Intercompany expense disallowance
The PR-IRC disallows 51% of the expenses incurred, paid or to be paid by a taxpayer to a related entity that is not engaged in trade or business in Puerto Rico, if such expenses are not subject to income tax or income tax withholding. The Tax Reform amended the PR-IRC for taxable years commencing after December 31, 2018 in order to allow a taxpayer to deduct 100% of these expenses if a transfer pricing study (“TPS”) is filed along the income tax return. The TPS must be prepared pursuant to Section 482 of the United States Internal Revenue Code of 1986, as amended (the “US-IRC”) and reviewed by the Internal Revenue Service.
Meals and Entertainment limitations
Meals and entertainment expenses will be limited to 25% of the amount incurred. Before the amendment, the limit was 50%.
Partnership Elections
Any foreign limited liability company that elected or by provision of law under the United States Internal Revenue Code, or a similar provision of a foreign country, is treated as a partnership or disregarded entity, shall be treated as a pass through entity for Puerto Rico income tax purposes. Before the amendment, domestic limited liability corporations were able to elect to be treated as partnership for federal tax purposes and that election was also applicable to P.R.
Source of income rules
Services rendered to the government of Puerto Rico from outside Puerto Rico are now considered Puerto Rico source income.
Income tax returns
Income tax returns of taxpayers with a volume of business in excess of $3,000,000 are now required to be signed by a Puerto Rico licensed CPA certifying that it prepared or reviewed the return.
Due dates
For taxable years beginning after December 31, 2016, the automatic extension to file the income tax return will be 6 months.
