TAX NEWSLETTER
As a result of the approved changes to the Puerto Rico Internal Revenue Code of 2011 (hereinafter referred to as “the Code”) under Acts 72 and 159 of 2015, on October 9, 2015 the Puerto Rico Treasury Department released a revised version of Form AS 2916 “Certificate for Exempt Purchases and for Services subject to the 4% Special SUT (hereinafter referred to as “Form 2916”).
The revised Form 2916 contains notable and important changes. Starting on October 1st, 2015, all exempt transactions and those subject to the 4% Special Sales and Use Tax (SUT), needs to be documented through a Form 2916, with the exception of those transactions by merchants or designated professional whose annual volume of business does not exceeds $50,000.
It is imperative that every merchant who purchases taxable items or service provide the following information to support these transactions with Form 2916:
- Merchant Registration Certificate
- Reseller Certificate (if applicable)
- Eligible Reseller Certificate (if applicable)
- Any additional document that could evidence the exemption or special treatment of the transactions (if applicable)
For its part, the Merchant Seller must keep Form 2916 along with the corresponding supporting documents for at least six (6) years, starting from the SUT Monthly Return’s filing date where the transaction for which the particular Certificate is completed.
Sales that are exempt from the 4% Special SUT that are not supported by the proper documentation will be subject to the corresponding basic 10.5% SUT.
Also, pursuant to Sec 6043.06(b)(1) of the Code, the penalty for failing to keep Form AS 2916 is $20,000 per document.
CHANGES IN SERVICES SUBJECT TO THE SPECIAL 4% TAX
Act 159 of 2015 enacted on September 30, 2015 by the Governor of Puerto Rico, introduces substantial changes to Act 72 of 2015.
Here we will discuss the changes applicable to Sales and Use Tax (“SUT”) in specific the 4% applicable to services give that on October 1st, 2015 is the effective date for the implementation of this of this new Special SUT rate upon certain designated professional services and services rendered to other merchants.
General Definitions
Act 159 of 2015 expands the following terms:
- Machinery and equipment used in manufacture—will include the machinery and equipment, as well as parts, tools and components used in the repair, maintenance and conditioning of aircraft by grantees of tax exemption under Act 73 of 2008, as amended or any predecessor or successor statutes;
- Manufacturing plant— will include businesses engaged in the repair, maintenance and conditioning of aircraft.
- Sales price—in the case of services rendered to other merchants in connection with a residential, commercial or industrial construction project, which are directly related to the project, will be determined by multiplying the total costs on the invoice issued to the merchant by 35%.
- Designated Professional Services, Taxable Services and Services Rendered to Other Merchants —will include services rendered by a non-resident person to a person located in Puerto Rico, regardless of where the service has been rendered, provided that such service is directly or indirectly related with the operations or activities carried out in Puerto Rico by such person.
Designated Professional Services
The following services will not be considered designated professional services (hereinafter referred to as “DPS”) and will not be subject to the Special SUT of 4%:
- DPS rendered by persons with an annual volume of business that does not exceed $50,000
- Legal services provided by members of the legal profession authorized by the Supreme Court to exercise the practice, only with respect to fees for legal representation in the General Court, the Federal Court for the District of Puerto Rico, the U.S. Court of Appeals for the First Circuit, U.S. Supreme Court or administrative agencies of the Government of Puerto Rico, legal advice, and notary services
- DPS rendered to a workers’ union
Designated Professional Services, Taxable Services and Services Rendered to Other Merchants
The following services will not be considered designated professional services, taxable services or services rendered to other merchants. Such services will not be subject to the Special SUT of 4%:
- Services rendered by a person engaged in trade or business outside of Puerto Rico to an entity operating under Act 73 of 2008, Act 20 of 2012, Act 55 of 1933 or any similar predecessor or successor statutes where both are part of controlled group of related entities
- Services rendered to associations of residents, association of condominiums or associations of property owners, as defined, for the common benefit of residents, as well as services provided to housing cooperatives organized under Act 239 of 2004, provided that the units are used at least 85% for residential purposes
CHANGES IN SERVICES SUBJECT TO THE SPECIAL 4% TAX (cont.)
Designated Professional Services, Taxable Services and Services Rendered to Other Merchants (cont.)
- Services rendered to social interest residential housing projects that receive federal or state rental subsidies, provided that their residents directly pay the maintenance fee and have obtained an exemption certificate from the Secretary of the Treasury
- Services rendered for the repair, maintenance and conditioning of aircraft, including its parts and components, by under Act 73 of 2008 or any similar predecessor or successor statutes
- Services rendered to bona fide farmers that are duly certified by the Department of Agriculture, and
- Services rendered to any public or private entity that is exempt from all types of taxes under its Organic Act
- Services rendered to a person exclusively engaged in the storage or processing of gasoline, jet fuel, aviation fuel, gas oil or diesel oil, crude oil and end products derived from oil and other hydrocarbons mixture, provided that the storage takes place in a Foreign Trade Zone.
