On November 15, 2017, the Puerto Rico Department of Treasury (“Department”) issued Administrative Determination No. 17-30 (“AD 17-30”) to clarify when a business is considered a “new business” eligible to receive a total waiver certificate (“Total Waiver”) under Section 1063.08(b)(8) of the PR Internal Revenue Code of 2011, as amended (“PR Code”).
As provided in Section 1062.03 of the PR Code, every natural and juridical person engaged in a trade or business activity in Puerto Rico, or in the generation of income in Puerto Rico, that makes payments to another person by reason of services rendered shall deduct and withhold 7% of said payments (“7% Withholding”).
However, the PR Code also specifies several cases in which the 7% Withholding will not be applicable, including payments for services to individuals, corporations, and partnerships during the first 3 years of the commencement of a rendering of services activity. Such exemption may be enjoyed only once by the taxpayer and will be documented to the payor via the presentation of a Total Waiver certificate issued annually by the Department. A taxpayer that starts a new business can request from the Department a Total Waiver of the 7% Withholding.
DEFINITION OF NEW BUSINESS AND COMMENCEMENT DATE OF THE SERVICE ACTIVITY
AD 17-30 states that any natural or juridical person that begins the rendering of services, within or outside Puerto Rico, during the year for which it is requesting the waiver, and said services are being rendered within the first 3 years of operations, regardless of where such services were rendered for the first time, will be considered a “New Business”.
Moreover, AD 17-30 defines the commencement of the rendering service activity as the beginning of a trade or business within or outside of Puerto Rico. Therefore, if the taxpayer carried out its activity of rendering services outside of Puerto Rico, the mere fact that it is registered, for the first time, as a merchant to carry out the rendering of services in Puerto Rico, does not mean that it is automatically considered a “New Business” eligible for the Total Waiver.
TOTAL WAIVER REQUIREMENTS
AD 17-30, provides a detailed list of the compliance requirements to obtain the Total Waiver for: (i) Corporations, Limited Liability Companies (“LLC”), and Partnerships, and (ii) Individuals.
Bear in mind that the Total Waiver will not be available if the individual, corporation, LLC, or partnership has been rendering the services for more than 3 years, either in Puerto Rico or abroad.
INFORMATIVE BULLETIN 18-01 (“IB 18-01”)
On January 2, 2018, the Department issued IB 18-01, to extend the effective date of the Total Waivers that expired on December 31, 2017. These will continue to be effective until January 31, 2018. Those taxpayers eligible to receive them automatically will be receiving the new Waivers during January 2018.