Puerto Rico’s new excise tax and income source rules: Final regulations issued

Puerto Rico issued final regulations December 29, 2010, under Act 154, which modifies Puerto Rican (PR) tax law by adopting new source-of-income rules and imposing a temporary excise tax on certain purchases by offshore companies whose gross receipts exceed $75 million. The new regulations follow the signing of Act 154 by Governor Luis G. Fortuño October 25, 2010, during a rare weekend legislative session. The law, enacted as part of a tax reform initiative, could raise an estimated $5.8 billion over the next six years.

The final regulations define relevant concepts, such as property subject to the excise tax; provide guidance regarding the application of 10% tests and anti-abuse rules; and introduce a number of tax credits that could partly offset the burden of the new excise tax. The regulations on transactions took effect January 1, 2011. An opportunity for public comment on the regulations extends until January 31, 2011.