Puerto Rico may introduce VAT 2016

Further details of the new potential VAT regime in Puerto Rico have been proposed in the Taxation System Transformation Act. This includes a standard VAT rate of 16%. The current Sales and Use Tax (SUT) rate is 7%. The Gross Receipts Tax is also being abolished.

VAT will aim to broaden the tax base, and enable a cut to income tax rates. It is anticipated the effective income tax rate will drop from 38% to 21% with the introduction of new thresholds and more evenly spread bands. This effectively shifts the tax burden from income generation to consumption.

Many exemptions under the existing SUT regime will be withdrawn. Many basic foodstuffs, medicines, charities, real estate and agricultural transactions with be exempted from the new VAT.

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