Withholding to Resident Recipients
Payments made by any person in a business in excess of $1,500 to another person (individual or entity) for services performed within Puerto Rico are subject to a seven percent (7%) withholding. Any in-kind payment is considered a payment for these purposes. The amount withheld should be deposited at the Puerto Rico Treasury Department on or before the tenth (10th) day of the month following the close of the month in which the tax was deducted, subject to certain exclusions and exemptions. The amount withheld or deposited will be credited against their income tax liability.
Businesses should file an annual reconciliation statement for payments made to each service provider on or before February 28 of the following calendar year when the services were rendered. A copy of the statement, equivalent to US IRS form 1099, should be given to the service provider. Such statement must include: the provider’s name, address, E.I.N., telephone number, the amount received, and the corresponding tax withheld. Failure to comply with the withholdings or filing returns would make payments of the services non-deductible for tax purposes, making the merchant liable for the amount not retained, and could also result in penalties.
Withholding to Non-resident Recipients
Withholding of income tax at source is required to be made on payments to nonresidents to the extent that they constitute gross income from sources within Puerto Rico individuals, rates vary based on the provider’s tax status. The amount withheld should be deposited at the Puerto Rico Treasury Department on or before the fifteenth (15th) day of the month following the close of the month in which the tax was deducted. Failure to comply with the withholdings or filing returns would make payments of the services non-deductible for tax purposes, making the merchant liable for the amount not retained, and could also result in penalties.
