Puerto Rico VAT

Puerto Rico VAT Plans blocked

Puerto Rico’s plans to introduce VAT on the 1st June 2016 appear to have been scrapped.

Earlier this month legislators voted against the introduction of VAT to replace the current Sales and Use Tax, with an almost unanimous vote of 21 to 1.

However, there is still much confusion as to what will happen with Puerto Rico’s indirect tax regime as they are still in dire need of a way in which to raise funds to cover their rising debt, so a VAT regime could still be on the cards?

Puerto Rico – Tax reform

Puerto Rico VAT Implementation

Puerto Rico has now advanced its plans to implement VAT, with it expected to be introduced in 2016, they have issued a bill to withdraw the current Sales and Use tax. This has been implemented in line with their plans to shift from an income based system to a consumption tax based system. In order to prepare for the VAT introduction they have also risen the current SUT tax from 7% to 16% which will come into effect on the 1st of April 2015. There are several key points in the new indirect tax regime:

• The new VAT rate will be 16%
• The current SUT rate will increase from 7% to 11% on 1/4/15
• Exports will be exempt from VAT but Imports will be liable
• The supply of taxable goods or services will be subject to VAT
• VAT filings will be monthly, due no later than the 20th of the month
• There will be a facility to reclaim any VAT credits
• Will eliminate a significant number of exemptions, exclusions and the preferential tax treatment of many items.
• VAT will be imposed on every taxable transaction Continue Reading

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.