Sales Tax Exemptions in Puerto Rico

Exploring the complex world of sales tax exemptions in Puerto Rico opens up opportunities for businesses and individuals to save on specific purchases. Understanding the types of items that qualify for exemptions and the process for obtaining a Certificate of Exemption is crucial. In this blog post, we’ll delve into the different categories of exempt items, guide you through the steps to obtain the necessary certificate, and provide insights into the documentation required for both corporations and individuals. By the end, you’ll be equipped with the knowledge to navigate the realm of sales tax exemptions in Puerto Rico with confidence.

Type of Items Exempt from Sales Tax

• Raw Materials and Machinery/Equipment for Manufacturing: Raw materials and machinery/equipment used in the manufacturing process are exempt from sales tax in Puerto Rico.
• Temporary Imports for Specific Purposes: Equipment and items temporarily introduced into Puerto Rico for film production, construction, trade shows, and seminars can be exempt from sales tax, provided they are exported after their use.
• Certain Medical and Health-Related Items: Some medical and health-related items may be exempt from sales tax, such as prescription drugs, prosthetic devices, and orthopedic appliances.
• Agricultural Products: Sales of agricultural products, including fruits, vegetables, and livestock, may be exempt from sales tax.
• Educational Materials: Sales of educational materials, such as textbooks and school supplies, may be exempt from sales tax.
• Certain Services: Some services, such as medical services, educational services, and certain professional services, may be exempt from sales tax.

Filing for Exemptions:

To qualify for sales tax exemptions in Puerto Rico, merchants and individuals must follow certain procedures and provide the necessary documentation. Here are the general steps for filing for exemptions:

• Obtain a Certificate of Exemption: Resellers and manufacturers must request a Certificate of Exemption from the Puerto Rico Treasury Department Secretary [3]. This certificate serves as proof of eligibility for sales tax exemptions.
• Provide Required Documentation: Merchants and individuals must provide the necessary documentation to support their claim for exemption. This may include invoices, receipts, or other supporting documents that demonstrate the eligibility for the specific exemption.
• Report Exempt Sales: Merchants should report sales of exempt tangible personal property in their monthly sales tax returns on the line designated for reporting sales of exempt items [3]. If a merchant collects sales tax on an exempt sale by mistake, they should immediately reimburse the amount of the sales tax to the consumer.

How to Obtain a Certificate of Exemption

To obtain a Certificate of Exemption in Puerto Rico, there are specific procedures and documentation that need to be followed. The requirements may vary depending on whether you are an individual or a corporation. Here is an overview of the procedures and documentation required.

For Corporations:

• If the entity was organized or incorporated in Puerto Rico, you must present the Certificate of Organization or Incorporation that shows the date on which it was organized or incorporated.
• If the entity was organized outside Puerto Rico, you must present a copy of the Certificate of Incorporation of the state or country where it was incorporated, a copy of the income tax returns filed in that country, and a copy of the Certificate for Doing Business in Puerto Rico issued by the State Department.
• The corporation must be registered at the Internal Revenue Unified System (SURI) and have received the Merchant Registration Certificate.
• The corporation must have registered the employer’s identification number at the Treasury Department (TD).
• The corporation cannot have rendered any type of service in or outside Puerto Rico prior to the beginning of the service activity on the island or within the first year of operations.
• The rendering of services must not have been carried out by an affiliated entity during the first year of operations.
• The person in charge of the corporation must not have rendered the services that they are now providing in the name of the affiliate corporation or entity. The TD may require the person to present copies of the last three income tax returns.

For Individuals:

• The individual must be registered to do business in Puerto Rico and have completed their registration at SURI, obtaining the Merchant Registration Certificate.
• The individual must have registered the employer’s identification number at the TD.
• The individual cannot have rendered any type of service in or outside Puerto Rico prior to the beginning of the service activity on the island or within the first year of operations.
• The rendering of services must not have been previously provided by a related person during the previous three years of the date for which the exemption is being requested.
• The individual must submit copies of the last three income tax returns filed in the country in which they resided and a copy of the three income tax returns of the related person.
• The individual will only be able to claim the exemption when they become self-employed for the first time.

Obligations of the entities that receive the services:

Any person who makes payments for services must deduct and withhold the income tax due by the individual or entity. The payer may require the 10% Total Exemption Certificate from the service provider or the 4% partial exemption for a withholding of 6%.

To request the Certificate of Exemption, individuals, corporations, or partnerships must fill out the appropriate form (Model SC 2678 or Model SC 2680) and submit it at any Taxpayer Service Center or through SURI, along with the required documents.

How We Can Help

Navigating the world of sales tax exemptions in Puerto Rico may seem daunting but armed with the knowledge we’ve provided in this blog post, you’re now well-prepared to take advantage of these opportunities for savings. Remember to familiarize yourself with the various categories of exempt items, follow the necessary steps for obtaining a Certificate of Exemption, and ensure you have the required documentation in order.

However, we understand that managing sales tax exemptions can still be a complex process. That’s where Sales Tax DataLINK can help. With our expertise in tax compliance and automation solutions, we can simplify the entire process, ensuring accurate exemption management and relieving you of the burden of manual paperwork. Our comprehensive software can streamline your sales tax management, making it easier for you to track exemptions, stay compliant, and maximize your savings. Don’t let the complexities of sales tax exemptions hold you back. Embrace the possibilities and let Sales Tax DataLINK be your trusted partner in navigating the intricacies of Puerto Rico’s sales tax landscape.