Taxable Services and Services Rendered to Other Merchants
The following services will not be considered taxable services or services rendered to other merchants, and will not be subject to the Special SUT of 4%:
- Use of intangible property rights
- Production services for radio and television programs or commercials produced in Puerto Rico
- Advertising and promotional services, as well as advertising time in any media, (including but not limited to electronic, print, digital media), including advertising agency commissions and fees on those advertising services
- Subcontracted services, provided that this exemption applies only to subcontracted services under a commercial, industrial or residential construction project and subcontracted telecommunication services
- Services rendered directly to a merchant by employees of an employment agency
- Manufacturing services, better known as toll manufacturing or contract manufacturing, provided that the service provider obtains a Total Waiver Certificate
- Repair, maintenance and conditioning of aircraft services rendered by grantees covered by Act 73 of 2008 or any predecessor or successor statutes
- Services rendered to an entity that is engaged in the business of repairing, maintenance and conditioning of aircraft, including its parts and components, provided the business is covered by the Act 73 of 2008 or any predecessor or successor statutes
- Maritime, air or land transportation services, including direct delivery charges
Person responsible for tax payment
Effective October 1st, 2015 in the case of services (taxable services, services rendered to other merchants and DPS) rendered by a non-resident person to a person located in Puerto Rico, regardless of where the service has been rendered, the person responsible for the payment of the SUT is the person that receives the service in Puerto Rico.
Other amendments
The SUT will remain in effect until the day before to the effective date of the Value Added Tax (the reference date of
March 31 was eliminated).
NEW REQUIREMENTS FOR FISCAL TERMINALS IN PUERTO RICO
Puerto Rico Treasury Department just published Administrative Determination 15-20 (hereinafter referred “AD 15-20”) which introduces some significant changes to point-of-sale terminals (“fiscal terminals”) used for the administration of the Sales and Use Tax.
AD 15-20 establishes that effective October 30, 2015 every merchant that has annual sales in excess of $125,000 is required to install, possess and maintain a fiscal terminal. The most important change established by AD 15 -20 is that effective October 30, 2015 merchants will be responsible for the required fiscal terminals. This means that merchants must assume al cost related to the acquisition, installation and maintenance, as well as any cot incurred for transmitting or transferring data to the Treasury Department. These fiscal terminals must be acquired from a certified provider authorized by the Treasury Department.
As a result, every merchant that possesses a fiscal terminal that was furnished by the Treasury Department will be required to return it on or before October 30, 2015. Furthermore, it is the merchant’s sole responsibility to acquire the fiscal terminal from one of the Certified Providers and to install it within a thirty (30) days period, which will commence on October 1st.
The Treasury Department will provide instructions as to the procedures that will be followed for the proper return of the terminals that were provided by the agency.
Exemptions
Every merchant that performs any of the following services or meets ay of the following will be exempt from the aforementioned requirements:
- Annual Volume of Business does not exceeds $125,000
- Designated professional services that are subject to the 4% Special Sales and Use Tax
- Locations where only credit transactions are processed through a billing system
- Merchants that sell property that is never under their physical possession (e.g. E-commerce, etc.)
- Vending machines, vending machines that provide admission rights and automatic teller machines (ATM’s)
- Merchants that render services exclusively at the buyer’s location and where there is no point of sale;
- The Government of Puerto Rico or the United States
- Merchants that render educational services
- Merchants that render Medical or Hospital services
- Merchants that have five (5) transactions or less per month
- Merchants that mostly perform financing or intermediate financial services
- Merchants that mostly perform Insurance services
- Merchants engaged in the rental of real property for residential or commercial purposes
- Merchants registered as temporary businesses that will operate for no more than six (6) consecutive months per year
- Independent contractors that (i) render services exclusively to Merchants that have a duly executed Final Multilevel Agreement with the Puerto Rico Treasury Department and, (ii) possess the Certification that identifies
Penalties
Any merchant that has an obligation to maintain a fiscal terminal and does not comply with said responsibility will be subject to a penalty up to $20,000, as established by Section 6043.06(c) of the 2011 Puerto Rico Internal Revenue Code, as amended.
Informative Bulletin 15-14
In addition to the above changes, the Puerto Rico Treasury Department issued Informative Bulletin 15-14 in order to inform merchants and the general public that IVU-LOTO program has been discontinued. The final prize draw was held on September 29, 2015.
Treasury Department’s decision to eliminate the IVU-LOTO does not relieve the merchant’s responsibility with regards to the fiscal terminal. The merchant must continue to collect the SUT, register the sale on the fiscal terminal, provide the consumer with the receipt that discloses the transaction cost separate from the SUT and remitting the SUT to the Treasury Department. The only difference is that the merchant will not be required to include the IVU – LOTO number in the receipt.