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DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this
publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant
should be obtained prior to taking action on any issue dealt with this update.
© 2015 Kevane Grant Thornton LLP All rights reserved.
Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide
partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not
liable for one another’s acts or omissions. Please visit www.kevane.com for further details.
Value added tax – impact on the
Services Industry
Act 72 which amends the Internal Revenue
Code for a New Puerto Rico introduces a value
added tax system in Puerto Rico that will
replace the Sales and Use tax system (“SUT”)
effective April 1, 2016, for state tax purposes.
The SUT will continue to be in place for
municipal tax purposes after March 31, 2016.
Effective July 1, 2015, the Sales and Use Tax
increased to 10.5% (state tax) for a transition
period that will end on March 31, 2016. The
municipal rate remains at 1%. The credit for
SUT to be claimed in the Monthly Sales and
Use Tax Return will be 100% of the tax
liability in the case of resellers of tangible
personal property (an increase from the
current 75%).
On October 1, 2015, a new tax of 4% will
apply to services provided to other merchants
(B2B) and for designated professional services
unless these are covered by a qualified
contract. Please refer to our tax alert from
June 25, 2015, where we discussed the special
sales and use tax transition rules applicable to
qualified contracts.
On April 1, 2016, a new Value Added Tax will
replace the state Sales and Use Tax of 10.5%.
Designated services and services rendered to
other businesses (B2B) will be subject to a
10.5% VAT rate unless these are covered by a
qualified contract.
From a municipal point of view, the sales
and use tax will continue to be 1%. Services to
other merchants and designated professional
services will be exempt from this municipal
tax.
This alert concentrates on the specific aspects
related to value added taxes for the services
industry. In addition, and for your reference,
we have prepared a diagram to illustrate an
example of how the value added tax is paid
and credited by the service business.
Services subject to VAT 10.5% rate
and 0% tax rate
The following services rendered in Puerto
Rico will be subject to a 10.5% VAT:
• designated professional services
• storage of goods
• lease, including operating leases of motor
vehicles (“daily rental”)
• computer programs, including
modifications to pre-designed programs
• installation of goods by the seller or a third
party
• repairs of goods
Export services are subject to a 0% tax rate.
An export service is any service rendered for
the benefit of a non-resident person and the
same does not have a nexus within Puerto
Rico. It is considered that there is nexus with
Puerto Rico for those services that are related
with:
Contact us
For assistance in this matter,
please contact us via
maria.rivera@pr.gt.com
Tax Partner
or
javier.oyola@pr.gt.com
Tax Manager
Kevane Grant Thornton LLP
33 Calle Bolivia Ste 400
San Juan, Puerto Rico 00917-2013
T + 1 787 754 1915 F + 1 787 751 1284
www.kevane.com
Follow us on
June 30, 2015
Page 2
DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this
publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper
consultant should be obtained prior to taking action on any issue dealt with this update.
© 2015 Kevane Grant Thornton LLP All rights reserved.
Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide
partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are
not liable for one another’s acts or omissions. Please visit www.kevane.com for further details.
• business activities for the production of
revenues that are or will be performed in
Puerto Rico
• the sale of any property for the use,
consumption or disposition in Puerto Rico
• business advice regarding the Laws and
Regulations of Puerto Rico, as well as the
administrative procedures of the
Government of Puerto Rico, its agencies,
public corporations, instrumentalities
and/or municipalities and judicial
precedents from Puerto Rico Courts
• lobbying in terms of Laws and Regulations
of Puerto Rico as well as administrative
procedures
The service provided to cruise ships that
participate of the benefits granted by the
Special Funds for the Cruise Ship Lines
Incentives in Puerto Rico Act and the Law for
the Promotion and Development of the Cruise
Ship Industry will be considered export
service.
