On December 10, 2018, Puerto Rico’s Governor, Honorable Ricardo Rosselló Nevares, signed into law Act 257, also known as the 2018 Tax Reform, which includes several amendments to the Puerto Rico tax system. Among these amendments are those related to the payment of professional services, their withholdings, and the forms used to report such payments to the Puerto Rico Treasury Department.
Withholding Tax Requirement on Payments for Services Rendered
Below is a summary of the most important amendments to the tax withholding requirement on payments for services rendered in Puerto Rico, by Puerto Rico residents, that are effective January 1, 2019:
The tax withholding on payments for services rendered in Puerto Rico increased from 7% to 10%
The amount of the exemption on said withholding is reduced from $1,500 to $500
The Partial Waiver Certificate increased from 3% to 6%
The deposit of the tax withheld must be made through the Unified System of Internal Revenue ("SURI", by its Spanish acronym)
Informative Return
As of January 1, 2019, taxpayers must file an informative return to report payments made to certain service providers in order to deduct such payments for purposes of the alternative basic tax (in the case of individuals) or the alternative minimum tax (in the case of corporations). Such services include:
Services provided
Health services
Insurance premiums
Rents
Telecommunications
Advertisements
Internet access
Cable or satellite television services
Although all of the above mentioned services must be reported in an informative return, the following are not subject to the withholding of tax: rents, telecommunications, advertisements, internet access, and the hiring of radio or television time, as well as the payment of insurance premiums (except for commissions on insurance premiums paid to an agent).
Quarterly Reconciliation Return
Law 257 also introduced a new filing requirement of a quarterly reconciliation return to any individual or entity required to withhold taxes. The due date of the quarterly return will be the last day of the month following the close of each of the quarters ended March 31st, June 30th, September 30th, and December 31st of each year. So far it is uncertain on how these new forms will be filed, but we will keep you informed as soon as we receive any updates from the Puerto Rico Treasury Department.
At Carbonell & Co., LLP we are ready to assist you. If you have any questions or need assistance with any of these requirements, please do not hesitate to contact us.