The following is intended as a brief update on some late breaking news on the implementation of a Value Added Tax in the Commonwealth of Puerto Rico effective April 1, 2016
New VAT Regs
The highly anticipated “proposed VAT regulations” were published on the Hacienda website recently. Sovos is deep into the process of reading these regulations and fully understanding their implications. Stay tuned for more details. You can also visit the Hacienda website for a first-hand look at the new Regs. (in Spanish).
New VAT, New Filing System
For those of you who might not have heard yet, beginning April 1st, 2016, the Department of Treasury in Puerto Rico (“Hacienda” or “the Department”), will begin the implementation of the new Value Added Tax (“VAT”) along with the new electronic filing system known as the Unified System of Internal Revenue (“SURI”). While SURI will be used in a variety of contexts by the Commonwealth, its first usage will be to replace the existing PICO system as the system of record for filing the new periodic VAT return, (“Monthly Return of VAT”). SURI will also offer the following features/functionality:
- Access to the link where every new merchant can complete and electronically file the Application for Registration of Merchant, as well as obtain a Registration Number and Access Code necessary to complete the application.
- Access to the link where every new merchant can complete and electronically file the Application for the Certificate of Registration of Small Merchant.
- Access to the link where all existing merchants registered under IVU will validate and update their profile and receive a new Registration Certificate.
Hacienda indicates that any users of the existing “PICO” system will be automatically transferred into SURI, including information related to authorized representatives. Once this information is transferred, users who are currently registered in PICO will receive an email notifying them that SURI can be accessed using the same login information that they use for PICO.
For current sales tax filers, the first step you will be asked to perform will be to update the registration information transferred from PICO to SURI.
Every business, except for those who have obtained a Certificate of Registration of Small Merchant, will be required to file a Monthly Return of VAT no later than the 20th day of the month following the month in which the VAT is charged.
The first return filed through SURI will be due by May 20, 2016 for activity in the month of April.
The new Monthly Return of VAT will consist of a single form, which will allow for credit for any VAT paid on inputs.
The VAT return, along with payment, can only be filed electronically through SURI.
Hacienda states that all current merchants’ Registration Certificates will expire on March 31, 2016.
This means that any merchant who currently has a Merchant Registration Certificate for IVU must file for a new Registration Certificate for VAT, which can only be done through SURI. Failure to do so by the due date of the first VAT return (May 20th) will result in a penalty up to $500.00.
Merchant registration will be available through SURI from April 1st, 2016. Once completed, SURI issues a Certificate of Merchant Registration which will include a control number.
New businesses involved in the import of goods, who are not currently registered in PICO, must register on PICO in order to file their Declarations of Import and Monthly Tax Returns, which will remain on PICO initially.
All certificates, including exemption certificates will expire on March 31, 2016 regardless of the expiration date on the certificate. However, Hacienda has decided to extend the effective dates of the following certificates making them valid beyond March 31, 2016:
- Certified Reseller and Municipal IVU Exemption: This certificate shall be valid to show that the merchant is a reseller and therefore not required to collect or remit the 1% municipal sales tax. Any current valid certificate may be used regardless of the expiration date, until the Department notifies taxpayers to the contrary, which will be done through SURI. As this certificate relates to the Municipal sales tax which is staying in place subsequent to April 1, it’s possible that this certificate will not change.
- Exemption Certificate Manufacturing Plants: This certificate applies to manufacturing plants acquiring raw materials, machinery and equipment used in the manufacturing process. Under the VAT, the manufacturing exemption is being replaced with a zero rate. Any current valid certificate may be used regardless of the expiration date, until the Department notifies taxpayers to the contrary, which will be done through SURI.
- Fee Waiver Certificate for Contract Manufacturing Service: This is a new certificate related to exempt manufacturing services that becomes effective when the VAT takes effect in April. Merchants who wish to apply for such a certificate under the VAT should follow the same process established for the sales tax until the Department issues a communication setting the new process under VAT.
- Certified Eligible Reseller: A resale exemption sometimes applies when certain “eligible resellers” purchase items for later sale to exempt entities. Eligible Reseller Certificates issued for sales tax purposes will be valid under the VAT until June 30, 2016, regardless of any existing expiration dates. From July 1 forward, this exemption will no longer apply and all certificates become invalid.
Form SC 2916, which serves as a model exemption certificate for most forms of entity and use based exemption under the sales tax will remain valid until further notice.
It’s also important to keep in mind that there are merchants who have contracts, as described in Sections 4070.01 and 4180.02 of the Code, which were properly certified by the Department and qualify to continue paying the 6.5% sales tax rate (the rate in effect up until July 1, 2015). These merchants will continue to file their Monthly Return for Sales Tax and Applicable Use Tax through PICO. This will remain the case at least until June 30, 2016.
The Hacienda has stated that they plan on issuing additional publications shortly that will outline formal procedures for requesting new certificates under the VAT.
Stay posted for future updates on these issues as well as many other associated with the new VAT in Puerto Rico. Sovos is here to keep you informed, compliant, and adaptable as new changes occur.