Corporations Taxation

HB 2329 introduces several changes to the corporation taxation. The following are the main provisions:

1. The corporate tax rate will be 30% fixed.
2. Only the straight line depreciation method will be allowed.
3. The alternative minimum tax (“AMT”) was modified:
   1. The AMT rate will be 25% of the excess of the exempt amount ($50,000). The 2011 Internal Revenue Code (“2011 Code”) provides a 30% rate.
   2. The 20% charge to intercompany transactions that are not subject to withholding or income tax in Puerto Rico is eliminated.
4. The following entities will be consolidated as pass-through entities in an effort of providing uniformity in their regulation:
   1. Partnerships
   2. Limited Liability Companies (with an election to tax as a pass-through entity)
   3. Corporations (with an election to tax as a pass-through entity)
   4. Special Partnerships
   5. Corporation of Individuals
5. There are no significant changes to entities that are currently taxed as pass-through entities.
6. HB 2329 provides for the conversion of entities that are currently taxed as corporations to pass-through entities. If the entity currently taxed as corporation choose to became a pass-through entities in the first taxable year after December 31, 2014, the accumulated earnings and profits as of the last day of the last taxable year in which the entities were subject to taxation as corporation, shall be deemed distributed during the first 2 years of the conduit entity and shall be subject to a 10% income tax rate. If the conversion is made on the second taxable year or later after December 31, 2014, the accumulated earnings and profits will be subject to a 20% income tax instead of 10%.
7. In order to a donation to be deductible, the non-profit organization that benefits from the donation has to operate in Puerto Rico and spend the donation in Puerto Rico.