On May 29, 2015 was approved Act 72 (hereinafter referred to as “Act 72”). This Act establishes that effective on October 1st, 2015, Puerto Rico will begin with the taxation for Sales Tax on the services rendered between businesses and to most of the designated professional services as they are defined in the Puerto Rico Internal Revenue Code. The tax rate will be initially 4%, but to be increased to a 10.5% in April 2016.

Also, starting in October 1st, 2015, services rendered by a nonresident of Puerto Rico to a Puerto Rico resident, corporation, partnership or individual, regardless of where the services are rendered, will be subject to Puerto Rico Sales Tax. In this case, the service recipient located in Puerto Rico will be responsible to remit the tax to Puerto Rico Treasury Department. Whether if the aforementioned case it will be the regular 11.5% tax rate or the new 4%, will depend on the type of service. Please note that, since 2014 certain services are subject to the regular sales tax rate of 11.5% . Now, the tax on the services that will be subject to the new 4% tax will be payable only to the Puerto Rico Treasury Department and not to the municipalities.

Act 72 amended the Puerto Rico Internal Revenue Code to reflect this new tax on services and its exceptions and exemptions. However, actually it has been difficult to determine what will be subject to the 11.5% and/or subject to the 4%. One important aspect to be aware is that those services subject to the new 4% tax on services do not have a municipal portion to be collected and/or included on the municipal sales tax filing. However, those services subject to the 11.5% regular tax rate will have a portion to be collected and/or included on the municipal sales tax filing.

Basically, the tax on services, with their applicable tax rate, are now divided in three categories:

  • Business to business services
  • Designated professional services
  • Taxable services

Business to business services (4%)

This category of services were previously exempt if it happened between two Puerto Rico registered merchants, commonly known as “B2B”. The tax rate for these services will be 4% unless is a service subject to 11.5%. Also, if the service is rendered by a non resident, that most likely will involve a service provider that is not a Puerto Rico registered merchant, the applicable tax rate will be 4% unless it is a taxable service, which is subject to a 11.5% tax rate.

Designated Professional Services (4%)
These are services from “licensed professionals” as authorized by their applicable board with the Puerto Rico State Department. These professional services are the following:

  • Certified public accountants
  • Architects
  • Agronomists
  • Real Estate Professionals of entities
  • Geologists
  • Engineers, etc.

Act 72 added in this definition, the Puerto Rico Treasury Department registered tax return preparation specialists but only for their tax return preparation services which will be subject to a 4% rate. Other services rendered by a “non licensed” tax return preparation specialists will be subject to 11.5% rate.

Taxable Services (Subject to 11.5%)

These services were subject to the regular tax rate of 11.5% previous to October 1st, 2015 and will continue to do so. These are the following:

  • Services rendered by barbers, stylists, estheticians, make-up, masseurs, and related services
  • Services or body painting, tattoos and related services
  • Services of private investigations
  • Services of cleaning, laundry or garbage disposal
  • Services of repairs and maintenance. (The following services under this category will be subject to 4% and NOT to 11.5% when rendered “B2B”):
    • Those made to automobiles, propellers, ATV vehicles, motorcycles, boats, heavy equipment, buses and trucks.
    • The removal of machinery, equipment or any other type of tangible personal property or the demolition of real property.
    • Maintenance services to computer software such as installation of patches, upgrades of software ver sions, advisory technical services or troubleshooting services or a combination of all.
    • The inspection or validation of equipment, elevators or fire systems.
    • Repairs services that are capitalized (betterments)
    • Services of installation of equipment or appliances or other related goods
    • Bank charges to commercial accounts
    • Services of accounts collections
    • Daily vehicle leasing of motor vehicles
    • Telecommunication services including cable television
    • Decoration services, coordination of events, restaurants and related services
    • Entertainment services, admission fees and related services
    • Construction services of real property or personal property


The following services will be exempt of the 4% and the 11.5% tax rates, hence, not subject to sales tax:

