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Puerto Rico Tax Reform Moves Forward

  • Jun 3, 2015 | Gail Cole

 Puerto Rico: tax reform will soon be implemented.

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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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.