Governor of Puerto Rico signs amendments impacting tax provisions: Key points

The governor of Puerto Rico, Jenniffer González Colón, signed into law various tax bills that were approved in the legislative session ending on June 30, 2025. These bills primarily amend the Puerto Rico Internal Revenue Code of 2011 (PR Code), the Puerto Rico Municipal Code (Municipal Code), and the Puerto Rico Incentives Code (Incentives Code), among others.

Below, we provide key tax changes affecting businesses operating in Puerto Rico.

Amendments to the PR Code and other legislation: Acts 64-2025, 65-2025, and 72-2025

Income taxes

• Churches and other religious organizations may now be exempt from Puerto Rico income taxes without needing to request an exemption or compliance certification from the Puerto Rico Department of the Treasury (Treasury).
  
  
• Treasury had been authorized to grant income tax exemption under PR Code Section 1101.01 to entities exempt under Section 501(c)(3) of the US Internal Revenue Code of 1986 (US Code), even if they do not meet the requirements of PR Code Section 1101.01(a). Treasury now may also waive the requirements of PR Code Section 1101.01(d), which provides that the effective date of the income tax exemption will be the first day of the taxable year in which the request for exemption was filed. PR Code Section 1101.01 (d) also requires that the board of directors be comprised of no less than three members, of which no more than 49 percent are from the family nucleus of the person that establishes the entity, or is one of the chief executives or the president of the board of directors of the entity.
  
  
• Treasury may establish an expedited procedure for processing the request for exemption filed by 501(c)(3) entities through a circular letter or any other general pronouncement. This validates Treasury’s expedited procedure set forth in Internal Revenue Circular Letter No. 25-11, authorized by the governor of Puerto Rico in Executive Order No. OE-2025-018.
  
  
• For taxable years beginning after December 31, 2023, any limited liability company (LLC) may elect to be classified as a disregarded entity (DRE). Previously, LLCs could not elect DRE treatment if their sole member was not a resident of Puerto Rico.
  
  
• Any foreign entity not classified as a corporation, partnership, or trust will be treated as an LLC.
  
  
• The definition of “engaged in trade or business in Puerto Rico” (ETB-PR) now includes the sale of inventory in Puerto Rico, in addition to rendering services. However, to be considered ETB-PR, the business activities of the person in Puerto Rico must be “substantial,” “continuous,” and “regular,” considering the nature of the person's business activities inside and outside Puerto Rico. Before this amendment, rendering services in Puerto Rico at any time during the taxable year would cause a person to be ETB-PR, regardless of whether such activities were “substantial,” “continuous,” and “regular.”

Alternative minimum tax

• Accrual method taxpayers, or those with an economic taxable year, are no longer required to submit a reconciliation schedule for certain expenses reflected in their accounting books with amounts reported in informative returns filed with the Puerto Rico income tax return (PR return) for purposes of calculating the alternative net income subject to the alternative minimum tax (AMT). These expenses may include rent, telecommunication, internet, advertising, promotion, publicity, marketing, property insurance, contingency insurance, and malpractice insurance. However, the reconciliation schedule must still be prepared and retained by the business. Additionally, the reconciliation schedule will be required to be submitted with the PR return to deduct, for regular income tax purposes, expenses related to services, rents, wages, premiums, annuities, compensations, certain fixed or determinable earnings, benefits and income, certain interest, and certain payments to nonresident individuals and foreign corporations that are not ETB-PR, unless a financial statement is submitted with the PR return in accordance with PR Code Section 1061.15.
  
  
• For taxable years beginning after December 31, 2024, certain bank and electronic transaction processing fees can be deducted for AMT purposes, provided they are reported in an informative return.
  
  
• To determine the alternative net income subject to the AMT, taxpayers may exclude the amount of the dividends received deduction available for dividends from a domestic corporation, certain foreign corporations that are ETB-PR, or an entity covered by a tax incentives decree.
  
  
• For changes in classification elections under PR Code Section 1078.02, the required ruling from Treasury must be requested within 183 days from the filing of the election, rather than within 183 days from the date of the deemed exchange.
  
  
• Sworn notices required by PR Code Sections 1063.05(d) (dissolutions or liquidations) and (e) (liquidating distributions) will no longer be required if such events are deemed to occur as a result of a change in a classification election under PR Code Section 1078.02. This amendment is effective for taxable years beginning after December 31, 2023, in the case of dissolutions or liquidations, and after December 31, 2024, in the case of liquidating distributions. The information otherwise required by PR Code Sections 1063.05(d) and (e) will instead be reported in the electronically submitted change in classification election.
  
