Act 20 tax has been an important topic in Puerto Rico for many years now. With the recent changes to the act, it is even more important that you are knowledgeable about what goes into this tax and how it affects your business or personal finances. In this post, we will discuss things that you should know about Act 20 Tax in Puerto Rico so that you can make informed decisions when dealing with your taxes.
Act 20 Tax is a sales and uses tax levied by the government of Puerto Rico on goods, services, or other items that are delivered to consumers in Puerto Rico.
The act was introduced as law number 127-2006 and amended twice since then under Law 186-2007 and Law 161-2010.
There are exemptions for various industries, including agriculture, pharmaceuticals, medical devices, natural gas distribution companies, etc.; however, these do not apply universally across all sectors – they must be specifically mentioned in the text of an exemption order from Treasury Secretary Luis FortuñoMontesinos to take effect. This means some businesses may still have to pay this tax even if it is not levied on them.
It applies a general rate of 12% (or 16%) depending on the nature of the sale, where goods are purchased from or what they cost; however, there are exemptions for basic foodstuffs such as bread, milk, eggs, etc. which come in at around $50 per ton. Additionally, there is an exemption for gasoline up to 120 liters, but above that level, the gas tax escalates with larger volumes sold until reaching its maximum – 60 cents per liter.
It is a tax on the transaction value of goods and services or on the gross income obtained from rents for an immovable property that they own in Puerto Rico. This means that if you sell your car to someone else who lives in Puerto Rico, then you will have paid act 20 tax even though it was not levied on you by law.
The act does not apply to exports but applies only when there is the exportation of tangible personal property manufactured or produced outside of Puerto Rico (arts and crafts are excluded). However, this exclusion can be negated if the good has been subjected to one more manufacturing process after leaving Puerto Rico – again, such as arts and crafts.
Act 20 tax provides for exemptions and exclusions. For example, agricultural products are exempt from the act if they are grown in Puerto Rico by an individual with a landholding of fewer than five acres or leased to such that person from another holder who is not engaged in agriculture on those lands for at least two thirds (66%) of the year. The law doesn’t apply either to property rented out as residential space or rental income derived therefrom when it does so without interruption on which no taxes have been paid under any other Act. A provision was also made where groups subject to similar taxation laws would be exempted – again, this includes nonprofit organizations, churches, etc., but excludes commercial theatres and tourist accommodations facilities constructed after 1978.
As is the case with any other piece of legislation in Puerto Rico, the act has been amended since its approval. The most important changes include both a reduction and elimination of tax rates on certain goods and services. In reality, what this means for individuals is that they will be paying fewer taxes on things such as electricity, water supply service fees (known here locally by their Spanish acronym LASA), basic telephone service charges, or commissions charged to retail stores from outside providers when one’s business exceeds $50 thousand annually – but it cuts them out completely if your company grosses more than $250 thousand per year.
The Act 20 Puerto Rico is an interesting and important topic. If you want to know more about how this tax works, we suggest you get in touch with an expert.
