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Puerto Rico enacts tax reform legislation phasing from sales tax to value-added tax

The Commonwealth of Puerto Rico has enacted the Tax Reform Process Act, which will phase the Puerto Rican indirect tax system from a sales and use tax (SUT) to a value-added tax (VAT). The tax reform is being implemented in a three-phase process. On July 1, 2015, the total SUT rate was increased from 7% to 11.5%. On Oct. 1, 2015, the SUT base will be expanded to include a new designated professional services tax and a business-to-business tax. Finally, on April 1, 2016, the VAT will be implemented at a rate of 10.5%. These major changes have been enacted in an effort to address Puerto Rico’s budget deficit.

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