PR Sales and Use Tax Treatment of Donations

October 06 2017

On October 3, 2017, the Puerto Rico Treasury Department (“PR Treasury”) published Administrative Determination No. 17-19 (“AD 17-19”) to clarify the sales and use tax (“SUT”) treatment of donations, especially considering the aftermath caused by Hurricanes Irma and Maria.

AD 17-19 provides that gifts of tangible property and/or of services made by foreign donors (i.e., nonresident individuals and businesses not engaged in trade or business in PR) to hospitals, not-for-profit organizations, public instrumentalities and municipalities of the government of Puerto Rico and United States, including its legislative and judicial branches, or to individuals, are not subject to SUT. 

AD 17-19 further provides that tangible property introduced into Puerto Rico for purposes of being donated and not considered part of the Merchant’s inventory will not be subject to SUT to the extent the Merchant can prove both of these facts.

In contrast, however, tangible property introduced into Puerto Rico for a merchant’s inventory and then withdrawn from the Merchant’s inventory for purposes of being donated is subject to SUT. 
For purposes of AD 17-19, a donation means a non-commercial transaction in which a natural or juridical person disposes tangible property located in Puerto Rico to a recipient who accepts the property free of charge. In the same manner, any natural or juridical person who provides services free of charge for the benefit of a recipient in Puerto Rico is considered a gift.

PR Treasury reserves the right to evaluate the nature and amount of property received, as well as the person who imported the donated property to ascertain there is really no commercial purpose behind the transaction. 

Our BDO team can help you understand and minimize the risks associated with the temporary relocation. We are here to help you analyze your particular situation and to help you plan accordingly during these extraordinary times.

Please contact any of the members of the BDO team to continue the conversation.