There have been recent changes in the Puerto Rico tax law. The resent changes took effect on the 20th of June 2013 when the Governor signed into law a package of tax measures which created the changes. Before indulging on the changes, it if prudent enough to start by having an understanding on the meaning of taxation.
It is sensible enough to build some background on taxation in order to clearly demonstrate the modifications. Tax is a mandatory payments made by the citizens and the businesses from their earnings to the government, with an intention of raising revenue for the government. It is important that taxes are paid to the government in order to enable it to operate effectively and to dispense its functions with ease.
In Puerto Rico, there has been a change from the previous regime of taxation to a new regime. The modification may be demonstrated as follows. Firstly there is a change in the tax for gross income. The new tax is similar in structure to the formerly municipal tax. The change however is targeting bigger institution especially financial institutions which operate within Puerto Rico. These institutions includes banks, big companies, industries, cooperate institutions, to mention but a few. The modification has brought about a special rate of one percent for financial institutions in gross income to be paid as tax. This provision however excludes some companies from being subjected to the change. This includes companies which are being operated under legislation on tax incentives as well as other companies operated for agricultural purposes.
Since law does not operate in a vacuum, there are exceptions to the new alterations. The new alteration in relation to tax on gross income includes the following. The first one is that it exempts organizations and companies operating under tax incentives legislation. The second exception is meant to carter for agricultural businesses. The other exemption also allows tax payer to apply to the secretary for exemption. However, the tax payer must show that the new tax burden will bring an undue economic burden or it will be injurious to the tax payer. However, this exemption does not apply to financial institutions. This is a good move which focus in promoting young businesses which are growing and are prone to making losses. The move also encourages agriculture as it is the back bone of the economy.
In regard to alternative minimum tax, the rate has been increased. There are now several various computations which are made in determining the alternative minimum tax. Expenses incurred outside Puerto Rico are exempted from this new change upon determination by the secretary. The exemptions are also granted to businesses operating under tax insensitive legislation.
Fourthly, is tax relating to sales and services. The modification takes affects the reseller exceptions and businesses rendered to other business in way of services.
In regard to other sales and use tax provision, the new law makes change to the sales and use tax treatment which includes the following exemptions. On matter of education, only school uniforms, text books and other leaning related materials. Initially, all the institutions of higher learning were exempted. The second one is that all equipment acquired by the health organization is now subjected to taxation. Initially health organizations and hospitals were exempted from taxation. The new law makes provision for the reduction of sales and use tax rate from seven percent to 6.5%.
It is worth noting that the modification in the Puerto Rico tax law changes the previous taxation regime as a whole.
It is sensible enough to build some background on taxation in order to clearly demonstrate the modifications. Tax is a mandatory payments made by the citizens and the businesses from their earnings to the government, with an intention of raising revenue for the government. It is important that taxes are paid to the government in order to enable it to operate effectively and to dispense its functions with ease.
In Puerto Rico, there has been a change from the previous regime of taxation to a new regime. The modification may be demonstrated as follows. Firstly there is a change in the tax for gross income. The new tax is similar in structure to the formerly municipal tax. The change however is targeting bigger institution especially financial institutions which operate within Puerto Rico. These institutions includes banks, big companies, industries, cooperate institutions, to mention but a few. The modification has brought about a special rate of one percent for financial institutions in gross income to be paid as tax. This provision however excludes some companies from being subjected to the change. This includes companies which are being operated under legislation on tax incentives as well as other companies operated for agricultural purposes.
Since law does not operate in a vacuum, there are exceptions to the new alterations. The new alteration in relation to tax on gross income includes the following. The first one is that it exempts organizations and companies operating under tax incentives legislation. The second exception is meant to carter for agricultural businesses. The other exemption also allows tax payer to apply to the secretary for exemption. However, the tax payer must show that the new tax burden will bring an undue economic burden or it will be injurious to the tax payer. However, this exemption does not apply to financial institutions. This is a good move which focus in promoting young businesses which are growing and are prone to making losses. The move also encourages agriculture as it is the back bone of the economy.
In regard to alternative minimum tax, the rate has been increased. There are now several various computations which are made in determining the alternative minimum tax. Expenses incurred outside Puerto Rico are exempted from this new change upon determination by the secretary. The exemptions are also granted to businesses operating under tax insensitive legislation.
Fourthly, is tax relating to sales and services. The modification takes affects the reseller exceptions and businesses rendered to other business in way of services.
In regard to other sales and use tax provision, the new law makes change to the sales and use tax treatment which includes the following exemptions. On matter of education, only school uniforms, text books and other leaning related materials. Initially, all the institutions of higher learning were exempted. The second one is that all equipment acquired by the health organization is now subjected to taxation. Initially health organizations and hospitals were exempted from taxation. The new law makes provision for the reduction of sales and use tax rate from seven percent to 6.5%.
It is worth noting that the modification in the Puerto Rico tax law changes the previous taxation regime as a whole.
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