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Recent Changes to Puerto Rico’s Tax Laws

Puerto Rico has recently passed several changes to its tax law, some with immediate effect.  Our colleagues at Alvarado Tax & Business Advisors LLC in Puerto Rico have prepared a comprehensive summary of these changes that we are pleased to be able to share.  The biggest change is that Puerto Rico is eliminating its sales tax and moving to a value added tax (“VAT”) effective April 1, 2016.  During the transition period from July 1, 2015 through March 31, 2016 the sales and use tax increases from 7% to 11.5%.  10.5% of this tax goes to the Puerto Rico Treasury and 1% of this tax is a municipality tax.  The VAT will replace the portion of the sales and use tax that goes to the Puerto Rico Treasury; the 1% municipality tax remains.

Of particular note to the petroleum industry is that goods entered into a Foreign Trade Zone on Customs Form 214 is specifically exempted from the sales and use tax, except that the law is not clear that the 1% municipality tax portion is included in this exemption. 

Once the VAT comes into effect, import and sale of petroleum products is exempted from the VAT as are all goods entered into a foreign trade zone.  The sale of goods for export is subject to a zero tax rate. As with the transitional period, it is unclear whether this exemption extends to the municipality tax.