This blog was last updated on August 5, 2021

Dispatches from The Commonwealth of Puerto Rico: The Final Installment (For Now!)

At last, the legislation repealing the VAT in Puerto Rico is official law and we can say with certainty that the existing sales tax will apply on transactions on and after June 1, 2016. The route to VAT repeal was circuitous and somewhat complicated. As previously reported, a bill was enacted unanimously in both the Puerto Rico House and Senate that repealed the VAT. However, the legislation was vetoed by the Governor, who continues to be a strong proponent of the Commonwealth changing their tax system. Nonetheless, over the last several days, both chambers of the legislature successfully held a veto override vote, the final death blow coming from the Senate on May 26, just 5 days before the VAT would have entered into effect. Those doing business in Puerto Rico can finally put their initiatives to convert their billing systems to account for the VAT to rest. In addition, the rules that currently apply a 4% rate to certain B2B transactions will remain in place.

Now, What Will Hacienda Do?

In view of the imminent repeal of the VAT, the Treasury Department of Puerto Rico (Hacienda) issued comprehensive regulations intended to clarify the application of the existing sales and use tax. These regulations are pending official publication by the State Department of Puerto Rico, but will be immediately effective upon official publication. In addition, in the coming days, we should expect a set of rulings from Hacienda specifying the steps that taxpayers should follow regarding business and other registration certificates that were temporarily extended assuming the enactment of the VAT. Likewise, the new rulings should also address the mandate previously issued regarding taxpayer registration under the new SURI system versus the existing PICO system.

How Will Puerto Rico Solve Their Debt Crisis?

Of course, Puerto Rico continues to have a massive debt problem and it remains unclear whether US federal assistance with respect to debt restructuring is forthcoming. As long as this debt obligation looms, the possibility of additional tax reform is real. We invite you to read the full the dispatches chronicling Puerto Rico’s attempt to implement a VAT system. Sovos will continue to keep you posted on any developments as they occur.