Puerto Rico (PR) is not a state but a commonwealth. The Puerto Rico sales and use tax rate is 10.5%. Puerto Rico has been an unincorporated territory of the United States since 1898, when it was acquired from Spain in the aftermath of the Spanish American War. People born in Puerto Rico, which is located approximately 100 miles southeast of Miami, Florida, are U.S. citizens.
Sales and use tax compliance in Puerto Rico is challenging. Facing mounting government debt, Puerto Rico has implemented several tax changes and is considering several more. The following changes took effect in 2015:
- The general sales and use rate increased from 7% to 11.5% on July 1, 2015.
- A 4% sales tax was tax was applied to previously exempt business-to-business (B2B) transactions on October 1, 2015.
See Departamento de Haciendo de Puerto Rico Administrative Determination No. 15-17 for more information.
Transition to VAT considered
A plan to transition from sales and use tax (IVU) to value added tax (VAT, or the Spanish acronym IVA) at the state level was approved in 2015.
For consumers, the new VAT/IVA system would have seemed similar to the IVU system: exemptions for non-prepared food, medical services and prescription drugs remained. For businesses, the transition would have been burdensome. In addition to the new accounting requirement, VAT imposition called for replacing the 4% IVU on B2B service transaction with the standard 10.5% IVA.
The 1% Municipal IVU was to remain unchanged during the transition. The municipal IVU is similar to Puerto Rico’s IVU, except non-prepared food is subject to tax while most B2B transactions are not.
VAT/IVA was initially scheduled to take effect April 1, 2016 but was delayed until June 1, 2016. Meanwhile, opposition by the island’s business leaders persuaded the legislature to reconsider VAT/IVA implementation. In May 2016, the Puerto Rico Legislative Assembly passed legislation eliminating VAT/IVA. Though the governor vetoed the legislation, both legislative chambers easily overrode his veto.
As of this writing, the plan to transition to VAT/IVA is dead.
How to Register
Information about dealer registration is available on the Departamento de Hacienda de Puerto Rico website.