RECENT CHANGES TO THE INCOME TAX SYSTEM SALES AND USE TAX AND THE NEW VALUE ADDED TAX ACT

Transcription

1 RECENT CHANGES TO THE INCOME TAX SYSTEM SALES AND USE TAX AND THE NEW VALUE ADDED TAX ACT

2 RELEVO Y ADVERTENCIAS LEGALES Esta presentación es para propósitos educativos exclusivamente y no tiene como propósito, y no debe considerarse, como una consulta contributiva, legal o de contabilidad. Cualquier consejo que esta presentación contenga no ha sido considerado o escrito para ser usado, y no puede usarse, con el propósito de evadir penalidades que puedan imponerse al amparo del Código de Rentas Internas o de cualquier disposición contributiva local, estatal o federal. FPV & Galindez 2015 (July 8, 2015) 2

3 Presenters Kenneth Rivera, CPA, Esq. Tax Partner FPV & Galíndez . Axel Ramírez, CPA Tax Partner FPV & Galíndez . Reviewed by Leví Villegas, CPA Tel. (787)

4 Income taxes

5 Income tax system changes Individual income tax rates remain unchanged 2% special tax on self employed individuals is repealed Charitable contribution deductions for individuals are limited to exempt non-profit organizations qualified by Puerto Rico Department of the Treasury New limitations are imposed on the deduction of payments to foreign related entities New limitations are imposed on the Net Operating Loss Deductions New limitations are imposed on the Capital Loss Deductions Tax Credit Moratorium is extended until taxable years commencing during calendar years 2017 New Taxpayers Large Taxpayers for taxable years beginning after December 31, 2014 they will be required to file the income tax return under certain new rules

6 Value Added Taxes

7 Summary of Changes

8 Period Description Tax Rate Comments Phase I Until June 30, 2015 Goods 7% Credits may be taken for inputs acquired (limited to 75%) B2C Services 7% No credit is available for input services B2B Taxable Services 7% Designated under Act B2B Exempt Services B2C Designated Services No payment is required No payment is required Phase II From July 1, 2015 Goods 11.5% 75% limitation is eliminated Services 11.5% Services rendered outside of PR are included B2B Taxable Services 11.5% B2B Exempt Services B2C Designated Services No payment is required No payment is required Phase III From October 1, 2015 B2B Taxable Services 11.5% B2B Exempt Services 4% No municipal payment is required B2C Designated Services 4% No municipal payment is required Phase IV From April 1, 2016 Goods and Services 11.5% & 10.5% Credits may be taken for inputs. Designated & Exempt (no municipal)

9 Sales and Use Tax PHASE I - Until June 30, 2015 Tax Rate 7% (6.0% + 1.0%) 75% tax return credit for taxes paid Only can be claimed in taxes over goods GENERAL RULE: B2B Services are exempt Exceptions: B2B Taxable services GENERAL RULE: B2C Services are taxable Exceptions: Designated professional services Designated professional services are exempt Commercial rent is exempt Non Puerto Rico services might be taxable

10 Sales and Use Tax B2B TAXABLE SERVICES Bank charges Waste collection services Collection services Motor vehicles operating leases Security services Cleaning services Laundry services Repairs & maintenance services Telecommunications services

11 Sales and Use Tax DESIGNATED SERVICES Lawyers Appraisers CPAs Professional Drafters Tax Preparers Architects Geologists Engineers & Surveyors Real Estate Brokers

12 Sales and Use Tax GOODS Same rules remain Credit may be taken in the tax return

13 Sales and Use Tax PHASE II- From July 1, 2015 to September 30, 2015 Tax Rate 11.5% (10.5% + 1.0%) Goods Taxable Services (B2B Taxable services and B2C General Rule) 100% tax return credit for taxes paid Only can be claimed in taxes over goods B2B other remains exempt (same exceptions) Professional designated services remain exempt Commercial rent remains exempt Professional services provided by a non-resident person are now taxable

14 Sales and Use Tax PHASE III - From October 1, 2015 to March 31, 2016 Tax Rate 11.5% 100% tax return credit for taxes paid Only can be claimed in taxes over goods B2B previously exempt are now taxable at 4% Designated professional services previously exempt are taxable at 4% Commercial rent remains exempt Services provided by a non-resident persons are taxable

