The Puerto Rico Treasury Department (PRTD) is preparing to transition to a Value Added Tax (VAT) System whose effective date has been postponed until June 1, 2016. Notwithstanding the above, the Puerto Rico House of Representatives (the House) recently proposed several bills, specifically HB 2032, HB 2838, HB 2839, and HB 2840, to eliminate the VAT System from the Puerto Rico Internal Revenue Code of 2011 (the Code), among other items.
After public hearings, the House reconsidered certain aspects of the proposed bills and passed a substitute bill (the New Bill) on May 2, 2016. The New Bill repeals the provisions of Subtitle DD (VAT) of the Code.
In addition, it extends permanently the 4% tax applicable to business to business service transactions and designated services. As published by local media, Governor Alejandro García Padilla has publicly stated that he intends to veto the New Bill.
This New Bill was unanimously passed by the Puerto Rico Senate on May 5, 2016, and the House and the Senate have stated publicly that they may override the Governor’s veto. If the New Bill is enacted, the transition to the VAT System will be left without effect, and the current Sales and Use Tax System will remain in place without change.
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