Puerto RicoTax and financial measures associated with COVID-19
As of April 22, Puerto Rico had seen more than 1,400 cases and 69 deaths from Covid-19, the disease caused by the novel coronavirus. The low numbers can partially be contributed to the aggressive social distancing measures the government adopted after the island confirmed its first case on March 13.
On March 23, 2020, the Governor of Puerto Rico publicly announced a number of broad economic measures directed at protecting the Puerto Rico economic sector. The initiatives announced include the following tax-related measures: extend to July 15 the due date for the payment and filing of income taxes; for three months no sales and use tax shall be collected at ports and through the resale chain; during a 3-month period the 10% withholding tax at source on payments for services rendered shall not be withheld; for a period of two months no penalties for failure to remit bi-monthly instalments of sales and use tax shall be imposed, and no penalties will be assessed for failure to pay the first two instalments of the estimated income tax for 2020.
With the objective of providing flexibility for taxpayers to meet their tax responsibilities during this COVID-19 crisis and shutdown period, the Department of the Treasury has issued the following pronouncements allowing for certain exemptions and extensions to the tax filings and payment dates under the Puerto Rico Internal Revenue Code of 2011.
Administrative Determination 20-09 - Treasury repealed prior Administrative Determinations 20-03 and 20-05 and amended Informative Bulletin 20-08 providing for new due dates to file and pay taxes, returns, forms, and declarations.
Administrative Determination 20-10 – This Determination was drafted to implement the Governor’s economic incentives, and as a cash flow relief for taxpayers and merchants in light of the emergency caused by the spread of the COVID-19. The following are the salient provisions.
Estimated tax payments for Individuals and Corporations - no penalties will be imposed for the failure to deposit the first and second instalments of estimated tax payments for the taxable year 2020. However, the total first and second instalments for the estimated tax payments will be required to be deposited along with the third and fourth instalments for the taxable year 2020.
Withholding Tax on Payments for Services Rendered - From Monday, March 23 through June 30, 2020, no income tax shall be withheld on payments for services rendered as required under Section 1062.03 of the PR IRC related to services rendered by residents of Puerto Rico carried out. This exemption will apply regardless of whether the recipient has a total or partial release of this withholding tax. AD 20-10 clarifies that this withholding exemption does not exempt the recipient from any income tax on the amounts received and the withholding agent of the reporting requirements for the amounts paid.
Sales and Use Tax Exemption on Imports and Purchases on Articles for Resale - All merchants that as of March 24, 2020, have a valid reseller certificate will be issued by Treasury a Temporary Exemption Certificate that allows the merchant to import or purchase taxable items for resale during the exemption period exempt from sales and use taxes. The exemption period comprises the period from April 6, 2020, through June 30, 2020 (the “Exemption Period”).
The Temporary Exemption Certificate will allow the merchant to import or purchase in Puerto Rico taxable items for resale free of sales and use taxes. The merchant should provide the seller a copy of the Temporary Exemption Certificate and a duly completed and signed Form SC 2916-Exempt Purchase Certificate.
Merchant importers must report the taxable items imported during the Exemption Period in line three of Form SC 2970-Imports Declaration and SC 2915-D Monthly Import Tax Return.
DA 20-10 confirms that the foregoing sales and use tax exemption does not apply to imports or sale of taxable items for use and consumption in Puerto Rico, that is, not imported or acquired for resale.
Income Taxes - Any taxpayer that has requested an income tax refund in its income tax returns for taxable years prior to 2019 and as of March 24, 2020, has not received such refund may request to apply such amount against any other tax imposed under the PR IRC, including but not limited to, sales and use taxes, excise taxes, alcoholic beverage taxes, or payroll taxes. Also, withholding agents may request that excess deposits be applied against any other type of tax imposed under the PR IRC.
Excise Taxes - With respect to excess excise taxes for which a refund request has been filed and Treasury has accepted such a refund request, the taxpayer may request such excess to be applied against any other type of tax.
Alcoholic Beverages Taxes - For excess alcoholic beverage taxes where the taxpayer has requested a refund or credit, the taxpayer may request to apply such excess against any other tax under the PR IRC.
Sales and Use Tax Credits for Imports of Taxable Items for Resale - Any accumulated excess credit on import use taxes paid by a reseller merchant that may not be used against future sales of inventory may request to apply for such credit against any other tax under the PR IRC.
Deferred Payment Plan - a deferred payment plan to satisfy the 2019 income tax due will be available to taxpayers who have not requested an extension to file the return and are able to show that due to economic hardships are unable to pay the tax The total tax shall be satisfied not later than March 31, 2021. Interest, surcharges, and penalties will not be imposed once the tax is paid by the extended due date.
Administrative Determination 20-11 - This Determination provides that the temporary exemption from sales and use taxes on the sale of prepared foods will be extended until 11:59 p.m. of Sunday, May 3, 2020. The exemption was set to expire on Sunday, April 19, 2020.
IRA and Qualified Plans Distribution Forms Simplified - On March 29, 2020, the Treasury issued Internal Revenue Circular Letter 20-23 expanding Internal Revenue Circular Letter 20-23 to include within the special tax treatment of Disaster Special Distributions from Retirement Plans and Individual Retirement Accounts ("Special Disaster Distributions") distributions carried out as a result of the COVID-19 emergency. Treasury issued Circular Letter 20-24 providing that for purposes of the Special Disaster Distributions set out in Circular Letters 20-09 and 20-23, the requirement that the application be signed before a public notary is not required. However, the application must contain the information required under Circular Letter 20-09 and the application must be signed by under penalties of perjury. This will permit filling the application through electronic means.
Social security measures
A curfew was imposed by the Governor on March 15 ordering people to stay home from 7 p.m. to 5 a.m. and remain there even outside those hours unless they have to buy food or medicine, go to the bank or have an emergency or health-related situation. Violators face a $5,000 or a six-month jail term.
Employee and employer supportive measures
Self-employed individuals in Puerto Rico may apply for an economic incentive of $500 by filling out a form on the island Treasury’s online internal revenue system (SURI). This incentive, which had an application deadline of May 1, will only be sent to individuals who are self-employed and have registered as business owners on SURI with a Merchant Registration Certificate that was active as of March 15. Eligible individuals must enter the bank routing number and account where the amount will be deposited.
The Puerto Rico Treasury Secretary also announced that qualifying aid payments employers make to their workers will not be taxed, and that disbursements from retirement plans and individual retirement accounts (IRAs) are being authorized due to the emergency measures taken by the government to curb the spread of the coronavirus disease.
The President of the United States signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES”) on March 27, 2020. CARES introduced several relief and tax provisions that include the following relevant to Puerto Rico businesses:
- Paycheck Protection Program
- Employee Retention Credit
- Deferral in Social Security Taxes and Self-Employment Taxes Deposits
On April 16, 2020, the Governor of Puerto Rico signed Act 40-2020 introducing sweeping amendments to various Puerto Rico tax statutes.