15 Sales and Use Tax PHASE III - From October 1, 2015 to March 31, 2016 Taxable services EXCLUDES the following: Services rendered to other merchants (taxable at 4%) Designated professional services (taxable at 4%) Services by the Government of PR Educational services Interest and other fees for money use and related transactions Services and insurance commissions Health and medical services Services rendered by persons with an annual volume of business less than $50,000 Services rendered by a person conducting business in PR from a related party that conducts its business in PR

16 Value Added Tax PHASE IV - Commencing on April 1, 2016 Tax Rate 11.5% 100% Tax credit for taxes paid Except exempt sales B2B pay at 10.5% Designated professional services pay at 10.5% Commercial rent remains exempt Services rendered by a non-resident person are taxable Effective Date Authorization to Postpone 60 days CATIC

17 Value Added Tax Zero tax rate taxable transactions Sale of goods for export Services rendered for export Sale of raw material and manufacturing equipment, if the manufacture plant has a Certificate of Exemption

18 Value Added Tax Service is defined as all services, including: Designated professional services Storage of goods Leases and motor vehicle operating leases Computer programming services Installation of goods by the seller and a third party Repair of goods

19 Value Added Tax Services EXCLUDES Services rendered between related parties if both conduct their business operations in PR Services rendered by the Government of PR Services rendered as an employee Services of maritime or air transport of goods Any other article excluded from the term goods

20 Transition Rules Sale of Goods Sale of Services Construction Projects

21 Sale of goods or service prior to July 1 DA Sale of services Rendered on or before June 30, 2015 Billed on or before July 20, 2015 Applicable rate 7% B2B and Designated Services are still exempt B2B and Designated Services Rendered on or before September 30, 2015 Billed on or before October 20, 2015 Applicable rate 0% Sale of goods Sold on or before June 30, 2015 Accrual method Applicable rate 7%

22 Sale of Goods Existing Contract as of June 30, 2015 Amount Price Must be Qualified with Treasury CCPC Filed by August 10, 2015 (SC 2921) Prepay Tax July 20, 2015 Valid until June 30, 2016 Special Rule for Imports Pay 10.5% at introduction and request credit

23 Sale of Services Existing Contract as of June 30, 2015 Amount Price Must be Qualified with Treasury CCPC & Filed by August 10, 2015 (SC 2921) B2B & Designated Services Filed by September 30, 2015 Prepay the Amount of Services June 30, 2015 Valid until June 30, 2016 Special Rule for Imports Pay 10.5% at introduction and request credit

24 Construction Projects Existing Project May 30, 2015 Qualify Project ( Proyecto de Edificación Cualificado ) Owner August 10, 2015 List Primary Contractors Can be Amended Qualify Primary Contractors ( Contrato Calificado de Proyecto de Edificación ) Owner & Primary Contractors August 10, 2015 (Form SC 2921) List Secondary Contractors Can be Amended Subcontractors Can Also be Qualified

25 Primario Secundario 1 1 Proyecto Edificación Calificado 2 Contrato Calificado Secundario 2 3 Contrato Calificado (Opcional)

26 PRACTICAL EXAMPLES

27 VAT Imposition Introduction of Taxable Articles Taxable Transactions Taxable Articles Articles (All goods, without considering their form, essence or name) Goods Goods Services Combined Transactions (Excludes: cash, intangibles, blood, utilities, any Government property) Less: Exempt Articles Less: Exempt Sales, Leases and Services Sales Price Total amount of the consideration paid in cash, credit, property or service in a sale or transfer of goods and services. 27

28 Value Added Tax Exemptions Exempt Articles Goods introduced into PR by government agencies in the US and PR Prescription drugs Items and equipment for physical or physiological deficiencies of disabled persons Food and food ingredients Printed books Gas and finished petroleum products Vehicles, boats and heavy equipment Articles introduced for agriculture by bona fide farmers duly certified by the Department of Agriculture Goods introduced by a tourism business with tax exemption decrees Machinery, medical-surgical supplies, equipment and technology introduced by a hospital unit Goods or services paid or that qualify for full or partial reimbursement by Medicare, Medicaid and health insurance in Puerto Rico Manufacturing articles introduced in Puerto Rico Articles for the treatment of medical conditions

