Sales and Use Tax (“SUT”)

Act 159-2015 and AD 15-21 amends the SUT regime and provide guidance for the implementation of the 4% use tax on services.  The following are the main provisions of Act 159-2015 and AD 15-21:

1. For taxable transactions occurred after October 1, 2015, individuals or corporations located in Puerto Rico receiving services from non-resident persons will be responsible for the payment of the applicable SUT regardless of the location where the service is rendered, if such services are directly or indirectly related to the operations or services carried out in Puerto Rico. The municipal portion of the SUT will not apply.
2. Regarding “designated professional services”, the following services exclusions will apply:

1. Services rendered by a merchant with an annual volume of business of $50,000 or less;
2. Certain legal services, except those services that can be provided by other professionals (i.e. tax consulting and human resources consulting);
3. Services rendered between merchants in Puerto Rico that are part of a controlled group of corporations or a related group of entities;  
4. Services rendered by a merchant outside Puerto Rico to a tax exempt entity under Act 73-2008, Act 83-2010, Act 20-2012, Act 55-1933 or the National Bank Law, if both, the provider and recipient of the service, are part of a controlled group of corporations or a related group of entities;
5. Services rendered to homeowners’ associations (“HOA”), councils of unit owners or proprietary associations and certain housing unions, if at least 85% of its units are used for residential purposes;
6. Services provided to certain social interest housing projects;
7. Services rendered to an entity with a tax grant under Act 73-2008 that is engaged in the repair, maintenance and commissioning of airships;
8. Services rendered to a person exclusively engaged in the storage or processing of gasoline, aviation fuel, jet fuel, gas oil, diesel oil, crude oil, unfinished oils and end products derived from oil and other hydrocarbons mixture, if the storage and handling of the fuel is undertaken in a Foreign Trade Zone;
9. Services rendered to bona fide farmers;
10. Services rendered to certain workers’ unions and
11. Services rendered to any public or private entity whose organic law exempts it from all taxes.

3. Regarding “taxable services”, the following services exclusions will apply:

1. Services rendered to homeowners’ associations (“HOA”), councils of unit owners or proprietary associations and certain housing unions, if at least 85% of its units are used for residential purposes;
2. Services provided to certain social interest housing projects;
3. Services rendered by a merchant outside Puerto Rico to a tax exempt entity under Act 73-2008, Act 83-2010, Act 20-2012, Act 55-1933 or the National Bank Law, if both, the provider and recipient of the service, are part of a controlled group of corporations or a related group of entities;
4. Right to use intangibles;
5. Production services, rendered by any producer of commercials or radio and television programs;
6. Publicity and promotions services and advertising space in any media, including commissions and fees, and the payments for the production of content of electronic and digital media in Puerto Rico;
7. Subcontracted services rendered in connection with telecommunication services and construction projects;
8. Services directly rendered to a merchant by employees of an employment agency;
9. Airships repair, maintenance and commissioning services rendered by an entity with a tax grant under Act 73-2008;
10. Toll manufacturing and contract manufacturing services;
11. Services rendered to an entity with a tax grant under Act 73-2008 that is engaged in the repair, maintenance and commissioning of airships;
12. Services rendered to a person exclusively engaged in the storage or processing of gasoline, aviation fuel, jet fuel, gas oil, diesel oil, crude oil, unfinished oils and end products derived from oil and other hydrocarbons mixture, if the storage and handling of the fuel is undertaken in a Foreign Trade Zone;
13. Maritime, air and land transportation services;
14. Services rendered to bona fide farmers and
15. Services rendered to any public or private entity whose organic law exempts it from all taxes

4. Regarding “services rendered to other merchants”, the following services exclusions will apply:

1. Services rendered to homeowners’ associations (“HOA”), councils of unit owners or proprietary associations and certain housing unions, if at least 85% of its units are used for residential purposes;
2. Services provided to certain social interest housing projects;
3. Production services, rendered by any producer of commercials or radio and television programs;
4. Right to use intangibles;
5. Publicity and promotions services and advertising space in any media, including commissions and fees, and the payments for the production of content of electronic and digital media in Puerto Rico;
6. Subcontracted services rendered in connection with telecommunication services and construction projects;
7. Services directly rendered to a merchant by employees of an employment agency;
8. Services rendered between merchants in Puerto Rico that are part of a same controlled group of corporations or a related group of entities;  
9. Services rendered by a merchant outside Puerto Rico to a tax exempt entity under Act 73-2008, Act 83-2010, Act 20-2012, Act 55-1933 or the National Bank Law, if both, the provider and recipient of the service, are part of a controlled group of corporations or a related group of entities;
10. Airships repair, maintenance and commissioning services rendered by an entity with a tax grant under Act 73-2008;
11. Toll manufacturing and contract manufacturing services;
12. Services rendered to an entity with a tax grant under Act 73-2008 that is engaged in the repair, maintenance and commissioning of airships;
13. Maritime, air and land transportation services;
14. Services rendered to a person exclusively engaged in the storage or processing of gasoline, aviation fuel, jet fuel, gas oil, diesel oil, crude oil, unfinished oils and end products derived from oil and other hydrocarbons mixture, if the storage and handling of the fuel is undertaken in a Foreign Trade Zone;
15. Services rendered to bona fide farmers and
16. Services rendered to any public or private entity whose organic law exempts it from all taxes.

5. Construction services:  in order to determine the sales price subject to the 4% use tax, the total amount of the contract bill should be multiplied by 35%.  The result of the multiplication will be the amount that will be subject to the 4% use tax.