Excluded Services
The following services are excluded from the
VAT:
• services rendered between members of a
controlled group of entities
• services rendered by the Puerto Rico and
US Government
• services rendered as an employee
• services for marine and air transportation
of goods including charges for marine and
air delivery
Exempt Services
The following services are exempt from the
VAT:
• educational services and child care
• financial services, except for those that
generate bank charges
• services that qualify for reimbursement
from Medicare, Medicaid and the Puerto
Rico Government’s Health Insurance Plan
• services rendered to the Puerto Rico and
US Governments
• real property lease that constitutes the
principal residence of the lessee, including
student and elderly housing
• real property lease for commercial purposes
paid by a merchant including payments for
office or sales space, warehousing and
parking
• gratuitous services provided by non for
profit entities
• health and medical services for humans and
animals
legal services under a contingency fee on
judicial claims related to family, food and
loss suffered by individuals because of
medical malpractice and physical losses and
mental claims cases
Returns and declaration
Imports Declaration –upon the
introduction of goods into PR and before
release of merchandise
Tax on Imports Monthly Return – on
the 10th day following the closing of each
month
Small Merchant Annual Informative
Declaration – within a period of 60 days
from the date of filing of the income tax
return
Monthly VAT Return – on the 20th day
following the closing of each month
The VAT monthly Return will show the
merchant’s VAT liability for a month
computed as follows:
VAT (10.5%) on goods and services
sold during a month
Page 3
DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this
publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper
consultant should be obtained prior to taking action on any issue dealt with this update.
© 2015 Kevane Grant Thornton LLP All rights reserved.
Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide
partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are
not liable for one another’s acts or omissions. Please visit www.kevane.com for further details.
Plus/Minus: adjustments that
increase/decrease the sales price of
goods sold
Minus: Credit for VAT paid on goods
or services purchased or imported
Credit for value-added taxes paid
Every merchant, except small merchants
holding a Small Merchant’s Registration
Certificate, will be allowed to claim a credit for
the VAT during the corresponding month in
the case that the merchant sells taxable goods
or services subject to the 10.5% or 0% VAT.
If there is a combination of exempt and
taxable services the service provider will need
to make an allocation on the VAT incurred on
costs. If the business provides services that are
exempt from VAT it will not have to collect
VAT.
However, the service business will not be able
to recover any VAT paid on costs, either
charged by its suppliers or paid on the
importation of goods or services, which are
directly or indirectly related to those exempt or
excluded sales.
In general terms, the amount of the credit will
be computed based on the sum of the
following items:
• VAT paid upon introduction of taxable
items into Puerto Rico that are directly or
indirectly related to the sale of taxable items
and services, plus;
• VAT paid by a merchant on the purchase
of taxable items and services that are
directly or indirectly related to the sale of
taxable items or services as reported in the
fiscal statement, plus;
• VAT paid by the merchant for a service
provided by a non-resident and included on
the VAT monthly Return.
Credit for Consumption Tax Paid to
Foreign Countries for Services
Rendered by Related Entities
Any merchant to which a related entity not
engaged in trade or business in Puerto Rico
has provided a service may claim a credit
on its monthly VAT return for the amount
paid for the concept of consumption taxes
paid to foreign countries after any credit
claimed for such tax on the foreign
country, with respect to the service.
VAT Overpayment
• A VAT overpayment will be the excess of
any adjustment or credits over the
applicable VAT on sales of goods and
services made during the corresponding
month, as disclosed on the monthly VAT
Return.
• If the VAT overpayment does not exceed
$10,000, it must be applied against the
VAT liability shown in the monthly VAT
return and for the following months until
fully exhausted.
• If the VAT overpayment exceeds $10,000,
the merchant may request a refund if it is
considered an eligible merchant or it has
reflected overpayment on its Monthly VAT
Returns for the last three months.
Merchant’s Registration Certificate
• Any person who wants to do business in
Puerto Rico must be registered at the
Puerto Rico Treasury Department before
commencing operations;
• The original certificate must be displayed at
all times in a place visible by the general
public in each place of business for which it
was issued.
Page 4
DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this
publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper
consultant should be obtained prior to taking action on any issue dealt with this update.
© 2015 Kevane Grant Thornton LLP All rights reserved.
Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide
partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are
not liable for one another’s acts or omissions. Please visit www.kevane.com for further details.
• Any person that conducts business in PR
that does not maintain the registry
certificate or when such certificate has
expired will be subject to penalties.
• Merchants that are part of a controlled or
affiliate group could elect to be treated as
one merchant.
Exempt Purchases Certificate
• It is available to eligible persons on the
import or acquisition of goods or services
exempt from VAT.
