Puerto Rico Value Added Tax (VAT) Repealed and Business-to-Business tax (B2B) Will Not Increase

2016-05-20

Issue Brief

On May 2 and May 5, 2016, the House and Senate of Puerto Rico respectively voted to repeal the provisions of Subtitle DD of the Puerto Rico Internal Revenue Code of 2011, which was signed into law one year before (May 29, 2015) as Act 72-2015. Section DD would have converted the existing 10.5% Sales and Use Tax (SUT) into a Value Added Tax (VAT) on all transactions, which along with a 1% municipal tax would have resulted in an 11.5% VAT. In addition, it would have converted the existing 4 percent business-to-business transaction (B2B) tax into a 10.5% VAT. These changes were scheduled to begin on June 1, 2016.

The Governor vetoed the repeal bill on May 20. The following week (May 23 and 26, 2016) the House and the Senate respectively voted to override the veto. Consequently, the current 11.5% SUT and the 4% B2B tax will not transition into a VAT. 

Impact

Although the existing 11.5% SUT is the highest in the nation, its transition into an all-encompassing VAT, along with a 10.5% VAT on B2Bs, would have jeopardized development and expansion of the local industry. This transition would have also seriously affected the operations and management of existing resorts by increasing all associated costs exponentially.  

Issue Updates

ARDA will continue to oppose any type of tax that unduly burdens the industry, HOAs, and individual owners.