  • Services to the Government of Puerto Rico and the United States. (Includes the Puerto Rico Electric Power Au thority and Sewage Corporations)
  • Rental or leasing of real property that constitutes the principal residence of the lessee, student lodging and com mercial leasing.
  • Child Care and Elderly Care Center services
  • Funeral services up to $4,000
  • Exportation of services, even if rendered in Puerto Rico
  • Education services, including child care
  • Interest or charges of use of monies
  • Insurance services and commissions
  • Health and hospital services
  • Services rendered by persons whose volume of business does not exceeds $50,000
  • Services rendered by members of a controlled group, if both, the recipient of the service and the service provider are engaged in a trade or business in Puerto Rico
  • Services rendered to associations of residents, including condominium associations or councils, projects of social interest that have federal or state subsidies, and services of residential cooperatives under certain Puerto Rico acts.


Following are some additional and important matters that are also be effective since October 1st, 2015 regarding to the tax on services or, are matters that were clarified by the Puerto Rico Treasury Department.


These services were previously subject to the 11.5% tax rate even when rendered to other businesses and there were some exemptions under Section 4010.01(kk)(2) of the Puerto Rico Internal Revenue Code. However, beginning in October 1st, 2015, those services previously exempted under Section 4010.01(kk)(2) when provided to other businesses will be subject to the 4% tax rate.


Services between members of a controlled group (of related entities), as defined by the Puerto Rico Internal Revenue Code, that are engaged in a trade or business in Puerto Rico will not be subject to the tax on services. However, when there is a service rendered outside of Puerto Rico by a related or non-related entity that is a nonresident of Puerto Rico, said services will be subject to the tax on services if the recipient of the service is located in Puerto Rico. Whether it will be subject to the 4% or the 11.5% tax rate will depend on the type of service provided. Furthermore, although the service provider is not a registered merchant in Puerto Rico the rules for “B2B” could be applied to determine the tax rate to be applied. The responsible to pay for the tax due will be the recipient of the services in Puerto Rico.


Generally, the accounting method to be followed for purposes of remitting the tax on services will be the one followed by the service provider. However, the cash-basis method could be used for those defined as designated professional services. The method to be used will be selected on the first filing of the monthly sales tax return and it cannot be changed by the designated professional service provider unless a formal request is made to the Secretary of the Treasury.


All services providers are to bill their clients no later than October 20, 2015 for all services that were performed on or before September 30, 2015 so they are not subject to the tax on services.


Merchants that have certificates of designated professional services as a non-withholding agent, had to do an online registration to actualize their merchant registration with the Puerto Rico Treasury Department on or before September 30, 2015. Please note that, Circular letter 15-12 from the Puerto Rico Treasury Department provides the procedure to do the
actualization procedure. In case you need assistance with this matter, please feel free to contact us at your offices.


The tax on services that of 4% tax rate will be payable ONLY to the Puerto Rico Treasury Department, not any municipality. The 4% tax reporting will be done separately from the reporting for the 11.5% that could include, if applicable, for the sale of goods. As soon as we more detailed information in regard to this issue, we will be informing how will be the proper way to report and pay the sales tax.


First of all, we want to mention actually there is a Bill No. 1433 that is currently in the Legislature which intention is to make some amendments to the Act 72. The most important aspect on it, is the possible exemption for service providers who earn $50,000 to be increased to $150,000. However, as we mentioned as of today this has not been approved.

This new 4% tax rate is only applicable to services rendered between businesses or registered merchants in Puerto Rico. Services rendered to individuals, in their personal capacity, and not as part of a trade or business are subject to the 11.5% tax rate regardless of the type of service. In case you are a service provider, we recommend to review the type of services you provide to make sure that the correct tax rate will be charged to your clients.

Also, we would like to remind you that services performed on or before September 30, 2015 are NOT subject to the 4% tax rate. Finally, if you are a multi-national entity that receives services from related entities that are located outside of Puerto Rico and are not engaged in a trade or business in Puerto Rico is also important to start reviewing the type of services you receive and your compliance wit the “self-assessment” of the tax on services you will have to remit to the Puerto Rico Treasury Department.