• The certificate is valid for three years. The
Secretary at its discretion may extend or
limit the validity of such certificate.
• Eligible persons include the Government
of the United States of America and its
States, the District of Columbia and the
Government of the Commonwealth of
Puerto Rico, any hospital unit, merchants
dedicated to the tourism industry and
bona-fide farmers.
Eligible Merchant’s Certificate
• It will be issued to those merchants with an
annual volume of business in excess of
$500,000 for the last three preceding years
and which 80% of its sales are subject to a
0% VAT tax rate.
Effectiveness of current certificates
and new certificates for VAT
Effectiveness of certificates issued under
the 2011 Code was not part of the
discussion of Act 72. We will continue to
monitor PRTD communications on this
issue.
Transitory provisions
Bonds approved under the SUT provisions
will be effective until its expiration date.
Credits not claimed as a refund and
available as of March 31, 2016, as reflected
on the Monthly SUT return filed not later
than April 20, 2016, could be used as a
credit on subsequent monthly VAT returns
until these are exhausted.
Administrative determinations and closing
agreements issued under the 2011 Code
which provisions are similar to VAT
provisions enacted with Act 72 and that
affect the taxpayer responsibility for a
taxable event after April 1, 2016, will be
applicable under the provisions of Subtitle
DD (VAT) under Act 72.
Exclusion of contracts and pre-
existing Bids
The retail sales covered by executed
contracts and pre-existing bids at auction
before April 1, 2016, will be excluded from
VAT to the extent these were excluded
from SUT. The merchant may acquire the
taxable items subject to such contract or
auction during a period of 12 months or
contract term, whichever is less.
Services provided to other merchants
(B2B) and designated services pursuant to
preexisting contracts executed before July
1, 2015 will be exempt from the 4% and
10.5% from April 1, 2016, on to the extent
that a certification of qualified contract has
been obtained from the Secretary of
Treasury. Such certification needs to be
requested to the Secretary of Treasury not
later than September 30, 2015. If the
certification is not obtained the services
rendered after September 30, 2015, will be
subject to a 4% state tax and to the value
added tax effective April 1, 2016.
Page 5
DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this
publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper
consultant should be obtained prior to taking action on any issue dealt with this update.
© 2015 Kevane Grant Thornton LLP All rights reserved.
Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide
partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are
not liable for one another’s acts or omissions. Please visit www.kevane.com for further details.
Commission for Alternatives to
Transform the Consumption Tax
This is a mechanism to evaluate the Puerto
Rico Tax System based on the fiscal and
budgetary reality of the government.
Its function will be to evaluate the different
tax models and provide a report not later
than 60 days after the enactment of Act 72
(i.e. May 29, 2015) with recommendations
on the feasibility of implementing a model
as a transformation of the actual tax on
consumption taking in consideration the
collections necessary for the Government
and the compliance of its obligations.
The following table summarizes the effective
date of all changes in sales and use tax and
value added tax introduced by Act 72-2015.
Up to 6/30/15
General SUT – 6%*
Designated services – exempt
B2B – exempt
Municipal Level
*Resellers receive a credit and is applicable to taxable B2B
4/1/16
General VAT – 10.5% or 0% (credit)
Designated services – 10.5% (credit)
B2B – 10.5% (credit)
Up to 6/30/15
General SUT – 1%
Designated services – exempt
B2B – exempt
7/01/15 – 9/30/15
General SUT – 10.5%*
Designated services – exempt
B2B – exempt
10/1/15 – 3/31/16
General SUT – 10.5%*
Designated services – 4%
B2B – 4%
7/01/15 – 9/30/15
General SUT – 1%
Designated services – exempt
B2B – exempt
10/1/15 – 3/31/16 4/1/16
General SUT – 1% General SUT – 1%
Designated services – exempt Designated services – exempt
B2B – exempt B2B – exempt
State Level
Impact of proposed value added tax
Services Industry
Total VAT paid:
Imported products 26,250$
Other products 73,500
Services and other 31,500
Total VAT paid: 131,250$
*Only 10.5% VAT at the state level. Municipal remains at a 1% under SUT.
Audit · Tax · Advisory
Member firm of Grant Thornton International Ltd
Service provider imports/purchases:
- Office Equipment & supplies- $250,000.