29 Value Added Tax Exemptions Exempt Sales Goods and services to government agencies in the US and PR Prescription medicines and treatment of health conditions Items and equipment for physical or physiological deficiencies of disabled persons. Food and food ingredients Assets acquired with funds received under the SNAP ( PAN ) or WIC. Printed books Gas and finished petroleum products Vehicles, boats and heavy equipment Real Property Articles sold for agriculture to bona fide farmers duly certified by the Department of Agriculture Goods sold to merchants in the tourism business with tax exemption decrees Donated goods by a non-profit entity which has obtained an exemption from the Secretary under Section of the PR IRCode Occasional sale of property by churches or religious organizations Machinery, medical-surgical supplies, property, equipment and technology to a hospital unit Goods or services paid or that qualify for full or partial reimbursement by Medicare, Medicaid and health insurance in Puerto Rico

30 Value Added Tax Exemptions Exempt Leases Property subject to the room occupancy tax set by the Tourism Company Real property that is the principal residence of the tenant Real property for commercial purposes

31 Value Added Tax Exemptions Exempt Services Financial, except those resulting in the imposition of bank charges Educational and child care Health and hospital physician, whether in humans or animals Legal: under a contingency fee agreement on certain legal claims

32 Services UNTIL JUNE, 2015 (SUT) FROM JULY TO SEPTEMBER, 2015 (SUT) FROM OCTOBER, 2015 TO MARCH, 2016 (SUT) FROM APRIL, 2016 (VAT) Business to Business (B2B) ** GENERAL RULE (Less Excluded Services) 0 0 4%*** 10.5%* TAXABLE: REPAIRS & MAINTENANCE LAUNDRY CLEANING WASTE COLLECTION SECURITY BANK CHARGES COLLECTION OF ACCOUNTS TELECOMMUNICATIONS SERVICES DAILY RENTAL OF MOTOR VEHICLES 7% 11.5% 11.5% 11.5% Business to Consumer (B2C) GENERAL RULE (Less Excluded Services) 7% 11.5% 11.5% 11.5% DESIGNATED SERVICES: LAWYERS CPAs TAX PREPARERS ARCHITECTS GEOLOGISTS ENGINEERS & SURVEYORS REAL ESTATE BROKERS APPRAISERS PROFESSIONAL DRAFTERS 0 0 4% 10.5%* EXCLUDED SERVICES: SERVICES PROVIDED BY THE GOVERNMENT EDUCATION SERVICES INTEREST AND OTHER CHARGES FOR THE USE OF THE MONEY INSURANCE AND COMMISSION SERVICES HEALTH OR MEDICAL SERVICES SERVICES PROVIDED BY PERSONS WITH VOLUME OF BUSINESS OF LESS THAN $50,000 SERVICES AMONG ENTITIES UNDER THE SAME CONTROLLED GROUP COMMERCIAL REAL PROPERTY RENT

33 References of previous table *Certain issues might apply regarding the 1% municipal imposition in certain cases. ** Might apply after July 15, 2015 to service rendered outside of Puerto Rico. Transactions related to the sale of goods will remain following existing rules, other than the increase in rates effective July 1, *** B2B charges among related entities when both are doing business in PR are not going to be subject to the 4% tax.

34 EXERCISE I

35 Example 1 Shoes, Inc. had the following transactions: Purchases: $50,000 in shoes Sales: $100,000 in shoes Administrative Expenses: Pays $10,000 to a Marketing Company (B2B) Pays $20,000 for accounting services ( designated professional services ) Pays $5,000 for commercial rent Pays $1,000 for maintenance services

36 Shoes, Inc. Until June 30, 2015 Inputs: $50,000 x 6% = $ 3,000 1,000 x 6%= 60 3,060 Total $6,000 X 75%= $4,500 limit Sales: $100,000 x 6% = $ 6,000 Total $6,000 Credit (3,000) Pay / (Reimburse) $ 3,000 Pays $50,000 Sells $100,000 SHOES SHOES DRU Pays $10,000 MARKETING SERVICES MAINTENANCE SERVICES Pays $20,000 COMMERCIAL RENT Pays $1,000 State SUT only ACCOUNTING SERVICES Pays $5,000 36

