In this issue: As part of the implementation of Law No. 257 of December 10, 2018, known as Tax Reform, the Treasury Department (TD) issued Internal Revenue Circular Letter No. 19-05 (CC RI 19-05) to inform on the criteria and steps to follow with regards to merchants to be exempt from collecting the Sales and Use Tax (SUT). Following, we present a summary of the contents of this Letter.
ELIMINATION OF SUT ON PROFESSIONAL SERVICES RENDERED TO OTHER MERCHANTS BY PERSONS WITH A BUSINESS VOLUME OF LESS THAN $200,000
Beginning on Friday, March 1, 2019, services rendered to other merchants by persons whose business volume is less than $200,000 will not be subject to SUT. CC RI 19-05 states that the criteria to be used will be the business volume generated by the person on the previous calendar year. The business volume of those merchants that are part of a controlled group will be determined by the volume earned by all the members of the controlled group.
Eligible merchants must comply with the following requisites:
- As informed on the Monthly SUT Tax Returns, form Model SC 2915 (SUT Monthly Tax Return),the total income must come only from designated services or services rendered to other merchants, including any exempt service rendered by the merchant.
- The merchant must have complied with the filing and payment of all SUT tax obligations.
- The sum of all income from professional designated services or services rendered to other merchants as well as of any exempt service informed on the Monthly SUT Tax Returns filed for the twelve months of calendar year 2018 (from January 1, 2018 to December 31, 2018) did not exceed $200,000.
- In case the merchant did not operate throughout the whole 2018 calendar year, the criteria to be used will be the sum of all income coming from the designated professional services, those rendered to other merchants or other exempt services informed on the Monthly SUT Tax Returns and filed on the date when the person began operations as shown on his registry until December 31, 2018.
- The criteria to be used for those merchants that began operations on 2019 will be the business volume informed as part of his registration at the TD from which he obtained the Merchant’s Registration.
Those Eligible Merchants that understand they comply with all the requisites established on CC RI 19-05 and that do not receive the NON-Withholding Agent Certificate no later than March 31, 2019, may request the exemption certificate through SURI using the link that will be available after April 1. 2019.
Annual Evaluation of the Business Volume Requisite
At the beginning of each calendar year, the TD will evaluate the compliance of the business volume requisite to determine whether the merchant has the right to the SUT Exemption as established by the Code and on this Circular Letter. The evaluation will be automatically issued based on the accrued business volume informed on the Monthly SUT Tax Returns for the previous calendar year. The TD may also use the Income Tax Return.
Due Date for Complying with the Filing and Payment of Pending SUT and Qualifying for the NON-Withholding Agent Certificate to be in effect on March 1, 2019
The TD will make a first evaluation for any person that as of February 28, 2019 has complied with the requisites. The person will then receive the NON-Withholding Agent Certificate. Any merchant that did not comply with the tax obligations related to SUT and therefore did not receive the NON-Withholding Agent Certificate on March 1, 2019, must make sure that all the pending Monthly SUT Tax Returns are filed and the amounts due are payed through SURI. Once the Returns have been filed and the payments have been made, the merchant must verify that these were duly processed.
Any Eligible Merchant, who on March 25, 2019 has verified he is up to date with his responsibility to file and pay SUT, will receive no later than March 31, 2019 the NON-Withholding Agent Certificate. It will be valid for transactions made from March 1, 2019 thereon.
Merchants whose business volume is $200,000 or less but sell taxable goods or services
Those merchants whose business volume does not exceed $200,000 and who in turn sell goods or taxable services will continue to receive their Withholding Agent Certificate. Therefore, these merchants are obliged to collect SUT for taxable goods and services. However, beginning on March 1, 2019 they will not have to collect SUT for services rendered to merchants (B2B).
Applicability of the SUT exemption according to the accounting method used by the Merchant
All billed transactions of merchants that use the Accrual Basis accounting system are exempt if the service is provided by an Eligible Merchant that obtained the NON-Withholding Agent Certificate from invoices transactions from March 1, 2019.
Meanwhile, transactions for merchants using the Cash Basis accounting system are exempt on collections made from March 1, 2019 and for the time period on which the NON-Withholding Agent Certificate is in effect.
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