Pays 10.5%* VAT on the office
equipment and supplies = $26,250
- Service provider buys locally office
equipment and supplies for $700,000.
Pays 10.5%* VAT of $73,500 to the seller.
- Final consumer pays the tax on the purchase of
services.
- Individuals not allowed to claim credits.
- If client is a business it will have the opportunity to credit
VAT paid.
- Service provider buys professional services in the
amount of $300,000 and pays 10.5% * VAT in the
amount of $31,500. - Service provider export professional services in
the amount of $1,500,000 subject to a 0% tax
rate.
- Sells professional services to individuals and
business for the amount of $5,500,000 (subject
to VAT of 10.5%).
- Collects VAT of $577,500.
- Service provider may take a credit for the VAT
paid on the computer equipment, supplies and
professional services in the amount of $131,250.
- Deposits $446,250 = ($577,500-131,250) at the
PRTD after taking the credits for VAT paid.

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Puerto Rico: Value Added Tax - Impact on the Services Industry

  • 1. DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update. © 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details. Value added tax – impact on the Services Industry Act 72 which amends the Internal Revenue Code for a New Puerto Rico introduces a value added tax system in Puerto Rico that will replace the Sales and Use tax system (“SUT”) effective April 1, 2016, for state tax purposes. The SUT will continue to be in place for municipal tax purposes after March 31, 2016. Effective July 1, 2015, the Sales and Use Tax increased to 10.5% (state tax) for a transition period that will end on March 31, 2016. The municipal rate remains at 1%. The credit for SUT to be claimed in the Monthly Sales and Use Tax Return will be 100% of the tax liability in the case of resellers of tangible personal property (an increase from the current 75%). On October 1, 2015, a new tax of 4% will apply to services provided to other merchants (B2B) and for designated professional services unless these are covered by a qualified contract. Please refer to our tax alert from June 25, 2015, where we discussed the special sales and use tax transition rules applicable to qualified contracts. On April 1, 2016, a new Value Added Tax will replace the state Sales and Use Tax of 10.5%. Designated services and services rendered to other businesses (B2B) will be subject to a 10.5% VAT rate unless these are covered by a qualified contract. From a municipal point of view, the sales and use tax will continue to be 1%. Services to other merchants and designated professional services will be exempt from this municipal tax. This alert concentrates on the specific aspects related to value added taxes for the services industry. In addition, and for your reference, we have prepared a diagram to illustrate an example of how the value added tax is paid and credited by the service business. Services subject to VAT 10.5% rate and 0% tax rate The following services rendered in Puerto Rico will be subject to a 10.5% VAT: • designated professional services • storage of goods • lease, including operating leases of motor vehicles (“daily rental”) • computer programs, including modifications to pre-designed programs • installation of goods by the seller or a third party • repairs of goods Export services are subject to a 0% tax rate. An export service is any service rendered for the benefit of a non-resident person and the same does not have a nexus within Puerto Rico. It is considered that there is nexus with Puerto Rico for those services that are related with: Contact us For assistance in this matter, please contact us via maria.rivera@pr.gt.com Tax Partner or javier.oyola@pr.gt.com Tax Manager Kevane Grant Thornton LLP 33 Calle Bolivia Ste 400 San Juan, Puerto Rico 00917-2013 T + 1 787 754 1915 F + 1 787 751 1284 www.kevane.com Follow us on June 30, 2015
  • 2. Page 2 DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update. © 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details. • business activities for the production of revenues that are or will be performed in Puerto Rico • the sale of any property for the use, consumption or disposition in Puerto Rico • business advice regarding the Laws and Regulations of Puerto Rico, as well as the administrative procedures of the Government of Puerto Rico, its agencies, public corporations, instrumentalities and/or municipalities and judicial precedents from Puerto Rico Courts • lobbying in terms of Laws and Regulations of Puerto Rico as well as administrative procedures The service provided to cruise ships that participate of the benefits granted by the Special Funds for the Cruise Ship Lines Incentives in Puerto Rico Act and the Law for the Promotion and