P.R. Treasury Clarifies Audited Financial Statements Requirements

The "Puerto Rico Small Business Development Incentives Act" amended provisions in various tax laws dealing with the requirement to accompany audited financial statements with their income tax return, personal property tax return, municipal license tax return or annual corporation report. Puerto Rico Treasury has issued a pronouncement clarifying the entities affected by the PRIRC amendment and its effective date.

The amendment applies to taxable years commencing on and after August 1, 2008. It only affects domestic (organized in Puerto Rico) for profit corporations and partnerships which no longer will be required to accompany audited financial statements with their income tax return if their gorss income do not exceed $3 million.

The provisions dealing with other entities were not amended as well, therefore, they will continue to be subject to the existing requirements, as follows:

• Corporations and partnerships that have elected to be taxed either as a special partnership or as a corporation of individuals, continue to be required to file audited financial statements with their income tax return once their volume of business for the year reaches $500,000.

• Employees-owned special corporations continue to be required to file audited financial statements with their income tax return once their volume of business for the year reaches $1 million.

• Foreing corporations and partnerships continue to be required to file audited financial statements with their income tax return once their volume of business for the year which is effectively connected with a trade or business in Puerto Rico reaches $1 million.

OBSERVATION: The pronouncement did not address the issue that some corporations and partnerships that heretofore had been relying on the total waiver from the 7% withholding on service payments that applied to corporations and partnerships that, in addition to being current in their tax responsibilities, were required to attach to their income tax return audited financial statements under PRIRC 1018(c), could now find themselves outside of the exception because of the increase to $3 million in business volume requirement. Unless a similar business volume revision is made to CL 02-13, what was thought to reduce costs of operations of small and medium size businesses may in fact result in an additional cash flow burden to some of these businesses.

José J. Estrada
Tax Manager

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Information taken from the RIA-Puerto Rico Taxes-Volume 20, No.10.
Please refer to the P.R. Code for complete information or contact us.

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Tax Update - Solar Equipment & Renewable Energy

TAX CREDIT FOR PURCHASE AND INSTALLATION OF SOLAR EQUIPMENT IS APPROVED

• Starting August 10, 2008, an income tax credit is allowed to any natural or juridical person for the purchase, manufacture and installation of solar electric equipment. The credit is 75% of the cost of the equipment (including installation) for the Government's fiscal years 2007-2008 through 2008-2009 (50% for fiscal years 2009-2010 through 2010-2011; and 25% for fiscal year 2011-2012 and thereafter). However, the aggregate credits granted for any particular Government's fiscal year may not exceed $5 million in the case of individuals and $15 million in the case of juridical persons. The Secretary of Treasury has the discretion to increase this amount, and to carryover from previous years any unused credit balance (but such carryover may never exceed $10 million for any particular fiscal year).

• Credit carryover. Any credit not used in a taxable year may be carried over to each of the 10 succeeding taxable years.

• Limitation. A person claiming this credit may not also claim the deduction for expenses incurred in the acquisition and installation of windmills to produce electrical power.

• Solar electric equipment. Solar electric equipment is any equipment capable of converting solar energy into usable energy which meets the standards and specification of the Energy Affairs Administration (EAA). It also includes accesories and parts that are necessary for the operation of the solar electric equipment. In addition, to qualify the equipment must be installed by a person EAA certified and registered, and have a manufacturer's or distributor's warranty of at least 5 years.

• Request for credit. A person interested in obtaining a credit must request a certificate from the Treasury Secretary to that effect by filing the following documents: (i) certificate that the equipment meets the standards and specifications established by the EAA; (ii) certificate setting forth that the equipment was installed by a person certified and registered by the EAA; (iii) certification from the manufacturer or distributor declaring that the equipment is guaranteed for at least 5 years; (iv) negative debt certificates from the Treasury Department and the Municipal Revenue Collections Center; and (v) any other document or permit as the Secretary may require by rules and regulations.

• Verification. A taxpayer claiming this credit must keep for a period of 6 years from the date the income tax return is filed: (i) invoices or receipts with information regarding the cost of the electric solar equipment (or of the parts and labor required for its manufacture) and the expenses incurred in its installation; (ii) a certificate stating that the electric solar equipment meets the standards and specifications established by the EAA; (iii) a certificate setting forth that the electric solar equipment was installed by a person certified and registered with EAA; and (iv) a certification from the manufacturer or distributor to the effect that the equipment is guaranteed for 5 or more years.

• Transfer of credit. Subject to certain limitations, once certified by the Secretary of Treasury, the credit may be asigned, sold or otherwise transferred, in whole or in part, once by the taxpayer to any other person. A change of control of the person holding a credit, the transfer of assets of a decedent to his estate or a transfer by bequest or inheritance are not considered a transfer of the credit. Certain notification requirements also apply. The consideration (money or property) received in exchange for the credit is exempt from tax to the extent of the amount of the credit transferred. The difference between the amount of the credit and the amount paid for it is not considered income to the purchaser of the credit.

SOLAR ELECTRIC EQUIPMENT EXEMPT FROM SUT

• Exempt from tax is any solar electric equipment used to produce electric power, including its parts and accessories. To qualify for this exemption, the distributor or manufacturer must submit to the Treasury Department a certificate declaring that the solar electric equipment, or its accessories and parts therof, meet the standards and specifications established by the EAA, as well as a certification declaring that the solar equipment is guaranteed for at leat 5 years.

RENEWABLE ENERGY EQUIPMENT EXEMPTED FROM PROPERTY TAX

• Starting August 10, 2008, any equipment for the capture, accumulation, generation, distribution or application of renewable energy is exempt from property tax. The definitions of renewable energy, equipment for the capture, accumulation, generation, distribution or application of renewable energy are provided by the "Renewable Energy Development Act", Act. No. 325 of September 16, 2004, as follows:

• Renewable energy are sources of energy, such as solar energy, eolic energy, hydraulic energy, biomass energy, energy from the difference in oceanic temperatures, ocean energy, wave energy and tidal energy, among others, whose use is clean, reliable, safe and sustainable.

• Renewable energy capture equipment is equipment whose main purpose is the capture of energy issued by a natural source.

• Renewable energy accumulation equipment is equipment whose main purpose is the storage of energy as gathered by the capture equipment.

• Renewable energy generation equipment is equipment whose main purpose is the production of useful energy from the renewable energy source.

• Renewable energy distribution equipment is equipment whose main purpose is to conduct the energy from the capture equipment to the location for its final use.

• Renewable energy application equipment is equipment whose main purpose is the exploitation of the renewable energy to be used in a direct and specific operation.

José J. Estrada
Tax Manager

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Information taken from the RIA-Puerto Rico Taxes-Volume 20, No.10.
Please refer to the P.R. Code for complete information or contact us.

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