Act No Income Tax Amendments

Transcription

1 Act No Income Tax Amendments Angel A. Morales-Lebrón 221 Plaza Bldg., 5th Floor Ponce de León Ave. San Juan, P.R (787)

2 The contents of this presentation have been prepared for educational purposes only. It is not intended as, and it does not constitute, legal advice. It is recommended that anyone who reads this presentation obtains legal advice from their attorney or financial advisor prior to performing any of the transactions described herein.

3 Overview of the Original Proposal v. Act 72 Original Bill Act No New Code Elimination of the Preferential Tax Rate Reduction of the Income Tax Rates for Individuals and Corporations. 16% Value Added Tax Amendments to the Code Preferential Tax Rates Maintained No Reduction of the Income Tax Rates for Individuals and Corporations. 11.5% Value Added Tax

4 Individuals Tax rates are maintained (33% maximum). The 5% gradual adjustment is reinstated (applicable to net income in excess of $500,000). The 2% tax on self-employment is eliminated. Individuals charitable contribution deduction are only allowed if made to an entity qualified by the Secretary.

5 Corporations Large Taxpayers (banks, insurance companies, telecommunications and entities with more than $500,000,000) are now required to file returns with a special office of the Department or by electronic means. No amendments to partnerships or pass-through entities.

6 Corporations - AMT AMT is the greater of the Regular AMT and the Transfer Pricing AMT (this is a term of art, not defined in the Code): Regular AMT remains at 30%. The Transfer Pricing AMT is the sum of the 20% Tax and AMT of purchases of Personal Property.

7 Corporations - AMT 20% Tax on payments to related parties or cost allocated to from home office to Puerto Rico branch (if such expenses are attributable to Puerto Rico and are not subject to Tax in Puerto Rico. New waivers may be issued, however, the expenses excluded from the tax cannot exceed 60%. Existing waivers remain effective for the years covered therein.

8 Corporations - AMT The general rate of the AMT on purchases of personal property from a related party is increased from 2% to a range of 2.5% to 6.5%. Applies to entities with PR gross income over $10 million. The special rate on applicable to vehicles is reduced from 1.5% to 0.5%. No new Waivers may be issued. Existing waivers remain effective for the years covered therein.

9 New Limitations in NOL deduction Corporations - Regular Tax - Limited to 80% ( previously 90%) of the net income. Corporations - AMT Limited to 70% of the alternative net income. Related party expenses are disallowed for computing the NOL. (Exempt entities under Grants are excluded from this limitation). Pass-through entities (partnership, SP, COI) Limited 80% of the partner s distributive share in the aggregate net income of such entities.

10 NOL deduction and Capital Losses Individuals - NOL carryover of individuals in their industry or business limited to 50% of the NOL, if three consecutive year of losses are reflected. Corporations - Capital Losses are now limited to 80% (previously 90%) of the capital gain.

11 Other Amendments Waivers for the 51% disallowance of related party payments that may be issued in the future cannot exclude more than 60% of the expenses. The deduction for the expenses paid to a nonresident person is disallowed if the taxpayer has not paid the SUT and the VAT.

12 Other Amendments The depreciation deduction is disallowed if the taxpayer has not paid the corresponding SUT or VAT. Tax Credit Moratorium extended until January 1, Nonprofit entities must demonstrate they render services in Puerto Rico to qualify for exemption.

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