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.
This guidance from Kevane Grant Thornton LLP specifically relates to the services industry.
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
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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.