37 Shoes, Inc. July 1, 2015 September 30, 2015 Inputs: $50,000 x 10.5% = $ 5,250 1,000 x 10.5%= 105 Total $5,355 Sales: $100,000 x 10.5% = $ 10,500 Total $10,500 Credit (5,250) Pay / (Reimburse) $ 5,250 Pays $50,000 Sells $100,000 SHOES SHOES DRU Pays $10,000 MARKETING SERVICES MAINTENANCE SERVICES Pays $20,000 COMMERCIAL RENT Pays $1,000 State SUT only ACCOUNTING SERVICES Pays $5,000 37

38 Shoes, Inc. October 1, 2015 March 31, 2016 Inputs: $50,000 x 10.5% = $ 5,250 10,000 x 4%= ,000 x 4%= 800 1,000 x 10.5%= 105 Total $6,555 Sales: $100,000 x 10.5% = $ 10,500 Total $10,500 Credit (5,250) Pay / (Reimburse) $ 5,250 Pays $50,000 Sells $100,000 SHOES SHOES DRU Pays $10,000 MARKETING SERVICES MAINTENANCE SERVICES Pays $20,000 COMMERCIAL RENT Pays $1,000 State SUT only ACCOUNTING SERVICES Pays $5,000 38

39 Shoes, Inc. From April 1, 2016 Inputs: $50,000 x 10.5% = $ 5,250 10,000 x 10.5%= 1,050 20,000 x 10.5%= 2,100 1,000 x 10.5%= 105 Total $8,505 Sales: $100,000 x 10.5% = $ 10,500 Total $10,500 Credit (8,505) Pay / (Reimburse) $ 1,995 Pays $50,000 Sells $100,000 SHOES SHOES DRU Pays $10,000 MARKETING SERVICES MAINTENANCE SERVICES Pays $20,000 COMMERCIAL RENT Pays $1,000 State VAT only ACCOUNTING SERVICES Pays $5,000 39

40 EXERCISE II

41 Examples Hospital, Inc. had the following transactions: Purchases: $100,000 Medial Services $40,000 Medical Supplies Sales: $500,000 Hospital Services Administrative Expenses: Pays $10,000 for security services Pays $30,000 for legal services ( designated professional services ) 41

42 Inputs: $10,000 x 6% = $ 600 Sales: 500,000 x Exempt = -0- Hospital, Inc. Total $600 Until June 30, 2015 Pays $40,000 Sells $500,000 MEDICAL SUPPLIES DRU HOSPITAL SERVICES Pays $100,000 Pays $10,000 MEDICAL SERVICES LEGAL SERVICES SECURITY Pays $30,000 State SUT only 42

43 Inputs: $10,000 x 10.5% = $ 1,050 Sales: 500,000 x Exempt = -0- Hospital, Inc. Total $1,050 July 1, 2015 September 30, 2015 Pays $40,000 Sells $500,000 MEDICAL SUPPLIES DRU HOSPITAL SERVICES Pays $100,000 Pays $10,000 MEDICAL SERVICES LEGAL SERVICES SECURITY Pays $30,000 State SUT only 43

44 Hospital, Inc. Inputs: $10,000 x 10.5% = $1,050 30,000 x 4.0%= 1,200 Total $2,250 Sales: 500,000 x Exempt = -0- October 1, March 31, 2016 Pays $40,000 Sells $500,000 MEDICAL SUPPLIES DRU HOSPITAL SERVICES Pays $100,000 Pays $10,000 MEDICAL SERVICES LEGAL SERVICES SECURITY Pays $30,000 State SUT only 44

45 Hospital, Inc. Inputs: $10,000 x 10.5% = $ 1,050 30,000 x 10.5%= 3,180 Total $4,230 Sales: 500,000 x Exempt = -0- From April 1, 2016 Pays $40,000 Sells $500,000 MEDICAL SUPPLIES DRU HOSPITAL SERVICES Pays $100,000 Pays $10,000 MEDICAL SERVICES LEGAL SERVICES SECURITY Pays $30,000 State VAT only 45

