up of 6% state SUT and 1% municipal SUT. This changed from 5.5% state SUT and 1.5% municipal SUT on the 1st of February 2014. The global rate did not change just the rate of the distributions. This is because Puerto Rico are taking steps to change their current SUT system for a VAT one.

They are hoping to introduce a proper VAT system within the next few years with a higher rate of around 16% expected. This change is projected to help Puerto Rico retain 75% of VAT revenue, compared to only 56% retained from sales taxes, which would help with its estimated $168 billion of debt. Since its introduction in 2006 the SUT has failed to provide sufficient revenue for the government, due to a high number of exemptions and non-compliance. This tax reform covers all forms of taxation not just SUT in order to get a more balance system. In 2014 they also changed the scope of the exemptions from SUT to include business to business transactions, resellers and other goods/services previously exempt in order to increase compliance, however this has not done enough.

The Puerto Rican Government are expected to push through the new tax reform bill within the next few weeks, with the VAT plans expected to go ahead. This will mean big changes for individuals and businesses alike in Puerto Rico.