Major Increase to the Annual Fee
- Posted: April 21, 2020
- Posted by: Travis Lynk
- Last Reviewed: April 5, 2021
Puerto Rico Governor Wanda Vázquez signed into law a new bill that spells a major change for holders of Puerto Rico’s Act 22 and Act 60 Individual Resident Investor tax incentive decrees. While the bill, known as Law 40-2020, benefits some taxpayers and businesses—potentially even the businesses of Individual Resident Investors—it comes with a major downside: a $5,000 annual report filing fee (increased from $300).
For the most part, it is lower-income Puerto Ricans who benefit from Law 40-2020. Taxpayers with a gross income lower than $100,000 can enjoy an additional 3% off their taxes. Lower-income businesses also benefit: Under the new law, businesses with a turnover of $300,000 or less no longer need to charge sales and use tax (IVU) when providing services to other businesses. This $300,000 B2B exemption is a dramatic increase from the previous $200,000.
The law could also be good news for businesses that deal with artisan spirits and tropical fruit wines, since it introduces a tax reduction for the production of such goods.
For most Act 22 and Act 60 Individual Resident Investor decree holders, Law 40-2020 brings far more bad news than good. The major disadvantage is, of course, the new $5,000 annual report fee that Act 22 and Act 60 Individual Resident Investor decree holders are now subject to pay. The fee is immediately enforceable, retroactively applying to the 2019 tax year, so decree holders are obligated to pay the fee in 2020.
The bill also includes a disadvantage for film producers, for whom Puerto Rico offers a different tax incentive: the ceiling for credits has been reduced to $38 million from the previous $50 million. Law 40-2020 also repeals Law 212-2002, enacted to revitalize urban centers.
Increased Annual Report Filing Fee
Of the $5,000 in the new annual fee amount, $300 is allocated to the Department of Economic Development and Commerce (DDEC in Spanish), while the remaining $4700 is earmarked for Hacienda. Given this arrangement, it seems probable that this new fee violates the terms of the Act 22 and Act 60 Individual Resident Investor decrees, but until someone challenges it in court, it remains active.
It is likely that this law will indeed be challenged in court, so the new fee could soon be repealed. However, for now, Act 22 and Act 60 Individual Resident Investors must prepare to part with an additional $5,000 for the upkeep of their tax incentive decree.
For those whose Spanish proficiency is sufficient, the full law in Spanish is available here.
Disclaimer: PRelocate, LLC is not a law firm, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico tax incentives, maintaining bona fide residence in Puerto Rico, and any other Puerto Rico tax or residency related issues.