46 EXERCISE III

47 Example III Supermarkets, Inc. had the following transactions: Purchases: $50,000 unprepared food for sale $20,000 prepared food for sale Sales: $100,000 unprepared food $40,000 prepared food Administrative Expenses: Pays $10,000 for security services Pays $30,000 for legal services ( designated professional services ) 47

48 Supermarkets, Inc. Until June 30, 2015 Inputs: $20,000 x 6% = $ 1,200 10,000 x 6% = 600 Total $1,800 2,400 x 75% = $1,800 limit Sales: 40,000 x 6% = 2,400 Total $2,400 Credit (1,200) Pay / (Reimburse) $ 1,200 Pays $50,000 Sells $100,000 UNPREPARED FOOD DRU UNPREPARED FOOD Pays $20,000 Pays $10,000 Sells $40,000 PREPARED FOOD LEGAL SERVICES PREPARED FOOD State SUT only SECURITY Pays $30,000 48

49 Supermarkets, Inc. July 1, 2015 September 30, 2015 Inputs: $20,000 x 10.5% =$2,100 10,000 x10.5%= 1,050 Total $3,150 Sales: $40,000 x 10.5% = $4,200 Total $4,200 Credit (2,100) Pay / (Reimburse) $2,100 Pays $50,000 Sells $100,000 UNPREPARED FOOD UNPREPARED FOOD Pays $20,000 DRU PREPARED FOOD Sells $40,000 Pays $10,000 SECURITY PREPARED FOOD Pays $30,000 State SUT only LEGAL SERVICES 49

50 Supermarkets, Inc. October 1, March 31, 2016 Inputs: $20,000 x 10.5%= $2,100 10,000 x 10.5% = 1,050 30,000 x 4% = 1,200 Total $4,350 Sales: $40,000 x 10.5% = $4,200 Total $4,200 Credit (2,100) Pay / (Reimburse) $2,100 Pays $50,000 Sells $100,000 UNPREPARED FOOD UNPREPARED FOOD Pays $20,000 DRU PREPARED FOOD Sells $40,000 Pays $10,000 SECURITY PREPARED FOOD Pays $30,000 State SUT only LEGAL SERVICES 50

51 Supermarkets, Inc. From April 1, 2016 Inputs: $20,000 x 10.5% = $2,100 10,000 x 10.5% = 1,050 30,000 x 10.5% = 3,150 $6,300 Total $6,300 Sales: $40,000 x 10.5% = 4,200 Total $4,200 Credit (6,300) A pagar / (Reintegrar) ($2,100) Pays $50,000 Sells $100,000 UNPREPARED FOOD Pays $20,000 DRU UNPREPARED FOOD PREPARED FOOD Sells $40,000 Pays $10,000 SECURITY PREPARED FOOD Pays $30,000 State VAT only LEGAL SERVICES 51

52 Others, Inc. From April 1, 2016 Inputs: $20,000 x 10.5% = $2,100 10,000 x 10.5% = 1,050 30,000 x 10.5% = 3,150 6,300 $4,200 x 71%*= $2,982 Total $3,318 Sales: $40,000 x 10.5% = 4,200 Total $4,200 Credit (3,318) Pay / (Reimburse) $ 882 Pays $50,000 Sells $100,000 UNPREPARED FOOD Pays $20,000 DRU UNPREPARED FOOD PREPARED FOOD Sells $40,000 Pays $10,000 * Sales proportion Taxable Sales $ 40,000 Exempt Sales 100,000 Total Sales $ 140,000 SECURITY LEGAL SERVICES Pays $30,000 PREPARED FOOD $100,000/$140,000 = 71% State VAT only 52

53 Example IV

54 First Operational Month: Drugs R US (DRU) manufactures and sells drugs First month transactions: Buys $40,000 from a local supplier in OTC drugs for resale Sells $150,000 in OTC drugs to private entities in PR Administrative Expenses: Pays $25,000 to a CPA for tax return preparation Pays $20,000 for programming services to an entity outside of PR Pays $10,000 in commercial rent

