The Governor of Puerto Rico, on 16 April 2020, signed House Bill No. 2419 into law as Act No. 40-2020 (Act 40), which included several technical amendments to the Puerto Rico Internal Revenue Code of 2011, as amended (PR-IRC). In particular, Act 40 introduced a trading in commodities safe harbour for foreign corporations and non-resident individuals, increased the threshold for submitting audited financial statements with Puerto Rico income and personal property tax returns, and clarified the date on which a partnership classification election becomes effective for entities that convert into limited liability companies (LLCs) during the tax year.
Act 40 also expanded the definition of ‘merchant’ to include marketplace facilitators and marketplace sellers and imposes sales tax collection obligations on marketplace facilitators with respect to sales of certain taxable property made by marketplace sellers delivered or dispatched by mail to persons in Puerto Rico. Regarding the effective date of the marketplace rules, Act 173-2020 made these rules effective on 1 January 2021.
Also, on 14 June 2020, the Governor of Puerto Rico signed House Bill No. 2468 into law as Act No. 57-2020, which allowed taxpayers to carry back net operating losses (NOLs) realised during the 2020 tax year due to the COVID-19 emergency to each of the two previous tax years, subject to certain limitations.
Additionally, on 30 June 2022, the Governor of Puerto Rico enacted Act No. 52-2022 (Act 52), which included amendments to manufacturing tax incentives laws and to the PR-IRC. The amendments to the tax incentive laws were primarily aimed to provide a framework to migrate the income and excise taxes imposed on non-resident foreign entities subject to Act 154-2010 effectively connected income source rules into an income-based tax regime applied through their related resident entities operating under manufacturing tax decrees. The new income-based tax regime was necessary to curtail the effect of the final foreign tax credit regulations released by the Federal Internal Revenue Service (IRS), which disallows credits for taxes paid to Puerto Rico under the Expanded ECI Rules brought by Act 154-2010 for tax years beginning on or after 1 January 2023.
Other amendments brought by Act 52 were:
- The introduction of disregarded entities and flow-through entities.
- The application of a 23% alternative minimum tax (AMT) rate for entities with gross receipts of 10 million United States dollars (USD) or more.
- The requirement to report foreign financial accounts.
- The imposition of sales and use tax (SUT) on digital products sourced to Puerto Rico.