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Puerto Rico: Pending legislative proposals, economic and tax relief (COVID-19)

Puerto Rico: Pending legislative proposals

The Puerto Rico House of Representatives approved House Bill 2468 that aims to provide relief from the economic and tax effects of the coronavirus (COVID-19) pandemic and the related “lockdown.” The bill is currently pending consideration by the Senate.

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During the legislative process, it is possible that changes could be made to the legislation. The following discussion provides an overview of certain of the proposed measures.

  • Payment of accounts payable to suppliers of the government of Puerto Rico
    • Government would pay invoices no later than 60 calendar days from the date the invoice is submitted
    • Accounts payable already accrued would be paid within 60 calendar days after the law is enacted
  • Tax credit reimbursable to industries or businesses for payroll paid, including expenses related to employer contributions or payroll contribution for the tax years when the emergency declaration occurred and until the emergency or law ends, whichever comes first
    • 100% tax credit
      • Applicable for businesses that have not operated by Executive Orders 2020-23, 2020-29 or other similar executive orders
      • Eligible businesses suffered a net loss in operations during the tax year(s) directly caused by the COVID-19 emergency
      • Businesses must have not received federal or state subsidy payment for payroll under the CARES Act (Pub. L. No. 116-136)
    • 50% tax credit
      • Applicable for businesses that have only partially operated as a result of the lockdown imposed by Executive Orders 2020-23, 2020-29 or other similar executive orders
      • Eligible businesses suffered a reduction in income of at least 25% of the income reported in the tax year prior to the effective date of the law; if a newly established business (one that conducted business operations for a period of at least six months, but less than one year), it must have experienced a reduction in income of at least 25% of the income reflected in its accounting books since it began operations
      • Businesses must have not received federal or state subsidy payment for payroll under the CARES Act
    • 50% tax credit for industries considered “essential services”
      • Applicable for businesses that have operated during the validity of Executive Orders 2020-23, 2020-29 or other similar executive orders
      • Eligible businesses had a payroll payment of more than 10% of the total payroll payment made during the tax year prior to the effective date of this law; only excess payroll, directly caused by the COVID-19 emergency, will qualify for the tax credit
      • Businesses must have not received a federal or state subsidy payment for payroll under the CARES Act
  • Loss carryback program
    • Allow the carryback of losses to the three previous tax years
    • Available to taxpayers with volume of business of $10 million or less
    • “Large taxpayers” not allowed to carry back losses
    • Taxpayers allowed until the filing date of the income tax return following the date that the COVID emergency ends or until the law’s expiration or “sunset” date, whichever comes first, to benefit from the carryback relief provision
  • Carryover loss limitations
    • The 90% limitation included in Puerto Rico’s tax code section 1033.14(b)(1)(D) would not apply
  • Services provided to other merchants
    • For the months of April, May, and June, eligible services would not be subject to 4% sales tax
    • The Puerto Rico Secretary of the Treasury may extend the exemption for additional periods of three months for the duration of the emergency period
  • Tentative minimum contribution to corporations
    • Minimum of $500 for years beginning after December 31, 2018; until the law’s sunset date, the rule would not be enforced
  • Information returns
    • For the 2019 tax year, required information returns would be due to be filed on or before May 31, 2020
  • Agreed upon procedures or compliance attestation
    • For tax years beginning after December 31, 2018, and before January 1, 2020, the requirement to include with the return a “Report on Previously Agreed Procedures” or “Compliance Report” (pursuant to sections 1021.02(a)(2)(D) and 1022.04(a)(7)(B)) would not apply
  • Special bonus for critical infrastructure specialist workers of the electric power authority (AEE)
    • Incentive of $4,000 to the critical infrastructure specialist workers of the AEE who have been quartered at the location of the central AEE generators as a result of Executive Orders 2020-23, 2020-29 or other similar executive orders
  • Exclusion of gross income and income subject to the payment of municipal license for debt cancellation and subsidy receipt
    • The cancellation of debt and the amounts received for any federal subsidy under the CARES Act would be excluded from the gross income for income tax purposes and from the income subject to the municipal license payment
  • Special contribution to pay in advance long-term capital gains
    • Special tax of 10% on built-in gains on capital assets that are long-term assets for tax years when the declaration of emergency was declared and until the sunset of the law
  • Special tax on dividend distributions or implicit dividend
    • Special 5% tax on the total amount distributed considered as a dividend or deemed dividend based on the accumulated earnings at the end of the 2019 tax year
      • If the taxpayer elects to pay the special tax on the deemed dividend, the resulting tax would not be reduced by any future deficit
      • If the taxpayer elects to pay this special tax and then decides to carry back net losses, the taxpayer would be required to recalculate the corporation’s accumulated earnings and profits at the end of the 2019 tax year, and pay the additional resulting tax, if any
  • Retroactive effective date for requests for a decree under the Puerto Rico Incentive Code during 2020
    • Decrees having been granted would be effective retroactively to January 1, 2020
  • Automatic compliance program with decree requirements under the Incentive Code or previous incentive laws
    • Every beneficiary of an exemption decree under Act No. 60-2019, as amended, or under a special incentive law in Puerto Rico would be treated as having complied with all the requirements of a decree, if the noncompliance is directly due to the emergency caused by COVID-19
  • Special business opening hours
    • The bill proposes specific instructions for the opening of businesses (possibly beginning May 1, 2020) 
    • A business-opening schedule could be normalized with instructions provided by means of an executive order issued by the governor of Puerto Rico. If this were to occur, the provisions of this legislative section would be null and void as indicated by executive order. However, the executive order could not provide for requirements more restrictive than those set forth by this legislation


For more information, contact a KPMG tax professional in Puerto Rico:

Rolando Lopez | +1 (787) 622-5340 | rlopez@kpmg.com

Carlos Molina | +1 (787) 622-5311 | cmolina@kpmg.com

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