The annual accounting period may be on the basis of the calendar year, a fiscal year ending on the last day of a month, or a 52/53 week year.
The Puerto Rico tax system is based on the principle of self-assessment. A corporate taxpayer is required to file an annual income tax return by the 15th day of the fourth month following the close of its tax year. A taxpayer that is treated as a partnership or flow-through entity is required to file an annual income tax return by the 15th day of the third month following the close of its taxable year. In general terms, a taxpayer can obtain an automatic extension of six months to file its income tax return. Failure to timely file can result in penalties.
Taxpayers are also generally required to file a personal property tax return by 15 May and a volume of business declaration by the fifth business day after 15 April.
Payment of tax
A corporation must substantially satisfy its annual income tax liability, if any, through estimated income tax payments. The amount of estimated income taxes should be paid on equal instalments on the 15th day of the fourth, sixth, ninth, and 12th month of the taxable year of the corporation. The estimated payments should equal or exceed 90% of the actual tax for the year (including AMT) or, in cases where a CIT return was filed by the corporation in the preceding year, 100% of such tax liability. Any tax not covered by the estimated tax payments should be paid along with the CIT return. Failure to pay the tax by the due dates indicated above may result in a penalty of 10% of the instalment due.
Every corporation is required to file an annual corporation report with the Puerto Rico Department of State. This annual report must be filed by the 15th day of April along with a USD 150 annual fee and a balance sheet as of the close of operations of the prior year. The report should be filed through the Puerto Rico Department of State's website. In the case of for-profit corporations, if the volume of business exceeds USD 3 million, the annual report must be accompanied by a balance sheet certified by a certified public accountant (CPA) licensed in Puerto Rico. In the event that the volume of business does not exceed USD 3 million, a balance sheet prepared under Generally Accepted Accounting Principles (GAAP) by a person with a general knowledge in accounting has to be submitted along with the corporate annual report. An extension of 60 days (an additional 30-day period may be requested) for filing the annual report can be obtained if timely requested. The Secretary of State is authorised to impose a penalty for failure to timely or accurately file the annual corporate report that would be between USD 75 and USD 2,000 if a non-profit corporation, and between USD 750 and USD 2,000 if a for-profit corporation.
Audited financial statements
Accounting records must be prepared in accordance with the GAAP followed in the United States. Domestic (i.e. incorporated in Puerto Rico) or foreign corporations with volume of business of more than USD 3 million must include, with their CIT return, audited financial statements of the Puerto Rico operations for the accounting year ended on or before the preceding 31 December. The financial statements should be submitted with an audit report issued by a CPA licensed in Puerto Rico.
Also, qualified and disclaimer opinions are now allowed to the extent that the qualification or disclaimer does not result from a restriction in scope. However, no adverse opinions are allowed. All groups of related entities engaged in a trade or business in Puerto Rico are required to file consolidated or combined financial statements (CFS), which should contain a consolidating schedule and general information of the related parties. The determination of the gross income threshold for purposes of the audited financial statement requirement should be made taking into consideration the volume of business of all the entities within a controlled group. In the case of foreign entities, these will be able to submit audited financial statements with their Puerto Rico operations on a stand-alone basis; in other words, the CFS will not be required. The requirement for audited financial statements will not apply to non-profit organisations.
With respect to the municipal license and personal property tax filings, the threshold amount for the audited financial statements requirement is gross revenues of more than USD 3 million, regardless of the corporate residency (i.e. foreign or domestic).
Supplemental information is also required to be included as part of the audited financial statements to be filed with the income tax return, volume of business declaration, and personal property tax return. The due date for the supplemental information is the last day of the month following the CIT due date, including extensions. The supplemental information must be submitted electronically and separately from the audited financial statements.
Tax audit process
Many taxpayers are under audit by the PRTD. The audits may include income, payroll, withholding, and sales and use taxes.
Statute of limitations
The PRTD generally has four years after an original return is filed to assess income, payroll, and sales and use taxes. A return will be deemed to have been filed on the later of (i) its due date or (ii) the date the return was actually filed.
Topics of focus for tax authorities
Currently, the PRTD focuses on issues of SUT, inter-company loans, withholding at source, and payments to foreign affiliates, among others.