An entity engaged in trade or business in Puerto Rico is normally subject to the payment of municipal license taxes. For non-financial businesses, the tax may be as high as .5% of the volume of business (defined as gross receipts) the company received or accrued during the year. The maximum rate for a financial business is 1.5% on income from interest, rents, fees, profits, etc. The municipal volume of business declarations must be filed on or before the fifth day following April 15 of each year, reflecting the volume of business realized by the corporation during the accounting year preceding the filing of the return.
Financial statements certified by a Certified Public Accountant (CPA) licensed in Puerto Rico must be attached to the declarations if the total volume of business is $3,000,000 or more. If the volume of business is less than $3,000,000 a copy of the income tax return pages or schedules showing the income and expenses, as filed with the Puerto Rico Department of the Treasury, must be included with the municipal license tax return. The taxpayer must attach to said documents a certification indicating that the documents are true and exact copies of the pages or schedules filed with the Puerto Rico Department of the Treasury. A certification form is generally provided with the tax return. A municipal license tax return that fails to comply with this requirement will be deemed not filed.
Filling a Municipal License Tax Return in Puerto Rico
The municipal license tax is payable in two installments on July 15 and January 15. However, if the total amount of the tax is paid on or before the filing due date, a 5% discount is granted for prompt payment.
If the taxpayer operates in more than one municipality, a breakdown of the volume of business by municipality must be prepared and attached to the declarations and a separate declaration must be filed with each municipality in which business is conducted. A return filed without certified financial statements, may be considered incomplete and deemed not filed.
The law provides for a maximum six (6) months extension of time to file the declaration upon request by the taxpayer and approval by the Municipality. In order to obtain the extension, a request form must be completed and filed with the municipality on or before the fifth day following April 15. No extension for the payment of the tax is available.
When a new business is established, the semester in which the company commences operations is generally exempt, provided that the business informs the Municipal Treasurer (within the first 30 days of operations) that it has established a business in the municipality. Certain complementary documents must be filed including the occupancy or use permit for the facility. A tax return must be filed for the following semester annualizing the volume of business realized during the commencing semester. Semesters run from July 1 through December 31 and from January 1 through June 30.
The Municipal License Tax Act imposes penalties for failure to file a complete return unless it is shown that such failure is due to reasonable causes and not to willful neglect. The penalty is 5% of the amount of the municipal license taxes due, if the failure is not for more than 30 days, with an additional 5% for each additional 30 days or fraction thereof during which such failure continues, not to exceed 25% in the aggregate.