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Puerto Rico's Replacement of SUT with VAT Signed into Law

On 29 May 2015, the Governor of Puerto Rico, Alejandro García Padilla, signed into law Act 72-2015 (Act 72), which provides for the implementation of a value added tax (VAT) at a rate of up to 10.5%. The Act as passed follows the rejection by parliament of a previous bill for the implementation of VAT at a higher rate in April.

As part of a transition period, the current Central Sales and Use Tax (SUT) will be increased from 6% to 10.5% from 1 July 2015, and a 4% SUT on business-to-business and professional services will be introduced from 1 October 2015. The Municipal SUT will continue to apply as it currently does at the rate of 1%, even after the VAT is implemented.

The new VAT will replace the Central SUT on 1 April 2016. The implementation, however, depends on the findings of the Consumption Tax Transformation Alternatives Commission. The Commission was created by the new law to confirm that the VAT is the only viable solution for the government of Puerto Rico to reach its revenue objectives while reducing the tax burden on individuals. The Commission's findings are to be submitted by 28 July 2015, and are reportedly unlikely to go against the implementation of the VAT.

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