Significant changes to the Internal Revenue Code due to the recently approved Incentive Code
The recent approval of the Puerto Rico Incentives Code, hereinafter “Incentives Code”, included several amendments to the Internal Revenue Code for a New Puerto Rico, as amended, hereinafter “Internal Revenue Code”. Below, we summarize some of the most significant changes.
- Tax incentives for the agriculture sector, researchers or scientists, among others, were eliminated from the Internal Revenue Code since they were included in the new Incentives Code.
- The rules for the use of carryover net operating losses after a change in control, contained in Section 1034.04(u), will not be applicable for taxable year 2019 onwards.
- The contribution made by an individual to a “My Future Account” (Cuenta Mi Futuro) will be allowed as a deduction, as long as the beneficiary of said account is the son/daughter or relative up to the third degree of consanguinity or second degree by affinity.
- Limitation on the use of the cash basis method for taxable years commenced after December 31, 2018 was increased to an average gross annual income of $ 3,000,000 or less (up from $1,000,000).
- A special treatment is established for installment debts between related entities that are canceled.
- Distributions due to a disaster declared by the Governor will not be considered for estimated tax payments.
- The requirement to submit a reconciliation in order to claim an expense for those taxpayers who submit audited financial statements was eliminated.
- It is clarified that the Partial Waiver to entities that submit audited financial statements is 6%.
- The requirement to submit informative returns for payments made to telecommunications services, insurance premiums, Internet access and cable television providers, among others, was eliminated. Said responsibility was put on said service providers who must now inform the payments made. For this reason, the merchant will not have to include the payments made in the Quarterly Reconciliation Return.
- Shareholders of a corporation of individuals and partners of a partnership may request that the 30% withholding on their distributable share not be made in certain circumstances.
- Corporations of individuals and partnerships may now choose to be taxed under the Optional Contribution (tax on their gross income).
- Among other changes.
In addition, certain provisions related to Opportunity Funds were amended, including:
- A clarification that contributions to an Opportunity Fund will be applicable eligible for taxable years ended after November 7, 2018.
- The requirement that at least 50% of the contributions to the Opportunity Fund must come from deferred capital gains was eliminated.