February 20, 2023
Puerto Rico’s Treasury Department issues guidance on making estimated tax payments for companies that elected to be taxed under the new regime provided under Act 52-2022
In Circular Letter (CL) 23-03, the Puerto Rico Treasury Department has issued guidance on making estimated tax payments for companies that have elected, as provided under Act 52-2022, to be taxed at a 10.5% tax rate on their industrial development income from sales of goods and services instead of the 4% excise tax on foreign corporations.
Under CL 23-03, companies that have elected the 10.5% tax rate are not subject to the due dates for regular estimated tax payments in Section 1061.23(d) of the Puerto Rico Internal Revenue Code of 2011, as amended. Rather, they are subject to the provisions of Section 1061.23(j)(2) for the transition period. Therefore, their first estimated tax payment is due on or before the 15th day of the month following the month in which the transition period begins, with the remaining estimated tax payments due each month thereafter until the end of the transition period. The transition period begins on the first day of the first month in which the company is subject to the new regime. The transition period ends on the last day of the 11th month after the first month.
For example, if a company’s election to be taxed at the 10.5% rate is effective 1 January 2023, the company’s first estimated tax payment would be due on or before 15 February 2023. The company would then continue to make estimated tax payments on the 15th day of each month until 15 December 2023.
Companies should make their estimated tax payments through the Internal Revenue Unified System (SURI). Failing to make the estimated tax payments could result in a penalty of 10% of the estimated tax not paid.
CL 23-03 provides the safe harbor rules to pay estimated tax for the transition period and not be subject to the underpayment penalty. Due to the change in the timing of the estimated tax payments during the transition period, companies should take pertinent actions to monitor those monthly payments as applicable. The transition period rules apply to the first year in which the taxpayer opts to be subject to the new regime. Companies that elected an effective date other than tax year 2023 should set up reminders to apply the transition rules for payments made in the tax year for which the new regime will be in effect.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Puerto Rico LLC, State and Local Taxation Group, San Juan