Info on the Puerto Rico Treasury’s 7% Tax on Prepared Foods

Good news for restaurant owners and patrons in Puerto Rico—as of October 1, 2019, the Puerto Rico Treasury has cut the sales and use tax (abbreviated IVU in Spanish) on prepared foods to 7%. The tax rate is down from its previous 11.5%, saving restaurant patrons 4.5% in taxes per visit. The Treasury recognized the importance of the restaurant industry and prepared food establishments in the Puerto Rican economy in a press release, stating that these establishments demonstrated their significance in the aftermath of devastating hurricanes Irma and Maria.

The tax cut was first determined in Act 257 of 2018 of the New Tax Model, and Puerto Rico Treasury Secretary Francisco Parés Alicea worked with José Salvatella, president of the Association of Restaurants of Puerto Rico (ASORE), to discuss the requirements for the lowered tax rate. Salvatella stated that while ASORE would like to see the sales and use tax eliminated entirely for prepared foods, the organization is pleased with the benefits this tax reduction will afford consumers, restaurant businesses, and the Treasury alike.

Establishments eligible for the tax cut

The tax cut applies not only to restaurants but to any commercial establishment that sells food or beverages that are hot and/or served with utensils. This means that not only restaurants but also bars, pubs, canteens, cafés, food trucks, food stands, caterers, and food service contractors can take advantage of the new 7% tax rate. It is important to note, however, that the tax cut applies only to prepared food items, carbonated beverages, candy, and pastries, and alcoholic beverages are not subject to the new rate.

Requirements for restaurants to charge the lowered tax rate

Before they can charge the new, lower rate, restaurants and other food establishments need to possess an Authorized Business Certificate, which they must display in a visible area of the establishment to notify patrons of the lowered tax rate.

The Authorized Business Certificate is only issued to restaurants that hold a valid Merchant’s Registration Certificate (MRC) within the North American Industry Classification System (NAICS) and that meet certain requirements, most notably the following:

• The merchant must be up to date on all its IVU filings and declarations.
• The merchant must not have any outstanding tax debts or be registered in a tax debt payment program.
• The merchant must own, install, and maintain an IVU terminal at all of its point-of-sale systems.

Merchants who meet all the requirements were automatically granted the Authorized Business Certificate on September 23, 2019, and could start charging the new rate on October 1, 2019. The certificates are valid until September 30, 2020, regardless of when they were issued. Every year on September 30, establishments that continue to comply to the requirements will have their certificates automatically renewed. Those who are no longer in compliance will lose their certificates and can request another certificate once they are in compliance again.

Restaurants charging the new 7% tax rate

According to the Treasury Department’s records, there are around 22,000 registered restaurants in Puerto Rico, but ASORE asserts that this number is misleading, given that some establishments on the list have since gone out of business or operate within a larger business, such as a small restaurant in a gas station. The number of open businesses eligible for the tax cut is significantly smaller, and the Unified Internal Revenue System (SURI)’s website lists as of this writing 7,155 locations that offer the reduced tax rate.

The search feature makes it easy for users to check for establishments, offering the ability to search by city or restaurant name. The cities are listed alphabetically, with each city featuring an alphabetically ordered list of the applicable restaurants. The list features everything from McDonald’s and Burger Kings, to pizzerias, to cafés, to even hotels.

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