55 VAT- MONTH 1 Inputs: $40,000 x 10.5% = $ 4,200 20,000 x 10.5% = 2,100 25,000 x 10.5% = 2,625 Total $ 8,925 Sales: $150,000 x 10.5% = $ 15,750 Total $15,750 Credit ( 8,925) Pay / (Reimburse) $ 6,825 Pays $40,000 Sells $150,000 LOCAL SUPPLIER OTC DRUGS DRU PRIVATE ENTITIES OTC DRUGS PROGRAMMING OUTSIDE OF PR Pays $20,000 Pays $10,000 Pays $25,000 OFFICE ACCOUNTANT State VAT only 55

56 Second Operational Month: Transactions in the second month: Buys: $200,000 in OTC drugs for resale $20,000 in prescription drugs for resale Sells: $150,000 for OTC drugs to private entities $30,000 for prescription drugs to private entities Administrative Expenses: Pays $10,000 in commercial rent Pays $15,000 in security services

57 VAT- MONTH 2 Inputs: $ 200,000 x 10.5% = $ 21,000 15,000 x 10.5% = 1,575 $ Limit $1,575 *83%= $1,307 Total $22,307 Sales: $ 150,000 x 10.5% = $ 15,750 Total $15,750 Credit (22,307) Pay / (Reimburse) ($ 6,557) Pays $200,000 Sells $150,000 OTC DRUGS PRIVATE ENTITIES LOCAL SUPPLIERS OTC DRUGS DRU Pays $20,000 Sells $30,000 RX DRUGS PRIVATE ENTITIES LOCAL SUPPLIER RX DRUGS OFFICE Pays $10,000 Pays $15,000 SECURITY * Sales proportion Taxable Sales $150,000 Exempt Sales 30,000 Total Sales $ 180,000 State VAT only $150,000/$180,000 = 83% 57

58 Third Operational Month Transactions in the third month: Imports: $100,000 in OTC drugs for resale $30,000 in raw material for drugs manufacturing operations Sells: $40,000 in OTC drugs to Centro Médico $350,000 in OTC drugs to private entities Administrative expenses: $10,000 for office rent $20,000 for legal consulting services $25,000 for engineering services

59 VAT- MONTH 3 Inputs: $100,000 x 10.5% = $ 10,500 30,000 x 0% = 0 20,000 x 10.5% = 2,100 25,000 x 10.5% = 2,625 $15,225 Total $15,225 x 90%* = $13,702 Sales: $ 350,000 x 10.5% = $ 36,750 Total $36,750 Credit (13,702) PY Credits (6,557) Pay / (Reimburse) $16,491 RAW MATERIAL IMPORT Pays $30,000 Sells $350,000 PRIVATE ENTITIES OTC DRUGS OTC DRUGS IMPORT Pays $100,000 DRU Sells $40,000 CENTRO MÉDICO OTC DRUGS Pays $10,000 Pays $25,000 OFFICE LAWYERS Pays $20,000 ENGINEERS * Sales proportion Taxable sales $350,000 Exempt sales 40,000 Total Sales $ 390,000 State VAT only $350,000/$390,000 = 90% 59

60 Fourth Operational Month: Transactions in the fourth month: Buys $50,000 in OTC drugs to a local supplier for resale Imports $200,000 in raw materials for drug manufacturing Exports $100,000 in manufactured drugs Administrative Expenses: Pays $30,000 in legal services Pays $10,000 in commercial rent

61 VAT- MONTH 4 Inputs: $200,000 x 0% = $ 0 50,000 x 10.5% = 5,250 30,000 x 10.5% = 3,150 Total $ 8,400 Sales: $ 100,000 x 0% = $ 0 Total $ 0 Credit (8,400) Pay / (Reimburse) ($8,400) RAW MATERIAL IMPORT Pays $200,000 Sells $100,000 MANUFACTURED DRUGS EXPORT Pays $50,000 DRU LOCAL SUPPLIER OTC DRUGS Pays $10,000 Pays $30,000 OFFICE LAWYERS State VAT only 61

62 Fifth Operational Month: Transactions in the fifth month: Imports: $90,000 in OTC drugs for resale $100,000 in raw material for drug manufacturing operations Sells: $100,000 in OTC drugs to Centro Médico $300,000 in OTC drugs to private entities Administrative Expenses: $10,000 for commercial rent $20,000 for legal consulting services $15,000 for engineering services 62

63 VAT- MONTH 5 Inputs: $100,000 x 0% = $ 0 90,000 x 10.5% = 9,450 20,000 x 10.5% = 2,100 15,000 x 10.5% = 1,575 Total $13,125 x 75%* = $9,844 Sales: $ 300,000 x 10.5% = $ 31,500 Total $31,500 Credit (9,844) PY credits (8,400) Pay / (Reimburse) $13,256 RAW MATERIAL IMORTS Pays $100,000 Sells $300,000 PRIVATE ENTITIES OTC DRUGS OTC DRUGS IMPORTS Pays $90,000 DRU Sells $100,000 CENTRO MÉDICO OTC DRUGS Pays $10,000 Pays $20,000 Pays $15,000 OFFICE LAWYERS ENGINEERS * Sales proportion Taxable Sales $300,000 Exempt Sales 100,000 Total Sales $ 400,000 State VAT only $300,000/$400,000 = 75% 63

64 Sixth Operational Month: Transactions in the sixth month: Imports: $50,000 in OTC drugs for resale $80,000 in prescription drugs for resale $30,000 in raw material for drug manufacturing operations Sells: $90,000 to foreign private entities in manufactured OTC drugs (exports) $100,000 to Centro Médico in OTC drugs $300,000 to Droguería XYZ in OTC drugs $70,000 to Droguería ABC in prescription drugs Administrative Expenses Pays $10,000 in commercial rent Pays $15,000 to an accountant for tax preparation services 64

65 VAT- MONTH 6 Inputs: $50,000 x 10.5% = 5,250 x 75% $ 3,938 30,000 x 0% = 0 15,000 x 10.5%= 1,575 x 70%** = 1,103 Total $5,041 * $300,000/$400,000= 75% **$390,000/$560,000= 70% Sales: $ 90,000 x 0% = $ 0 300,000 x 10.5% = 31,500 Total $31,500 Credit (5,041) Pay / (Reimburse) ($26,459) OTC DRUGS IMPORTS Pays $50,000 Sells $90,000 EXPORTS TO PRIVATE ENTITIES OTC MANUFACTURED DRUGS ** RX DRUGS IMPORTS Pays $80,000 DRU Sells $100,000 CENTRO MÉDICO OTC DRUGS * ** Pays $30,000 Sells $300,000 DROGUERÍA XYZ OTC DRUGS * ** RAW MATERIAL IMPORTS Pays $10,000 Pays $15,000 Sells $70,000 DROGUERÍA ABC RX DRUGS State VAT only OFFICE ACCOUNTANT

66 EXERCISE V

67 Services among affiliated entities FEMME FASHION: Administrative Expenses: Pays $10,000 for maintenance services Pays $20,000 for security services Receives $30,000 for commercial rent from its affiliate UNIQUE TRENDS: Buys $40,000 Sells $150,000 Pays $30,000 in commercial rent to its affiliate Administrative Expenses Pays $25,000 for legal services Pays $5,000 for accounting services

68 Inputs: $10,000 x 10.5%= 1,050 20,000 x 10.5%= 2,100 Total $3,150 Femme Fashion Sales: $30,000 x exempt = $0 Inputs: $40,000 x 10.5% = $4,200 25,000 x 10.5%= 2,625 5,000 x 10.5%= 525 Total $7,350 Unique Trends Sales: $150,000 x 10.5% = $15,750 Consolidation Total $15,750 Credit (10,500) Pay / (Reimburse) $ 5,250 DRESSES DRESSES Buys $40,000 Sells $150,000 MAINTENANCE SERVICES Pays $10,000 COMMERCIAL RENT UNIQUE TRENDS SECURITY Pays $20,000 COMMERCIAL RENT FEMME FASHION LEGAL SERVICES ACCOUNTING SERVICES Pays $30,000 Pays $25,000 Pays $5,000 Receives $30,000 State VAT only 68

69 Questions / Comments