@2015 kevane grant thornton llp. all rights reserved. introduction to value added tax act 72-2015...

@2015 Kevane Grant Thornton LLP. All rights reserved.

Introduction to Value Added TaxAct 72-2015

Webcast – General aspectsAugust 12, 2015

María de los Angeles Rivera, Partner Head of Taxand Javier Oyola, Tax Manager


Disclaimer

DISCLAIMER: These presentations and their content do not represent a consulting. Participants should not act solely on the basis of this material and its content. Its usefulness is for information only and should not be used as a specific consulting. In addition, you must obtain the consultation of an expert before acting or taking a decision on any topic addressed in this presentation.


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Welcome!

VAT Webcasts series

August 12: General aspects

August 19: Accounting methods,

adjustments and debit/credit

notes

August 26: Filings, documentation and

certificates

September 2: Implementation process


Today's agenda

– Introduction– VAT Rate– Taxable Transactions– Person responsible for the tax– Collection of the tax– Credit for VAT paid– Examples– Questions


P. de la C. 2329

"Act to Transform the Tax System of the Commonwealth of Puerto Rico" Substitute

P. de la C. 2329 P. de la C. 2482

Changes to Puerto Rico's Tax System

Filed 2/11/2015 Filed 4/29/2015 Filed 5/18/2015

Public Hearings

Killed 4/30/2015Signed 5/29/2015

Act 72 - 2015

P. del S. 1433"Technical Amendments"

Filed 6/16/2015

Not approved


Up to 6/30/15General SUT = 6%*

Designated Serv. = exempt

B2B = exempt

07/01/15 - 9/30/15General SUT = 10.5%*


B2B = exempt

10/1/15 – 3/31/16General SUT = 10.5%*

Designated Serv. = 4%

B2B = 4%

4/1/16General VAT = 10.5% or 0% (credit)

Designated Serv. = 10.5% (credit)

B2B = 10.5% (credit)

State Level

Municipal Level

Up to 6/30/15General SUT = 1%


B2B = exempt

07/01/15 - 9/30/15General SUT = 1%


B2B = exempt

10/1/15 – 3/31/16General SUT = 1%


B2B = exempt

4/1/16General SUT = 1%


B2B = exempt

* resellers get a credit and applies to taxable B2B

Summary


Value Added Tax ("VAT")

• A VAT is a form of consumption tax. – Is VAT the same as GST (goods and services

tax)?• Yes and No

• For the buyer, it is a tax on the purchase price.• For the seller, it is a tax only on the value added to

a product, material, or service.


VAT Tax Around the World


VAT Rate

o effectiveness – for transactions occurring after 03/31/2016 (possible extension of up to 60 days)

o general rate is 10.5% (resulting in a combined state and municipal VAT/SUT* of 11.5%) on taxable articles and transactions, except for the following which are subject to a 0% VAT rate:

• sale of goods for export• provision of services for export• certain sales to manufacturers (Exemption Certificate

and Zero Rate for Manufacturing Plants)* Municipal level: % sales and use tax


Taxable Transactions

The VAT shall be imposed, collected and paid on every transaction related to:

• sale of taxable item• use, storage or consumption in Puerto Rico• business to business ("B2B") services• designated professional services• services rendered by a non-resident to a person

in Puerto Rico


Person responsible for the tax

Person responsible for the tax:• the person that introduces the article to PR• non retail sales – the seller as withholding agent for the

buyer is primarily responsible, but the person that buys the goods or services is also responsible

• retail sales – the seller as withholding agent for the buyer

• services rendered by a non-resident to a PR resident – the person in PR that receives the service


Collection of the tax

Every merchant that sells a good or service subject to a 10.5% tax rate, except small merchants holding a Small Merchant's Registration Certificate, must collect the VAT as a withholding agent.


Credit for VAT paid

Every merchant, except small merchants holding a Small Merchant's Registration Certificate, will be allowed to claim a credit for the VAT paid during the corresponding month.


Credit for VAT paid (cont.)

The credit amount to be claimed is calculated by adding the following items:

• the VAT paid on the introduction of articles, that is directly or indirectly related to the sale of taxable goods or services (subject to a 0% or 10.5%);

• the VAT paid on the purchase of goods and services, that is directly or indirectly related to the sale of taxable goods or services; and



The credit amount to be claimed is calculated by adding the following items (cont.):

• the VAT paid by a merchant for services rendered by a non-resident person



In those cases in which it cannot be determined if the VAT paid corresponds directly to a particular good, it will be considered that it is related to the sale of an exempt good and therefore, would not be creditable.

However, the VAT paid will be allocated between taxable and exempt sales in order to determine which amount of the VAT paid is creditable.


How does it work?

