On 6 February 2023, Mr. Pedro Pierluisi, Governor of Puerto Rico unveiled a set of proposals aimed at enhancing and streamlining Puerto Rico’s tax system. The proposals include reducing the tax burden for individuals and corporations by over $500 million, simplifying the tax system, promoting business ease on the island, and providing tax relief to salaried individuals. The proposal includes the following key measures:
Corporations
Companies with a net income of up to USD 275,000 would have a starting tax rate of 17%. For companies with income between USD 275,001 and USD 3 million, the proposed tax rate is 27%, which represents a reduction of 10.5%. Companies with income over USD 3 million would be subject to a maximum tax rate of 33%. Currently, companies are subject to a marginal tax rate of 37.5%, which is a combination of a fixed normal tax rate of 18.5% and an additional marginal tax rate of up to 19%.
Individuals
The Governor proposes to reduce the maximum rate paid by individuals from 33% to 30%. Also, the tax bracket of USD 41,500 to USD 61,500, which currently has a tax rate of 25%, would be expanded to cover incomes up to USD 81,500, and the tax rate applicable to this bracket would be reduced to 24% from 25%.
Sales and use tax
The Governor also proposed changes to the sales and use tax in Puerto Rico, which includes eliminating sales and use tax in the distribution chain and on the import and purchase of inventory meant for sale. This would transition the current credit system to an exemption system.
