Payment for services rendered in Puerto Rico by Entities Doing Business in Puerto Rico duly registered in Puerto Rico State Department
Any natural or legal person doing business in Puerto Rico who makes payments (Payer) for rendered services must deduct and withhold 10% from such payment. Services provided include payments for professional services, repairs, maintenance, promotional services, legal services, services in general, among others.
The ten (10%) percent withholding has to be sent to the Puerto Rico Treasury Department (Hacienda) every month.
Payment for services rendered in Puerto Rico by Entities Doing Business in Puerto Rico not registered in Puerto Rico State Department
Any natural or legal person doing business in Puerto Rico who makes payments (Payer) for rendered services must deduct and withhold 29% from the payment made to Foreign non-resident individuals and foreign corporations and partnerships that are not registered in the Puerto Rico State Department to engage in trade or business in Puerto Rico. If the non-resident individual is a citizen of the United States, a twenty (20%) percent must be withheld. If the Rendered services are performed in the USA there not subject any withholding.
Payments for services rendered outside of Puerto Rico are not subject to withholdings but the payer are subject to self impose the B to B tax of 4%. The 4% B to B does not apply to Act 20.
Every payer must make the withholdings deposits within the first fifteen (15) days of the month following the date on which the withholdings were made; and file a quarterly and annual return.
Payer must file informative declarations (1099 equivalent) on payments made for all services providers, rent, advertisements, insurance premiums, telecommunications services, Internet and television and access services.
The payer will be subject to a penalty of $500 for each informative declaration that is either filed late or not filed. Any taxpayer or withholding payor that fails to file the Informative Declarations WILL NOT BE ABLE TO DEDUCT the related expenses on his tax return.
The requirement to deduct and withhold does not apply to the following payments:
- First $500 paid during the calendar year to the entity providing the service
- Hospitals and clinics that deliver health care services.
- Laboratories that are an integral part of a hospital or a clinic.
- Nonprofit organizations certified by Hacienda
- Commission payments to sellers of consumer products.
- Contractors or subcontractors for construction projects.
- Bona fide farmers.
- Foreign persons not engaged in trade or business in Puerto Rico.
- Payment of Wages or Salaries.
- The government of Puerto Rico, its agencies, public corporations, and political subdivisions.
- Eligible payments made to transportation companies.
- Church services.
- Insurance contracting.
- Lease or sale of tangible personal property or real estate property.
- Newspaper, magazines and other publications (including ad placements).
- Broadcasting on radio or television.
- Services rendered outside of Puerto Rico.
However, architectural, engineering, design, consulting and other professional services of a similar nature are not exempt from withholding.
Total Waiver–100% exemption from withholding
Any individual, entity, corporation or partnership may apply for a total waiver when starting a new business in Puerto Rico. A new business is any individual or entity that begins operations in or outside Puerto Rico during the calendar year for which it requests the exemption and its business falls within the first (1) year of service.
Individuals must meet all of the following requirements:
- Complete an affidavit form (Form SC 2678) and present it at the Treasury Department.
- Copy of all filed tax returns
- Authorization to do Business in Puerto Rico
- Evidence that he does not have an outstanding debt with the Treasury Departmetn.
- Evidence that he has not had any Business beforehand.
- Has not rendered any service in or outside Puerto Rico previous to starting the service activity on the Island, or the service activity falls within the first (1) year of operations.
- Must have the Merchant Certificate
- Must have obtained an employer’s identification number from the Treasury Department.
Corporations and Partnerships
Corporations or partnerships must meet all the following requirements
- Must complete Model SC 2680- to request a Withholding Waiver Certification.
- Authorization to do business in Puerto Rico.
- Must have Merchant Certificate.
- Must have obtained the employer’s identification number from Hacienda.
- The person in charge cannot have previously provided the same kind of services the new entity is now offering.
- Submit a copy of the last three (3) income tax returns.
- Any corporation that did not request or obtained the waiver during the first year of operations must provide an Audited Financial Statement that shows earned income of one ($1,000,000) to three million ($3,000,000) dollars.
Once Hacienda approves the waiver request, it will issue a Waiver Certificate (Model SC 2756) of which a copy must be presented to whoever makes the payments for services, so they are aware that they have a waiver of the withholding. The waiver certificate expires annually; the expiration date is at the bottom of the document.
Partial Waiver–6% Reduction of the Withholding
To obtain the partial waiver, the corporation or partnership must meet the following criteria:
- Must have filed all their income tax returns.
- Had no outstanding debts or has an approved payment plan for any debts with Hacienda.
- Have substantially forwarded the amount of net loss in operations.
- Proves that the withholding will result in a tax refund or credit.
For subsequent years following the request, Hacienda will automatically issue through SURI a certificate to any corporation or special partnership that meets the above mentioned requirements. If the entity does not receive the waiver certificate, a representative must visit the nearest District Collection Office and request the waiver certificate.
Physicians with a Decree under the Incentives Law for Medical Professionals-Law No. 14
Any Physician that holds a Qualified Doctor’s Certificate and a Decree under the Incentives Law for the retention and return of Medical Professionals, Law No. 14 of February 21, 2017, will be subject to a fixed income tax rate of four (4%) of the eligible income produced by offering Medical Professional Services during the period covered by the Decree.
The eligible income earned by a Qualified Physician that owns the Decree under Law No. 14 will not be subject to the income tax withholding.
Thus, instead of a Withholding Exemption Certificate or Exemption, they will submit a sworn statement to the person that makes the payment on which he includes the number of the decree; and certifies that the income he is receiving is eligible under Law 14, among other things.
Quarterly and Year end Return – Informative Declaration Form 480 (an equivalent of Form1099)
Quarterly Reconciliation Tax Return that itemizes the payments, and the taxes that have been retained and paid during each quarter. Any balance due of withholdings not paid monthly must be paid on or before the last day of the quarterly closing.
It is the responsibility of the Payer to file a Yearly Reconciliation Return for the amounts withheld each year no later than February 28th. of the next year on which the payments were made, along with the Informative Declarations.
In case of payments made to nonresidents (Informative 480.6C), payers must present the Annual Reconciliation no later than April 15th. of the next year on which the Services were paid.
Each payer must prepare and send either the Informative Declaration Form 480.6A or Form 460.6B to each Individual, Corporation or Partnership to whom payments for more than $500 were made. The Name, Social Security Number and the Address of the person or entity must be included.
Taxpayers will also have to file informative declarations on payments made for advertisements, insurance premiums, telecommunications services, Internet and television, and access services.
The informative declaration must also include the number of the total or partial waiver assigned to the entity who received payments.
Any person that has made payment for services and made refunds for expenses must include on the Informative Tax Return the amount of the reimbursements that were itemized in the invoice sent by the provider of services.
All Certifications and Declarations must be submitted through SURI.
There is no time extension for the filing of these tax forms. Failure to file on the required scheduled date could result in penalties.
If the withholding payer fails to fulfill its responsibility to deduct and withhold the tax, it will be subject to penalties, interests, and surcharges, such as:
- Penalties: 2% for every 30 days for not having deposited the withheld amounts, these will not exceed a 24% maximum.
- Annual Interest – 10%
- Surcharges – no charges for the first 30 days
- 31 to 60 days – 5%
- 61 days after this – 10%
The payer will be subject to a penalty of $500 for each informative declaration that is either filed late or not filed. Any taxpayer or withholding agent that fails to file the Informative Declarations WILL NOT BE ABLE TO DEDUCT the related expenses on his tax return.
In Torres CPA Group we are committed to your financial health and will help you be in compliance and reduce the payment of taxes within the framework that the law allows us.