Development of the Cruise Ship Industry will be considered export service. Excluded Services The following services are excluded from the VAT: • services rendered between members of a controlled group of entities • services rendered by the Puerto Rico and US Government • services rendered as an employee • services for marine and air transportation of goods including charges for marine and air delivery Exempt Services The following services are exempt from the VAT: • educational services and child care • financial services, except for those that generate bank charges • services that qualify for reimbursement from Medicare, Medicaid and the Puerto Rico Government’s Health Insurance Plan • services rendered to the Puerto Rico and US Governments • real property lease that constitutes the principal residence of the lessee, including student and elderly housing • real property lease for commercial purposes paid by a merchant including payments for office or sales space, warehousing and parking • gratuitous services provided by non for profit entities • health and medical services for humans and animals legal services under a contingency fee on judicial claims related to family, food and loss suffered by individuals because of medical malpractice and physical losses and mental claims cases Returns and declaration Imports Declaration –upon the introduction of goods into PR and before release of merchandise Tax on Imports Monthly Return – on the 10th day following the closing of each month Small Merchant Annual Informative Declaration – within a period of 60 days from the date of filing of the income tax return Monthly VAT Return – on the 20th day following the closing of each month The VAT monthly Return will show the merchant’s VAT liability for a month computed as follows: VAT (10.5%) on goods and services sold during a month
  • 3. Page 3 DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update. © 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details. Plus/Minus: adjustments that increase/decrease the sales price of goods sold Minus: Credit for VAT paid on goods or services purchased or imported Credit for value-added taxes paid Every merchant, except small merchants holding a Small Merchant’s Registration Certificate, will be allowed to claim a credit for the VAT during the corresponding month in the case that the merchant sells taxable goods or services subject to the 10.5% or 0% VAT. If there is a combination of exempt and taxable services the service provider will need to make an allocation on the VAT incurred on costs. If the business provides services that are exempt from VAT it will not have to collect VAT. However, the service business will not be able to recover any VAT paid on costs, either charged by its suppliers or paid on the importation of goods or services, which are directly or indirectly related to those exempt or excluded sales. In general terms, the amount of the credit will be computed based on the sum of the following items: • VAT paid upon introduction of taxable items into Puerto Rico that are directly or indirectly related to the sale of taxable items and services, plus; • VAT paid by a merchant on the purchase of taxable items and services that are directly or indirectly related to the sale of taxable items or services as reported in the fiscal statement, plus; • VAT paid by the merchant for a service provided by a non-resident and included on the VAT monthly Return. Credit for Consumption Tax Paid to Foreign Countries for Services Rendered by Related Entities Any merchant to which a related entity not engaged in trade or business in Puerto Rico has provided a service may claim a credit on its monthly VAT return for the amount paid for the concept of consumption taxes paid to foreign countries after any credit claimed for such tax on the foreign country, with respect to the service. VAT Overpayment • A VAT overpayment will be the excess of any adjustment or credits over the applicable VAT on sales of goods and services made during the corresponding month, as disclosed on the monthly VAT Return. • If the VAT overpayment does not exceed $10,000, it must be applied against the VAT liability shown in the monthly VAT return and for the following months until fully exhausted. • If the VAT overpayment exceeds $10,000, the merchant may request a refund if it is considered an eligible merchant or it has reflected overpayment on its Monthly VAT Returns for the last three months. Merchant’s Registration Certificate • Any person who wants to do business in Puerto Rico must be registered at the Puerto Rico Treasury Department before commencing operations; • The original certificate must be displayed at all times in a place visible by the general public in each place of business for which it was issued.
