Counter COVID-19 Emergency Tax Relief Act

The Complementary Act to Counter the Effects on Puerto Rico’s Economy caused by the Covid-19 Emergency, signed by the Governor on June 14, 2020 (Act 57-2020), incorporates certain permanent and temporary tax measures, which we summarize below:  

I. Exemption from Income Tax and Municipal License Tax for PPP Debt Cancellation, and for Federal and Local Subsidy, Stimulus and Aid Payments

Income derived from cancellation of debt, including from total or partial cancellation of loans granted under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), and any subsidies, stimulus or aid payments received under federal legislation or program related to Covid-19, including the CARES Act, and under any local legislation related to Covid-19, including refundable tax credits and other assistance:

• will be excluded from: (a) gross income for Puerto Rico (“PR”) income tax purposes, including the alternate basic income tax and the alternative minimum tax, and (b) income subject to municipal license tax; and
• taxpayers will be allowed to claim ordinary and necessary business expenses against their taxable net income, even if such expenses are paid with these federal or local aid funds.

II. Net Operating Loss Carryback Election

Net operating losses (“NOLs”) directly caused by the Covid-19 emergency during the 2020 taxable year (presumably those commenced during calendar year 2020) may be carried back to the two (2) previous taxable years, and will not be subject to the use limits established by Section 1033.14(b)(1)(D) of the Puerto Rico Internal Revenue Code of 2011, as amended; (the “PR-IRC”).  However, the maximum amount of NOLs that may be carried back is $200,000, and the maximum refund for taxes paid in previous taxable years is $50,000. 

The NOLs carry-back election is only available for taxpayers with a volume of business of $10 million or less; should be made on or before the due date for filing the 2020 Puerto Rico (“PR”) income tax return, including extensions; and applies for purposes of computing the alternate basic income tax and the alternative minimum tax.

III. NOLs Carryforward

Subject to certain special rules, NOLs directly caused by the Covid-19 emergency during the 2020 taxable year may also be carried forward and will not be subject to the 90% use limits established by Section 1033.14(b)(1)(D) of the PR-IRC.

IV. Sales and Use Tax (“SUT”) Exemption on Certain Services

The four percent (4%) SUT should not be charged on invoices for services rendered between merchants or designated professional services during the following months: April, May and June 2020. 

V. Tentative Minimum Tax on Corporations

For taxable years beginning after December 31, 2018 and before January 1, 2020, the $500 tentative minimum tax on corporations will not apply.

VI. Agreed Upon Procedures and Compliance Attestation Reports

For taxable years beginning after December 31, 2018 and before January 1, 2020, the Agreed Upon Procedures or Compliance Attestation reports issued by a PR licensed Certified Public Accountant will not be required for filing the following PR income tax returns:

• those in which a self-employed individual claims all ordinary and necessary business expenses; and
• those in which a corporation claims the same deductions in computing the income subject to normal tax and its net income subject to the alternative minimum tax.

VII. Commercial Licenses

All licenses and bonds under the PR-IRC, as well as any license or permit issued by the PR Permit Management Office or any other PR Government agency or Municipality that expire as of March 1, 2020, are automatically extended for a period of six (6) months.

VIII. Compliance with Certain Requirements on Tax Exemption Grants

For the 2020 taxable year, taxpayers with tax exemption grants issued pursuant to the provisions of Act 60-2019, known as the PR Incentives Code, or any other previous tax incentives acts, will be deemed to have complied with the following requirements of their tax grants, as long as the incompliance is directly associated with the emergency caused by Covid-19:

(a)        job creation and retention;

(b)       gross income or sales volume; and

(c)        investment in machinery and equipment.  

The above summary is intended for information purposes only. It cannot be considered a legal opinion, and it does not intend to consider all the tax and legal considerations that could be relevant to any particular person or entity.  

The contents of PUERTO RICO BUSINESS LAW NOTES may not be reproduced, transmitted, or distributed without the express written consent of AMG.  The material contained herein is intended for information purposes only and is not to be considered legal advice. Qualified counsel should be consulted based on individual circumstances. 

As required by US IRS rules, please understand that any information contained herein is not written to be used and cannot be used for the purpose of avoiding penalties.  We provide formal tax advice only upon completion of a formal written tax opinion in compliance with US Treasury Circular 230. 

If you need AMG’s further advise on these matters, please contact any of the following attorneys:

IX. PR Income Tax/SUT Returns and SUT Bimonthly Deposits

(1)       PR Income Tax Return.  All taxpayers, including pass-through entities, required to file PR income tax returns with original due dates between March 15 and June 15, 2020 may file them on or before July 15, 2020 without any penalties.  The due date for any income tax payment associated with such return is also extended until July 15, 2020.

(2)       Tax on Imports Monthly Return. The new due dates for the filing and payment of the Tax on Imports Monthly Returns are as follows:

 (3)      SUT Monthly Return. The new due dates for filing and payment of the SUT Monthly Returns are as follows: 

(4)       SUT Bimonthly Deposits.  No penalties will be imposed for failure to comply with the SUT bimonthly deposits for the months of March, April, May and June 2020, provided that the total SUT liability for each of those months is paid with the corresponding SUT Monthly Return.

The above summary is intended for information purposes only. It cannot be considered a legal opinion, and it does not intend to consider all the tax and legal considerations that could be relevant to any particular person or entity.

The contents of PUERTO RICO BUSINESS LAW NOTES may not be reproduced, transmitted, or distributed without the express written consent of AMG. The material contained herein is intended for information purposes only and is not to be considered legal advice. Qualified counsel should be consulted based on individual circumstances.

As required by US IRS rules, please understand that any information contained herein is not written to be used and cannot be used for the purpose of avoiding penalties. We provide formal tax advice only upon completion of a formal written tax opinion in compliance with US Treasury Circular 230.

If you need AMG’s further advise on these matters, please contact any of the following attorneys: