Transcript Document

FROM PRINCIPLES TO PLANNING
International Tax Treaties –The Basics
– Puerto Rico
International Tax – The Basics
Jerry De Córdova, CPA, Esq.
Puerto Rico Taxes: The Basics
Puerto Rico Jurisdiction to Tax
General Principles of Jurisdiction to Tax
• Taxation Based on Residence of Tax Person
• Residence of individual
• Place of incorporation
• Taxation Based on Source of Income
• Location of economic events
• Location of property
Puerto Rico Taxes: The Basics
Principles of Puerto Rico Tax Jurisdiction
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Puerto Rico Resident Individuals & Corporations
• Taxable currently on worldwide income
• Relief under foreign tax credit regime
• Non-resident Corporations
• Gross withholding taxation of Puerto Rico-source income (29%)
• Net taxation of Puerto Rico-source business income
• Non-resident Individuals
• Taxation at a flat rate of : US Citizens -20%, Aliens- 29%
Puerto Rico Taxes: The Basics
Residence of Individuals
• Bona fide Puerto Rico Residents
• Presumption of residency
• Individual present in Puerto Rico for at least 183 days during the
year is presumed to be a resident.
• Residency Year:
• Income from sources without Puerto Rico is excluded from the
taxpayer’s gross income solely to the extent it is attributable to the
period before the establishment of the residence in Puerto Rico.
• Deductions allocable to excluded income are not deductible.
Puerto Rico Taxes: The Basics
Residence of Individuals
• Nonresident US Citizens:
• Must file a return if the gross income from PR Sources (net of
exemptions) exceeds $5,000.
• Are entitled to the same tax treatment as the residents of Puerto Rico.
• Entitled to deductions:
• Personal Deduction
• Exemptions
• Credit for Dependents
• Deductions not allocable to any particular of income are to be
apportioned between Puerto Rico and non-Puerto Rico source income.
• Aliens are not entitled to deductions.
Puerto Rico Taxes: The Basics
Residence of Individuals
• Nonresident US Citizens/Aliens:
• Withholding at source requirements:
Flat Rate
Type of Income
10%
Dividend or Partnership Profit Distributions
20%
Performance of services or labor as an employee in Puerto Rico in excess of
90 days and $3,000
20%
Interests, rents, and other fixed or determinable annual or periodical gains
29%
Nonresident alien individuals (Except on dividends and interest paid to nonrelated persons)
29%
Sales of Property by nonresident aliens
Puerto Rico Taxes: The Basics
• Nonresident foreign corporations and partnerships:
• Generally subject to PR income tax on its gross income from PR
sources at the following tax rates:
Flat Rate
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Type of Income
10%
Dividend or Partnership Profit Distributions
29%
Royalties paid to a corporation or partnership organized
in the United States, or a foreign country
29%
all other fixed or determinable annual or periodical gains
profits and income; and
29%
Sales of property by nonresidents aliens
A foreign corporation will be subject to the branch profit tax provision unless the foreign
subsidiary derives 80% or more of its income from the Puerto Rico operations.
Puerto Rico Taxes: The Basics
• Foreign Tax Credit:
• Credit Subject to 2 limitations:
• Limited to qualifying taxes paid or accrued to the foreign country.
• Overall limitation
• The computed credit on the country-by-country basis may not
exceed the qualified proportion of the total taxes that the net income
from sources without Puerto Rico bears to the taxpayer’s entire net
income.
Net Income from PR Sources
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PR Income Tax
Net Income from All Sources
• Excess foreign tax credits for a particular year are lost for either deduction
or credit benefit.
Puerto Rico Taxes: The Basics
Corporate Filing Requirements
Puerto Rico Taxes: The Basics
Corporate Filing Requirements: Registration
• Puerto Rico Department of State:
• Foreign Corporation:
• Branch vs. subsidiary
• Authorization to do Business in Puerto Rico
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Close Corporation
For Profit Corporation
Limited Liability Company
Professional Service Corporation
Limited Liability Partnership
Non-Profit Organization
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Puerto Rico Department of State:
• Corporate Annual Report
• $150 due with the filing or extension of the return
• 60 day extension to file the return. Additional 30 day extension available ($30.00)
• Annual Fee
• $ 150 due on April 15th
• Monthly interest charges of 1 ½ %
• Professional Corporation Annual Report
• Same as Corporate Annual Report
• Renewal Application of a Limited Liability Partnership
• Annual Renewal based on the original application filing date
• LATE FILING PENALTY = $750
Puerto Rico Taxes: The Basics
Corporate Filing Requirements: Registration
• Puerto Rico Treasury Department:
• Form SC 4809- Information of Identification Number – Organizations
(Employers)
• 15 days after registration
• Sales and Use Tax
• Registration by each locality that is doing business in Puerto Rico
• Enacted Rate 7% ( 6% Treasury & 1% Municipality)
• Merchant Registry Certificate- Must be in display
• Licensing (i.e. Alcohol, Tobacco, etc.)
• Manufacturer Number
• Bonded Importer Number- Excise Taxes
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Puerto Rico Treasury Department:
• Income Tax
• Annual Income Tax Return
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Regular Corporations
Partnerships
Special Partnerships
Corporation of Individuals
Non-for Profit Corporations
Other Exempt Corporations
Corporations cover under Tax Exemption Grants
Individuals Income Tax Returns (Short or Long Form)
• Maximum tax Rate
– Corporations- 30%
– Individuals – 33%
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Puerto Rico Treasury Department:
• Income Tax
• Group of Related Corporations
– Parent –Subsidiary
– Brother-Sister
– Combined Group
• Group of Related Entities
– An entity that is part of a Group of Related Corporations
– Considering the change in ownership percentage in the parent-subsidiary Group (From
80% to 50%)
• If the combined volume of business of the Related Group of Entities
exceeds $3,000,000 each entity of the group is required to submit with
the return consolidated or combined audited financial statements by a
Puerto Rico licensed CPA.
