The Puerto Rico Treasury Department published a series of administrative determinations and information bulletins concerning the approaching tax deadlines and pension plan distributions as relief for taxpayers affected by Hurricane Maria.
In view of Hurricane Maria’s impact on Puerto Rico’s electrical infrastructure and telecommunications accessibility, including damage to the central government website, the Treasury Department (PRTD) issued a series of administrative determinations (AD) and internal revenue bulletins (BI RI) to ease compliance and emphasize certain requirements.
All entities and individuals that have started or will start operations in Puerto Rico must register with the PRTD. The registrations may include the employer’s identification number for income and payroll tax purposes, and provide a merchant certificate for purpose of the sales and use tax. (BI RI 17-26 of October 26, 2017)
Construction activities, jobs, and projects to repair, reposition, or reconstruct existing infrastructure or structures affected by Hurricane Maria, that have (1) been exempted from the ordinary procedure for requesting construction or urbanization permits, and (2) obtained the categorical exclusion from the permits office, will be considered constriction projects under regulation Article 4210.01(c)-23. (AD 17-24 of October 26, 2017)
The governor of the Commonwealth of Puerto Rico issued executive orders establishing special rules for distributions from trusts of qualified pension plans (retirement plans) under section 1081.01 of the Puerto Rico Internal Revenue Code of 2011, as amended (PR Code), and for withdrawing funds from individual retirement accounts (IRAs) established under section 1081.02(d)(1) of the PR Code.
The PRTD issued Administrative Determination 17-29 (AD 17-29) providing guidance and establishing procedures for complying with the rules for eligible distributions from retirement plans and IRAs.
Eligible distributions are cash payments and distributions from a retirement plan or IRA made during the eligible period—from September 20, 2017, to June 30, 2018—as requested by an eligible individual to cover eligible expenses.
For retirement plans, eligible distributions include:
Other measures provide that:
Eligible distributions from retirement plans and IRAs received by an eligible individual during the eligible period will be treated as distributions due to extreme economic emergency, and be subject to tax as follows:
The eligible distributions are to be understood as coming first from the contributions and investment income that has not been previously taxed to the eligible individual, and if not sufficient, from the non-taxable base, such as voluntary contributions from the employee (after-tax contributions), and the amounts for which the tax was paid in advance.
Any person making eligible distributions must deduct and withhold from such distributions an amount equal to 10% from the amount exceeding $10,000. If the required tax withholding is not made at the time of payment, the amount distributed would not be eligible for the tax treatment provided in AD 17-29. Accordingly, the distribution is to be considered taxable income to the eligible individual and will be subject to the regular rates of income tax and withholding tax established by the Code.All amounts distributed from a retirement plan or IRA, along with the applicable withholding, are to be listed on Form 480.7C or Form 480.7, respectively. Any distribution over $100,000 is not eligible for the 10% tax rate.
An eligible individual must submit a sworn statement to the employer or the service provider that administers the retirement plan or the financial institution or insurer that keeps the IRA, and that includes the following information:
The employer, administrator or service provider of the trust or annuity contract making an eligible distribution is considered to be a withholding agent and will be responsible for withholding the tax provided in AD 17-29. This tax withheld should be remitted to the PRTD no later than the 15th day following close of the month in which the amount was withheld. If the withholding agent does not comply with the withholding, the PRTD can collect from the withholding agent the total amount not withheld. The withholding agent is also subject to the penalties imposed in Subtitle F of the PR Code, including those imposed in section 6080.02 of the PR Code.
During the eligible period, it is permissible to approve and disburse loans to participants of the retirement plan regardless of whether the plan provides for them, subject to the plan being amended no later than December 31, 2018. For all loans made to participants before September 20, 2017, and during the eligible period, a moratorium for up to one year can be granted.
Conforming amendments to the retirement plans to adopt AD 17-29 provisions will not be considered a qualification amendment for purposes of Tax Policy Circular Letter No. 16-08. Therefore, it is not necessary to file these amendments with the PRTD.
For more information, contact a KPMG tax professional in Puerto Rico:
Rolando Lopez | +1 (787) 622-5340 | firstname.lastname@example.org
Carlos Molina | +1 (787) 622-5311 | email@example.com
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