This report covers a new tax relief law in Puerto Rico with several measures targeting individuals.
House Bill 1544 was signed by Puerto Rico’s governor last month and enacted as Act 257-2018. The Act introduces various amendments to the 2011 Puerto Rico Internal Revenue Code, as amended, with several of the amendments related to individuals: i.e., tax rates, loans, indemnity payments, distributions from retirement accounts, and interest.1
Several of the measures aim to put more money back in people’s pockets, especially for lower-to-middle-income earners and business owners, with the overall effect of potentially increasing their disposable income. However, the impact for each individual needs to be determined in light of his or her particular situation.
In cases of assignments to Puerto Rico where assignees are subject to Puerto Rico’s tax rules, and for assignees working outside Puerto Rico but still subject to Puerto Rico’s tax rules, international assignment cost projections and budgeting should reflect the changes described in this newsletter. Where appropriate, adjustments to gross-up packages and withholding taxes need to be considered.
Effective for taxable years after December 31, 2018, the following will be excluded from an individual’s taxable gross income:
There are changes to the rules regarding exemptions from gross income:
Adjusted Alternative Basic Income Tax (ABT) rates are adjusted as shown below.
Net income subject to ABT Tax
In excess of $25,000 but not more than $50,000: 1%
In excess of $50,000 but not more than $75,000: 3%
In excess of $75,000 but not more than $150,000: 5%
In excess of $150,000 but not more than $250,000: 10%
In excess of $250,000: 24%
Self-employed individuals whose income is derived substantially from rendering services may elect to pay an optional tax on gross income instead of the income tax otherwise imposed by the Code on net income, as follows:
Not greater than $100,000: 6%
In excess of $100,000 but not more than $200,000: 10%
In excess of $200,000 but not more than $300,000: 13%
In excess of $300,000 but not more than $400,000: 15%
In excess of $400,000 but not more than $500,000: 17%
In excess of $500,000: 20%
* The Secretary of Treasury has discretion to postpone its effective date for taxable years after December 31, 2019.
1 Find Ley Núm. 257 10 de diciembre de 2018 (P. de la C. 1544) on the website of the Oficina de Servicios Legislativos by clicking here.
Or search under “2018” at this link.
The information contained in this newsletter was submitted by the KPMG International member firm in Puerto Rico.
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