Puerto Rico Tax Reform Moves Forward
- Jun 3, 2015 | Gail Cole
Update, 3.24.16: Puerto Rico is moving forward with tax reform. It had planned to transition from sales tax to VAT on April 1, 2016. Recently, however, the government announced it would postpone the implementation of VAT to June 1, 2016.
Update 6.9.15: Under the new law, Ley Núm 72 de 2015, the existing 1% municipal sales tax remains in effect and is included in the new 11.5% rate. However, the 4% professional services tax taking effect October 1, 2015, is only applied at the state level. The 1% municipal sales tax will not apply to professional services.
Throughout 2015, Puerto Rico will transition to a Value Added Tax (VAT) system, conditioned on the outcome of certain events. Should these events occur, the VAT system will take effect April 1, 2016.
To help decrease Puerto Rico’s mountainous debts, Governor Alejandro Garcia Padilla’s government developed a plan to increase the general sales and use tax rate from 7% to 11.5%. Last week, the governor signed a law that turns that plan into a reality. It will also create a new 4% tax on professional services.
The sales tax rate increase takes effect July 1, 2015, but the service tax will not go into effect until October 1, 2015. Ultimately, Puerto Rico will transition to a value added tax.
Although the Gubernatorial Chief of Staff predicts that "the new law will help relieve the dire fiscal situation of Puerto Rico's government," the $1.2 billion in anticipated additional tax revenue can’t come soon enough. Puerto Rico lobbyists in Washington are working to change the U.S. bankruptcy code in order to allow Puerto Rico to declare bankruptcy.
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