  • 4. Page 4 DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update. © 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details. • Any person that conducts business in PR that does not maintain the registry certificate or when such certificate has expired will be subject to penalties. • Merchants that are part of a controlled or affiliate group could elect to be treated as one merchant. Exempt Purchases Certificate • It is available to eligible persons on the import or acquisition of goods or services exempt from VAT. • The certificate is valid for three years. The Secretary at its discretion may extend or limit the validity of such certificate. • Eligible persons include the Government of the United States of America and its States, the District of Columbia and the Government of the Commonwealth of Puerto Rico, any hospital unit, merchants dedicated to the tourism industry and bona-fide farmers. Eligible Merchant’s Certificate • It will be issued to those merchants with an annual volume of business in excess of $500,000 for the last three preceding years and which 80% of its sales are subject to a 0% VAT tax rate. Effectiveness of current certificates and new certificates for VAT Effectiveness of certificates issued under the 2011 Code was not part of the discussion of Act 72. We will continue to monitor PRTD communications on this issue. Transitory provisions Bonds approved under the SUT provisions will be effective until its expiration date. Credits not claimed as a refund and available as of March 31, 2016, as reflected on the Monthly SUT return filed not later than April 20, 2016, could be used as a credit on subsequent monthly VAT returns until these are exhausted. Administrative determinations and closing agreements issued under the 2011 Code which provisions are similar to VAT provisions enacted with Act 72 and that affect the taxpayer responsibility for a taxable event after April 1, 2016, will be applicable under the provisions of Subtitle DD (VAT) under Act 72. Exclusion of contracts and pre- existing Bids The retail sales covered by executed contracts and pre-existing bids at auction before April 1, 2016, will be excluded from VAT to the extent these were excluded from SUT. The merchant may acquire the taxable items subject to such contract or auction during a period of 12 months or contract term, whichever is less. Services provided to other merchants (B2B) and designated services pursuant to preexisting contracts executed before July 1, 2015 will be exempt from the 4% and 10.5% from April 1, 2016, on to the extent that a certification of qualified contract has been obtained from the Secretary of Treasury. Such certification needs to be requested to the Secretary of Treasury not later than September 30, 2015. If the certification is not obtained the services rendered after September 30, 2015, will be subject to a 4% state tax and to the value added tax effective April 1, 2016.
  • 5. Page 5 DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update. © 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details. Commission for Alternatives to Transform the Consumption Tax This is a mechanism to evaluate the Puerto Rico Tax System based on the fiscal and budgetary reality of the government. Its function will be to evaluate the different tax models and provide a report not later than 60 days after the enactment of Act 72 (i.e. May 29, 2015) with recommendations on the feasibility of implementing a model as a transformation of the actual tax on consumption taking in consideration the collections necessary for the Government and the compliance of its obligations. The following table summarizes the effective date of all changes in sales and use tax and value added tax introduced by Act 72-2015. Up to 6/30/15 General SUT – 6%* Designated services – exempt B2B – exempt Municipal Level *Resellers receive a credit and is applicable to taxable B2B 4/1/16 General VAT – 10.5% or 0% (credit) Designated services – 10.5% (credit) B2B – 10.5% (credit) Up to 6/30/15 General SUT – 1% Designated services – exempt B2B – exempt 7/01/15 – 9/30/15 General SUT – 10.5%* Designated services – exempt B2B – exempt 10/1/15 – 3/31/16 General SUT – 10.5%* Designated services – 4% B2B – 4% 7/01/15 – 9/30/15 General SUT – 1% Designated services – exempt B2B – exempt 10/1/15 – 3/31/16 4/1/16 General SUT – 1% General SUT – 1% Designated services – exempt Designated services – exempt B2B – exempt B2B – exempt State Level
  • 6. Impact of proposed value added tax Services Industry Total VAT paid: Imported products 26,250$ Other products 73,500 Services and other 31,500 Total VAT paid: 131,250$ *Only 10.5% VAT at the state level. Municipal remains at a 1% under SUT. Audit · Tax · Advisory Member firm of Grant Thornton International Ltd Service provider imports/purchases: - Office Equipment & supplies- $250,000. Pays 10.5%* VAT on the office equipment and supplies = $26,250 - Service provider buys locally office equipment and supplies for $700,000. Pays 10.5%* VAT of $73,500 to the seller. - Final consumer pays the tax on the purchase of services. - Individuals not allowed to claim credits. - If client is a business it will have the opportunity to credit VAT paid. - Service provider buys professional services in the amount of $300,000 and pays 10.5% * VAT in the amount of $31,500. - Service provider export professional services in the amount of $1,500,000 subject to a 0% tax rate. - Sells professional services to individuals and business for the amount of $5,500,000 (subject to VAT of 10.5%). - Collects VAT of $577,500. - Service provider may take a credit for the VAT paid on the computer equipment, supplies and professional services in the amount of $131,250. - Deposits $446,250 = ($577,500-131,250) at the PRTD after taking the credits for VAT paid.