Service professionals and B2B merchants could benefit from the new Sales and Use tax exemption  that became effective March 1st.

Act 257-2018 amended Section 4010.01 of the Puerto Rico Internal Revenue Code of 2011 ("Code") to increase the Sales and Use Tax (“SUT”) exemption on designated professional services and services rendered between merchants (“B2B”), from $50,000 to $200,000. This amendment became effective March 1, 2019. With this amendment, merchants engaged in rendering designated professional services or B2B services will not be required to collect the 4% SUT, if their volume of business does not exceed $200,000 (“Eligible Merchants”).

On February 27, 2019, the Puerto Rico Treasury Department (“PRTD”) issued Internal Revenue Circular Letter No. 19-05 (“CC 19-05”) to establish eligibility requirements for this exemption. Circular letter 19-05 also establishes the process to obtain an updated Non-Withholding Merchant’s Certificate.

Pursuant to CC 19-05, effective March 1, 2019, eligible merchants will be considered non-withholding agents for SUT purposes, if they meet the following requirements:

  1. All income reported in the Monthly Sales and Use Tax Return, Form SC 2915 ("Monthly SUT Return"), must be derived from rendering designated professional services or B2B services, including exempt services (“Eligible Income”).
  2. The merchant must be in compliance with all its SUT obligations.
  3. The sum of all Eligible Income reported in the Monthly SUT Returns filed for calendar year 2018 cannot exceed $200,000.
  4. If the merchant did not operate during 2018, the sum of all Eligible Income reported in the Monthly SUT Returns filed since the date operations started, indicated at the time of registration, until December 31, 2018, should be considered for purposes of this requirement.
  5. In the case of merchants who began operations during 2019, the volume of business included as part of its registration in the Merchant’s Registry should be considered to determine the eligibility for this exemption.

The PRTD will automatically issue an updated Merchant’s Certificate indicating a non-withholding agent status, through the Internal Revenue Unified System (“SURI”, by its Spanish acronym) to all merchants who comply with the requirements above.

The eligibility for this exemption must be determined annually, considering the volume of business for the immediately preceding natural year.

At RSM Puerto Rico we can provide you with further advice regarding this exemption. Please contact our tax advisors at (787) 751-6164 | [email protected] for help or more information.

 

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