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Puerto Rico Treasury Department:
• Income Tax
• Exception to the Combined or Consolidated Financials Requirement:
• Each entity with Volume in excess of $1,000,000 must submit audited financial
statements on a stand-alone basis. Such financials must include a note listing the related
entities that are members of the group.
• Entities with a volume of business less than $1,000,000 are not required to file audited
financials with the return.
• This is an annual determination made by the Puerto Rico Treasury
Secretary.
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Puerto Rico Treasury Department:
• Income Tax
• Monthly Filings or deposits:
– Sales and Use Tax Return
– Excise Tax Returns
– Deposits of Payroll tax
• Quarterly Filing:
– Payroll Tax Returns
• Other Filing
– Annual Informative Returns for income subject and not subject to withholdings (Forms
480.6A, 480.6B, 480.6C, and 480.6D)
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Municipality:
• Municipal License Tax- Is generally imposed on the gross volume of
business realized by a company in a particular municipality.
• Commencement of Operation Notice:
• 30 days after the commencement of operation within a PR Municipality.
• Provisional Municipal License Certificate – will exempt the corporation
from the payment of the tax for the semester corresponding to that in
which such activity is commenced.
– Within fifteen days of commencement of the next semester, the corporation
has to file the declaration of volume of business and, at the same time, pay
the corresponding license tax.
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
Municipality:
• Volume of Business: the gross income that is received or earned from
the rendering of any service where the main organization keeps its
offices.
• Volume in excess of $3,000,000 requires certified financial statements by a Puerto Rico licensed
CPA.
• Declaration:
– Based on taxpayer’s accounting year.
– Must be filed on or before the fifth working day after April 15 with each municipality
within which the company transacted business during such preceding year.
– Tax Rates:
» 1.5% in the case of financial institutions
» and not in excess of .5% for all others
• The tax, is due by semester on July 1 and January 1 and is payable in advance within the first 15
days of each semester.
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Personal Property Taxes:
• Self-assessed tax based on certain personal property (inventory, fixed
assets and other) of the corporation.
• The assessment date is January 1,
• The value of the inventory owned by the corporation should be determined on an
annual average basis.
• A personal property tax return must be filed on or before May 15 each year
regardless of the accounting year of the taxpayer.
• If the volume of business regarding Puerto Rico operations exceeds $3,000,000, the
property tax return must be reviewed by a Puerto Rico licensed CPA and
accompanied by financial statements certified also by a Puerto Rico licensed CPA.
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Sales and Use Tax:
• 7 % tax on consumption, use and storage of taxable items in Puerto Rico.
• All individuals and businesses making sales are required to register with each
municipality and the Puerto Rico Department of Treasury to obtain a
Merchant’s Registration Certificate and Exemption Certificates.
• Also, any merchant with a sales volume equal or greater than two hundred
thousand ($200,000) dollars a year shall remit via electronic transfer the sales
tax withheld and the return.
• Failure to register with the Puerto Rico Department of Treasury in the manner
prescribed by Act No. 117 can result in penalties in the amount of ten
thousand dollars ($10,000).
Puerto Rico Taxes: The Basics
Corporate Filing Requirements:
• Payroll Taxes:
• Federal Social Security and Medicare Tax on Wages
• Federal Unemployment
• Puerto Rico Unemployment
• Each employer established in Puerto Rico must pay unemployment taxes for the
first seven thousand dollars ($7,000) of salaries paid to each employee during the
calendar year, if they have one or more employees during that period.
• Workmen’s Accident Compensation Insurance
• Insurance for Non-Occupational Disability
Puerto Rico Taxes: The Basics
Individual Investors
Act 22 of January 27, 2012
Puerto Rico Taxes: The Basics
Individual Investors- Act 22-2012
• Objective: Promote that wealthy individual investors establish their
residency in Puerto Rico.
– Individual Investor
• Domicile- Presumption of the 183 days
• Has not been a resident of Puerto Rico within the last 15 years.
• Will become a Puerto Rico Resident prior to December 31, 2035.
Puerto Rico Taxes: The Basics
Individual Investors- Act 22-2012
• Benefits:
• 100% income tax exemption on:
• Interest and dividend income (from all sources)
• Including:
• Registered Investment Companies & International bank entities
• Requirement: Income must be earned by the individual after becoming a
Puerto Rico resident and before January 1, 2016.
• Net Capital Gain: Preferential tax rate of 5%
• Related to the appreciation in value of the investment held by the individual if:
• The appreciation occurs prior to the relocation to Puerto Rico & the gain recognized
after the 10 year of becoming a Puerto Rico Resident an prior to January 1, 2036.
• Appreciation after the individual becomes a Puerto Rico Resident:
• 100% exempt if recognize prior to January 1st, 2036.
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we
inform you that any U.S. federal tax advice contained in this
communication (including any attachments) is not intended or
written to be used, and cannot be used, for the purpose of (i)
avoiding penalties under the Internal Revenue Code or (ii)
promoting, marketing, or recommending to another party any
transaction or matter addressed herein.
Questions?
Contact Information
Jerry De Córdova, Partner
AQUINO DE CÓRDOVA ALFARO & CO. LLP
[email protected]