As part of the conversion to the VAT structure, effective October 1, 2015, business-to-business services and designated professional services are subject to a reduced rate 4% Commonwealth sales and use tax (“IVU”)in Puerto Rico. “Designated professional services” are defined as legal services and the following professional services: agronomists; architects and landscape architects; certified public accountants; agents, vendors and real estate companies; professional draftsmen; professional real estate appraisers; geologists; and engineers and surveyors. The tax will also apply to services rendered by a “return, statement or refund claim specialist”, limited to those services related to the preparation or review of returns, statements or refund claims relating to the taxes levied by the Internal Revenue Code of Puerto Rico or the U.S. Internal Revenue Code. The Administrative Determination distinguishes services provided by a licensed CPA from those provided by a non-licensed accountant. The example provided by the Administrative Determination states that in the case of a non-licensed accountant, the provision of investment consulting services is a taxable service subject to the full 11.5%(commonwealth plus municipal) tax. However, the provision of investment consulting services by a licensed CPA is taxable at the reduced 4% rate.
“Business-to-business services” are defined as services rendered to a person engaged in the exercise of a trade or business activity or for the production of income. B2B services also include commissions generated by sales agents. Where a service is provided through a subcontractor, the service provided by the subcontractor to the contractor is also a B2B service. The following B2B services are explicitly excluded from the definition of B2B services and are thus subject to the full 11.5% tax rate: (1) bank charges, but limited to charges and fees that financial institutions charge their business customers for demand account management and other types of deposit accounts to cover specific transaction costs and to cover costs to exceed present limits; (2) account collection services; (3) security services, including armored services and private investigations, except security services provided to homeowner or condominium associations; (4) cleaning services, except cleaning services provided to resident or condominium association; (5) laundry services; (6) repair and maintenance services (non-capitalizable) for real properly and tangible personal property, except those services provided to resident or condominium associations; (7) telecommunications services; (8) waste pickup services, except waste pickup services provided to resident or condominium associations; and (9) ordinary leasing of motor vehicles.
Services provided by merchants whose gross receipts do not exceed $50,000 remain exempt from sales and use tax. The aggregate gross receipts generated during the preceding taxable year are taken into consideration to determine if the merchant’s gross receipts fall under the $50,000 threshold. Special rules are applicable for persons belonging to a controlled group and persons with less than a year of operation. The Department has created a new monthly IVU return for reporting transactions subject to the special IVU rate of 4%. The new return must be filed electronically through the Department’s online portal (PICO) no later than the 20th of the month following the month in which the tax becomes due. (Administrative Determination No. 15-17)