The requisite of submitting Audited Financial Statements depends on the business volume that a taxpayer has produced during the tax year for which they file the Tax Return. Laws 257-2018 and 40-2020 made amendments so that those businesses whose business volume is equal to or greater than $3 million but is less than$10 million may opt to submit an Agreed Upon Procedures Report or a Compliance Attestation prepared by a licensed CPA instead of an Audited Financial Statement. In both cases, the business must submit one of these reports along with the Tax Return. This requirement applies to the filing of tax returns for tax years than began after December 31, 2019.
Therefore, businesses whose business volume is equal to or greater than $1 million but less than $3 million can voluntarily submit either the Audited Financial Statement or the CPA Report to obtain the right of a total waiver for the withholding on payments received for services rendered to their clients. The option is available for tax years that began after December 31, 2019.
On the other hand, a person that is part of a group of related entities but has not derived a business volume equal to or greater than $1 million within a given tax year will not be obliged to submit Audited Financial Statements. However, the entity will have to submit the CPA Report, provided it does not opt to submit the Audited Financial Statements.
Any taxpayer may opt to submit an Audited Financial Statement, whether required or not. The Audited Financial Statement must include the Supplementary Information Attachments subjacent to the financial statements made by a CPA licensed in Puerto Rico. If the business opts for an Audited Financial Statement, it is not required to submit an AUP. This option is available for Group Related entities whose business volume is less than $1 million.
Following, we present a table that highlights the most relevant information.
AUDIT REQUIREMENT FOR CORPORATIONS THAT ARE NOT PART OF A GROUP OF RELATED ENTITIES (TAX YEARS BEGINNING AFTER 12/31/2019)
| Gross Income | Gross Income | Documents to submit |
| Less than $1 million | NO | Can voluntarily submit an Agreed Upon Procedures (AUP) Report or Compliance Attestation Report prepared by a Puerto Rico licensed CPA to claim certain expenses for Alternative Minimum Tax purposes. |
| $1 million to $3 million | NO | Can voluntarily submit Audited Financial Statements or an Agreed Upon Procedures (AUP) Report prepared by a Puerto Rico licensed CPA to request Total Waiver of Professional Services and claim certain expenses for Alternative Minimum Tax Purposes. |
| $3 million to $10 million | NO | Must submit either Agreed Upon Procedures (AUP) Report or Financial Statement Report prepared by a Puerto Rico licensed CPA |
| Greater than $10 million | YES | Must submit Audited Financial Statements prepared by a Puerto Rico licensed CPA |
Note: Audit requirement changes depends on whether the corporation is part of a Group of Related Entities (2 or more Puerto Rico corporations with the Stockholders having 50% or more ownership)
AUDIT REQUIREMENT FOR CORPORATIONS THAT ARE PART OF A GROUP OF RELATED ENTITIES (TAX YEARS BEGINNING AFTER 12/31/2019)
| If the Gross Income of one member is | Total sum of Gross Income of all group members is less than $10 million (1) | Total sum of Gross Income of all group members is equal to or greater than $10 million (2) |
| If the Gross Income of one member is | Audit Required (1) | Documents to submit (1) | Audit Required (2) | Documents to submit (2) |
| Less than $1 million | NO | Can voluntarily submit an Agreed Upon Procedures (AUP) Report or Compliance Attestation Report prepared by a Puerto Rico licensed CPA to claim certain expenses for Alternative Minimum Tax purposes. | NO | Must submit either Audited Financial Statements, Agreed Upon Procedures (AUP) Report or Compliance Attestation Report prepared by a Puerto Rico licensed CPA |
| $1 million to $3 million | NO | Can voluntarily submit Audited Financial Statements or an Agreed Upon Procedures Report (AUP) Report prepared by a Puerto Rico licensed CPA to request Total Waiver of Professional Services and claim certain expenses for Alternative Minimum Tax purposes | YES | Must submit Audited Financial Statements prepared by a Puerto Rico licensed CPA |
| $3 million to $10 million | NO | Must submit either Agreed Upon Procedures (AUP) Report or Audited Financial Statements Report prepared by a Puerto Rico licensed CPA | YES | Must submit Audited Financial Statements prepared by a Puerto Rico licensed CPA |
| Greater than $10 million | YES | Must submit Audited Financial Statements prepared by a Puerto Rico licensed CPA. | YES | Must submit Audited Financial Statements prepared by a Puerto Rico licensed CPA |
Note: Group of Related Entities are defined as 2 or more Puerto Rico corporations with the Stockholders having 50% or more ownership.