Importer:• Pays the VAT, at the

port or when it receives the merchandise by air carrier, upon the cost of the imported article;

• collects the VAT based on the sales price of the product;

• takes a credit for the VAT paid against the VAT collected.

Consumer:• Pays the VAT on

the purchase of the good

• Not allowed to take credits

Retailer:• Pays the VAT to the

importer upon the cost of its inventory for resale;

• collects the VAT based on the sales price of the product;

• takes a credit for the VAT paid against the VAT collected.


Example 1

Wholesale and Retail Industries


Retailer/Wholesaler Imports / Purchases:

- Clothes - $3,000,000

- Office Equipment - $500,000.

- Pays 10.5%* VAT on the clothes & office equipment = $367,500

- Customer pays the tax on the purchase of the final product

- If customer is a merchant, it may be able to credit.

Total VAT paid:Imported products $367,500Clothes & other products 577,500Services and other 115,500Total VAT paid $1,060,500

- Retailer/wholesaler acquires locally clothes and other taxable items for $5,500,000

- Pays VAT of $577,500 to the seller.

- Retailer/wholesaler buys services in the amount of $1,100,000 and pays 10.5% * VAT in the amount of $115,500.

- Retailer/ Wholesaler sells products to consumers in the amount of $12,200,000.

- Collects VAT of $1,281,000

- Retailer/Wholesaler may take a credit for the VAT paid on imported products, local products and services bought in the amount of $1,060,500.

- Deposits $220,500 = ($1,281,000 – 1,060,500) at the PRTD after taking the credits for VAT paid.


Example 2

Services Industry


Service provider imports/purchases:

- Office equipment & supplies - $250,000

- Pays 10.5%* VAT on the office equipment = $26,250

- Final consumer pays the tax on the purchase of services.

- Not allowed to claim credits.- If client is a merchant, it will have the

opportunity to credit the VAT paid.

Total VAT paid:Imported products $26,250Other products 78,750Services and other 31,500Total VAT paid $136,500

- Service provider buys locally office equipment and supplies for $750,000.

- Pays 10.5%* VAT of $78,750 to the seller.

- Service provider buys professional services in the amount of $300,000 and pays 10.5%* VAT in the amount of $31,500.

- Service provider exports professional services in the amount of $1,500,000 subject to a 0% tax rate.

- Sells professional services to individuals and business for the amount of $5,500,000 (subject to VAT of 10.5%).

- Collects VAT of $577,500

- Service provider may take a credit for the VAT paid on the computer equipment, supplies professional services and rent in the amount of $136,500.

- Deposits $441,000 = ($577,500 - $136,500) at the PRTD after taking the credits for VAT paid.


Example 3

Manufacturing Industry


Manufacturing plant imports or purchases:

- Raw material (0% VAT) - $1.5 million

- Other taxable goods - $1.5 million

- Pays 10.5%* VAT on the other products = $157,500

Customer- Manufactured product is exported. Subject to a

VAT of 0%.- Local distributors will be able to credit

depending on the type of goods or services sold (i.e. exempt or taxable).

Total VAT paid:Imported products $157,500Other products 315,000Services and other 126,000Total VAT paid $598,500

Manufacturing plant - Acquires locally raw material for manufacturing free of VAT for $5,000,000.

- Acquires locally computer equipment and other products subject to VAT $3,000,000

- Pays 10.5%* VAT of $315,000 to the seller.

- Manufacturing plant buys professional services and other supplies in the amount of $1,200,000 and pays 10.5%* VAT in the amount of $126,000.

- Manufactures its product (adds value).- Sells manufactured product and it is exported

(subject to a 0% VAT).- Sells manufactured product to local distributors

$14,500,000.- Collects VAT of $1,522,500

- Takes a credit for the VAT paid on taxable goods, computer equipment and other products and services for a total of $598,500.

- Deposits $924,000 = ($1,522,500 - $598,500) at the PRTD after taking the credits for VAT paid.


Example 4

Allocation of Credit


How the credit works when an allocation needs to be made?

Merchant pays VAT on inputs:

Direct costs:

Unprepared Food $0

Supplies $6,000

Indirect costs:

Shopping carts $4,000

Utilities (T) 3,000

Services 2,000

Total indirect costs $9,000

Total VAT paid $15,000

Merchant sells to customer: Unprepared Food $375,000 (75%)

Supplies 125,000 (25%)

Total Sales $500,000

VAT Collected (10.5%) $13,125

Credit taken for VAT paid:

Supplies $6,000

Indirect Costs (25%) 2,250*

Total of credit $8,250

Payment to PRTD: $4,875

* (25% of $9,000)

Super Market


Questions


Series of four webcasts related to VAT


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@2015 kevane grant thornton llp. all rights reserved. introduction to value added tax act 72-2015...

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