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Amendments to alternative minimum tax for companies

Law 40 of 2013, the Tax Burden Redistribution and Adjustment Act (Ley de redistribución y ajuste de la carga contributiva), substantially amended the alternative minimum tax (AMT) for companies.

AMT base

The highest amount between the regular tax and the following AMT base applies:

-   30% of the AMT income (increased from 20%) and the amount of the additional gross receipts tax applicable; or
-   20% of payments to a related party (i.e. value of purchases from related parties, including transfers from the home office to branches of foreign corporations doing business in Puerto Rico) if such amounts are not subject to income tax in Puerto Rico, and the amount of the additional gross receipts tax applicable and the following percentage of the value of personal property purchased from a related party or transferred to a Puerto Rico branch by its home office:
-   0.5% in the case of alcoholic beverages;
-   0.25% in the case of gasoline and crude oil products;
-   1.5% in the case of motor vehicles; and
-   2% in the case of all other property. This 2% can be reduced if the taxpayer can demonstrate to the Secretary of Treasury by means of a transfer pricing study that the price paid for the personal property is equal or substantially similar to the price for which the related party sells the property to an unrelated party.

Note. Exempt entities enjoying the benefits of a tax grant under the provisions of Act 73-2008 and other similar incentives are excluded from this computation to the extent that the personal property purchased from related parties is used in their exempt operations.

Gross receipts tax for AMT computation

Companies engaged in trade or business within Puerto Rico are generally subject to an additional tax on gross receipts. This tax only applies as part of the AMT computation. In general, gross receipts tax base is the total amount of income derived in the ordinary course of business without deducting any costs or expenses. However, special rules apply in computing the tax base of certain businesses, such as insurance companies, gasoline stations, commissioners, brokers, contractors, automobile distributors, etc.

Additional gross receipts tax is determined by businesses other than financial entities using the following rates:

Amount (USD)) Rate (%)
up to   1,000,000 0
1,000,000 - 3,000,000 0.20
3,000,000 - 300,000,000 0.50
300,000,000   600,000,000 0.70
600,000,000   1,500,000,000 0.80
above   1,500,000,000 0.85

Financial entities are subject to the gross receipts tax at a flat rate of 1%. Financial entities engaged in trade or business in Puerto Rico may claim as a credit against their income tax or AMT payable an amount equal to 0.5% of their gross receipts tax for the same taxable year. Any unused credit not claimed during a taxable year may be used in subsequent taxable years.

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