Yes. Puerto Rico charges a sales and use tax, called impuesto sobre ventas y uso (IVU). Unless the sale is exempt, software as a service (SaaS) is subject to this tax.
| SaaS | |
|---|---|
| Digital Goods | |
| Confused? | Talk to us -> |
| Sales | $100,000 |
|---|---|
| Transactions | 200 |
| Physical? |
| Puerto Rico | 10.50% |
|---|---|
| Average Total Rate | 11.50% |
| Local Rates Apply |
The Internal Revenue Code of Puerto Rico, or Código de Rentas Internas de Puerto Rico, states that most digital goods, including SaaS, audio and audiovisual works, NFTs, and downloaded and streamed content, are all subject to sales and use tax in this U.S. territory.
While SaaS is taxable, companies offering SaaS will be required to follow Puerto Rico's tax laws only if they have established nexus in the territory.
This guide will explain Puerto Rico’s sales and use tax rules, including nexus thresholds, so companies doing business in Puerto Rico can ensure compliance.
Any company that sells to customers in Puerto Rico could become responsible for collecting and remitting sales tax payments once the company has sufficient connections to Puerto Rico.
When a company establishes nexus and doesn't collect tax on taxable products, including SaaS, or fails to comply with Puerto Rico’s tax laws, that company may be subject to fines and other penalties, as well as reputational damage and other consequences.
It’s important for SaaS companies to track where they have nexus and stay up-to-date about state-and territory-specific rules, which vary by jurisdiction and are subject to change.
Act 52-2022 made major changes to the Internal Revenue Code of Puerto Rico of 2011.
One thing the act did was amend Section 4010.01 of the code to include digital products in the territory's definition of taxable items. Amendments included the following:
Essentially, Puerto Rico wanted to make very clear that sales and use taxes apply to pretty much anything of value that is transmitted digitally.
Puerto Rico taxes more digital goods than most jurisdictions. As a result, anyone selling digital products in Puerto Rico should be aware that those products may be subject to taxes.
However, this doesn't mean every business must register for sales tax, collect the tax, file forms, and remit tax payments. There are two key factors that determine whether a company must fulfill tax obligations.
Any person considered a "merchant" under Puerto Rico’s Internal Revenue Code Section 4010.01(h) may be obligated to collect sales and use tax. A merchant is any person who is engaged in the sale of taxable items in Puerto Rico, including wholesalers.
This obligation is triggered when the merchant establishes physical or economic nexus in Puerto Rico.
Physical nexus refers to having an actual physical presence in the territory, for example, by:
Puerto Rico also requires merchants to collect and remit sales and use tax if they have economic nexus, or a certain amount of economic activity, there. U.S. states and territories were granted the right to establish economic nexus rules by the Supreme Court, with their decision in the 2018 case, South Dakota v. Wayfair, Inc.
In Puerto Rico, you establish economic nexus if you have:
Once nexus is established, your company must collect tax on SaaS and other taxable digital or physical products sold to Puerto Rico customers.
Like many locations throughout the U.S., Puerto Rico has a marketplace facilitator law, which is found in Section 4010.01 (ddd) of the Internal Revenue Code.
This law defines marketplace facilitators as companies that aid in the sale of tangible property, specific digital property, or other taxable services through a marketplace. The marketplace could be a store, website, or similar type of platform.
When your business sells its products or services on a marketplace (as defined by Puerto Rico), the marketplace facilitator must collect the sales and use tax in all transactions within the market. You do not have to collect taxes on those sales, as the marketplace takes care of this for you.
Many merchants who sell digital goods on sites like Etsy and eBay will find that marketplace facilitator laws apply.
Complying with Puerto Rico laws is essential.
Puerto Rico has the authority to conduct an audit of your company to determine compliance with sales and use tax, and if you are found in violation, you could owe fines, fees, and back taxes.
To avoid this:
By taking these steps, your company can operate effectively in Puerto Rico without serious risk of penalties for noncompliance.
Many companies do business in multiple U.S. states and territories. If yours is one of them, you need to know when you meet nexus requirements in each and every jurisdiction.
You also need to complete all your registrations in a timely manner, and learn the rules regarding the taxability of SaaS in every jurisdiction where you have customers. This is where a sales tax compliance platform like Numeral can be an invaluable business tool.
Numeral can help you to monitor sales, track nexus, and register when and where required. It can also help you make sure you charge tax on the right products, and it monitors updates to tax laws that may affect your company’s compliance.
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For companies that want to learn more about Puerto Rico tax rules, here are some additional resources:
Puerto Rico has unique rules for the taxation of digital goods, and companies selling SaaS and other digital products must be aware of their obligations if they want to avoid fines and other problems.
Let Numeral help you to protect your company's financial security by ensuring that you're compliant with sales tax rules in the U.S. states and territories, as well as in 90+ countries across the globe.
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