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The Puerto Rico Treasury Department (PRTD) has issued guidance (Informative Bulletin (IB) 22-02) for individual investors who have a tax exemption decree and receive an order of revocation from the Department of Economic Development and Commerce (DEDC).

In 2021, the PRTD announced (IB 21-03) that it would be auditing individual investors with tax exemption decrees, in accordance with Law 22-2012. As a result of these audits, some individuals may have their tax exemption decrees revoked.

IB 22-02 advises individual investors who receive an order of revocation to (1) amend their income tax returns for the tax years for which the revocation is effective, (2) calculate their tax liabilities without taking into account the tax exemption and (3) pay any tax due. Individuals who do not amend their income tax returns will receive a "Mathematical Error Notification" with the tax due.

If an individual investor receives a revocation and has not filed tax returns for the tax years corresponding to the revocation, the PRTD may refer the case to the Area of Intelligence and Tax Fraud for a possible tax evasion investigation.

Implications

Even though the tax exemption for individual investors has been part of Puerto Rico's tax incentive landscape for just over a decade, it has received increased attention in the last couple of years. The Secretary of the DEDC recently announced that the department received a record number of applications during 2021 for tax exemption decrees for individual investors.

The increased attention has brought this tax benefit heightened scrutiny from the government entities charged with ensuring compliance with the terms and conditions of the tax exemption decree. Beneficiaries of this tax incentive should be familiar with all the terms and conditions of their tax exemption decree and in good standing. Individuals with questions about their compliance would be well served to seek resolution.

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