Value Added Tax
March 1, 2016

As I mentioned previously in September, 2015, Puerto Rico increased the sales and use tax (S&UT) rate from 7% to 11.5% effective July 1, 2015 pursuant to Law No. 72 of May 29, 2015. In addition, beginning on October 1, 2015, the S&UT has a broader base since certain services between businesses and designated professional services will be subject to a 4% SUT. In addition, effective on April 1, 2016, Law No. 72 establishes a Value Added Tax (VAT) regime.

Law No. 72 introduced changes to the S&UT that were to be implemented in phases. The first phase began on July 1, 2015.  The second phase became effective on October 1, 2015, and the S&UT will continue in effect until March 31, 2016, when it will be replaced by a Value Added Tax (VAT) under Law No. 72.

The rate increase to 11.5% consists of 10.5% imposed by Puerto Rico's central government and 1% imposed by municipalities. The increased rate is applicable to taxable transactions (e.g., importing goods, selling goods, and rendering taxable services), which are defined in a manner consistent with current law. Exempt transactions, such as business to business services and designated professional services, remained exempt only until September 30, 2015.

On September 23, 2015, the Puerto Rico legislature approved Law No. 159, which amended Law No. 72 to exclude certain legal services from those subject to taxation.  Many of the legal services provided by our firm, however, are considered taxable services subject to a S&UT rate of 4% from October 1, 2015 to March 31, 2016.  Therefore, they are no longer exempt.

In addition, effective April 1, 2016, Law No. 72 will replace the S&UT with a VAT. In general, the VAT will be imposed on taxable transactions currently subject to the S&UT (including those new transactions subject to the S&UT beginning on October 1, 2015). The VAT rate will be 10.5% and the Municipal S&U (1%) will continue to apply.

Judicial challenges to the imposition of the SU&T and the VAT to legal services have not been successful yet.  Similarly, the Puerto Rico Department of Treasury has issued regulations governing the manner how it will implement these changes.  Therefore, we regret to inform you that our statements for services rendered beginning on April 1, 2016 will reflect a VAT rate of 10.5% that will replace the SU&T of 4%.

If you have any questions, please contact the undersigned at your convenience.  We thank you very much for your business and continued support.

CARLOS A. RODRIGUEZ VIDAL
   MANAGING MEMBER AND CHAIR, LITIGATION AND TRIAL PRACTICE
(787) 759-4117               crodriguez-vidal@gaclaw.com