PLEASE NOTE THAT HOUSE BILL 2329 DID NOT GO THROUGH. YOU CAN STILL DOWNLOAD THE FILE FOR YOU TO PLAY WITH
Much has been commented on different news outlets about the proposed tax reform (House Bill 2329), “Tax System Transformation Act”), yet no numerical tools have been published by the Department of Treasury, tax or financial advisors. Below, is a summary of the major changes to Individuals under the proposed tax bill. On the bottom of this page, you will find a link where you can download an Excel spreadsheet that allows you to calculate the impact of the proposed tax reform on your personal finances.
Please note that we are not discussing the impact of those who work as professionals, independent contractors or businesses who file a corporate or partnership return. You can request an assessment of the impact it will have on your business by contacting us here.
The proposed bill is a completely different approach to taxation, in comparison to all previous tax codes in Puerto Rico. Currently, the largest source of revenue of the government was income tax. The proposed tax bill is focused on taxing consumption. By lowering tax rates on income, but increased the consumption tax, the government expects to generate more revenue to support its operations and pay its debt.
Changes in Tax Rates
The Tax Code will eliminate dozens of deductions and allow the following six (6) deductions:
- Medical Expenses
- Charitable contributions to entities within the Commonwealth of Puerto Rico
- Fortuitous property loss
- Contributions to governmental pension plans
- IRA contributions ($5,000 and $10,000 for single and married taxpayers, respectively)
- Interest on college student loans
The mortgage deduction will no longer be allowed, but in turn, it will credited up to certain amounts and thresholds that phase-out as taxpayer income increases.
Change to Value Added Tax (VAT)
Meanwhile, the current Sales and Use Tax (SUT), also known as IVU for its definition on Spanish, will be replaced by a Value Added Tax (VAT) system. Under the current IVU system, goods to businesses and individuals, and services provided to individuals are taxed. Services between businesses are not taxed.