Puerto Rico: VAT regime repeal is upheld by veto-override

Puerto Rico: VAT regime repeal is upheld

The legislature of Puerto Rico has voted to override the governor’s veto of a bill to repeal the value added tax (VAT) regime that was scheduled to be effective beginning June 2016. Thus, the commonwealth’s existing sales and use tax system (known as “IVU”) will continue to apply.

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The governor on Friday, May 20, vetoed a bill to repeal the VAT system. The Puerto Rico Senate today, following a vote by the House of Representatives of Puerto Rico earlier this week, voted to override the governor’s veto—votes in both houses that reached the required two-thirds majority to override the veto.


Puerto Rico Act No. 72 (May 29, 2015) replaced the commonwealth sales and use tax with a new VAT, imposed at a rate of 10.5%. Originally, the VAT regime was to be effective in April 2015, but the VAT law included a measure providing that the Puerto Rico Treasury Secretary could postpone application of the VAT provisions for a specific period of time. The effective date of the VAT system was initially postponed until April 1, 2016, and then again until June 1, 2016. 

With this week’s action by the legislature, the VAT regime has been repealed, and the Puerto Rico sales and use tax system will continue to apply.

KPMG observation

It is expected that the Puerto Rico Treasury Department will issue guidance to clarify the effect of this week’s veto-override and the continuation of the sales and use tax system.

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