  
• The deadline for filing the “Informative Income Tax Return Pass-Through Entity” and the “Revocable Trust or Grantor Trust Informative Income Tax Return” is now the last day (previously the fifteenth day) of the third month following the close of the taxable year.
  
  
• Related entities may elect to file a “Pass-Through Entity Informative Income Tax Return – Composite” when the foreign owners of a pass-through entity that is ETB-PR are themselves pass-through entities in their countries of origin.
  
  
• Treasury may extend filing and payment deadlines by up to six months in extraordinary circumstances or after emergency declarations of the government.
  
  
• Reporting requirements applicable to electronic payment processing (which apply to debit or credit card payment processing through a network) now also apply to (i) transactions through a platform that provides payment collection options for the benefit of the merchants (as such term is defined for sales and use tax purposes) using the platform, and (ii) payments for activities within a network or medium.
  
  
• PR Code Section 1063.16, which requires reporting of payments related to advertising, insurance premiums, telecommunication services, internet access, and cable or satellite television services, now applies to payments received from commercial clients that are ETB-PR. Entities engaged in financial services (including financial institutions, fund managers, retirement plan administrators, and brokerage firms) are required to report certain payments received from commercial clients after December 31, 2024. These payments include bank charges, payroll or payment processing fees, and any financial service charges.
  
  
• Treasury will not accept amended returns or declarations if the taxpayer is under audit or investigation, or if the original filing was audited and a debt assessed.
  
  
• For exempt business electing to be subject to the special income tax regime provided by Section 3A of Act 135-1997 and 73-2008, or by Sections 2062.01(a)(3) and (b)(4) of the Incentives Code, and that such estimated amount be sufficient to avoid penalties for underpayments, the exempt business is required to consider the excise tax paid under Act 154-2010 during the taxable year that precedes the taxable year of the election.
  
  
• For taxable years beginning after December 31, 2024, businesses not using inventory and with an average of USD10 million annual gross revenues or less may use the cash method of accounting. The previous threshold was USD3 million. Due to the increased threshold, qualifying taxpayers may change from the accrual method to the cash method without requesting a ruling from Treasury.
  
  
• Treasury is now expressly authorized to waive certain surcharges and penalties to taxpayers under the Taxpayer Rehabilitation Program or the Voluntary Disclosure Program, and to establish payment plans of at least six months. Taxpayers under a voluntary disclosure agreement will not be referred for criminal prosecution to the Puerto Rico Department of Justice.

Sales and use taxes

• For periods beginning on or after July 1, 2024, municipalities may agree with Treasury to use Internal Revenue Unified System (SURI, by its Spanish acronym) for administration, reporting, and collection of the municipal portion of the sales and use tax (municipal SUT). These agreements may allow municipal SUT debts to be reflected in Treasury’s debt certificates and provide a uniform administrative procedure for challenging the collection of the municipal SUT. However, Treasury cannot grant payment plans or enter into closing agreements without municipal consent. In addition, if Treasury modifies the total taxable sales, Treasury must report the change to the corresponding municipality.

Other legislation on employment taxes

• By July 1, 2026, Treasury and the Department of Labor and Human Resources (DLHR) must reach an agreement to consolidate employment tax reporting and payment on wages paid to the DLHR for employees in Puerto Rico using SURI.

Amendments to the Incentives Code: Acts 65-2025 and 67-2025

• For taxable years beginning after December 31, 2024, exempt businesses must file their exempt business annual report and pay the corresponding filing fee with Treasury as part of their Puerto Rico return. Previously, these were filed with and paid to the Department of Economic Development and Commerce.

Amendments to the Municipal Code: Acts 65-2025, 78-2025, and 90-2025

Property taxes

• Prescription medications, as defined in PR Code Section 4030.12(a), are now entirely exempt from personal property taxes.

Municipal license taxes

• The volume of business generated from contracts with a municipality will be considered gross income from a trade or business in the contracting municipality, regardless of the municipality where the contractor maintains an office, branch, warehouse, or place of business.
  
  
• The due date for filing the Volume of Business Declaration by exempt businesses covered by a decree issued under the Incentives Code (or any similar predecessor or successor act) will be five business days after June 15 of each taxable year.
  
  
• The automatic extension for filing the Volume of Business Declaration is extended from six to eight months for holders of a decree under the Incentives Code or similar laws.

Learn more

For more information about the amendments introduced by Act 64-2025, Act 65-2025, Act 66-2025, Act 67-2025, Act 72-2025, Act 78-2025, Act 90-2025, and other US and Puerto Rico tax matters, please contact the authors.

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