The Tax Affairs committee of the Puerto Rico Chapter of the Association of General Contractors of America (AGC-PR) asked the Treasury Department and offered its help to establish clear and uniform rules for the application in the construction industry of certain adopted changes under the Tax Reform of 2019.
This request was made at the AGC-PR’s monthly luncheon, where a discussion was held on the most significant changes in the Tax Reform and its impact on the construction industry.
The discussion focused on a number of pressing issues for the construction industry, namely:
· The new 10% retention rules at source and the requirements for the issuance of retention waivers;
· The elimination of B2B for small and medium enterprises and its impact on the construction industry;
· The new optional taxation method for construction services companies; and,
· The importance of preparing Informative Returns (Form 480.6).
“One of our main objectives as an organization is to effectively address issues that directly affect our partners and that could influence their ability to comply with laws and regulations,” said AGC-PR President Alejandro J. Abrams.
On the 10% withholding tax, the reform amended certain provisions to exclude the services provided by electricians, plumbers, painters, maintenance personnel and personnel from the retention exemption requirement and the language that defines “project construction.”
The AGC-PR asked the Treasury to clarify these concepts through Regulations or Circular Letters, because these services are an integral part of a construction site.
Those services are already subject to a withholding of 10% compliance, so an additional 10% withholding could negatively affect the operations of these businesses, the contractors said.
The need to update the Circular Letters that establish a retention exemption for general contractors and subcontractors through an affidavit was also discussed.
“While these matters are being clarified, the AGC-PR recommends its partners to do business with registered merchants and to retain the contribution at source that applies to any service provider that cannot present a withholding tax relief,” said Rafael Del Valle, partner of UHY Del Valle & Nieves PSC, who served as moderator of the discussion.
Meanwhile, Treasury’s Secretary of Internal Revenue and Tax Policy, Francisco Parés, said the new Unified Internal Revenue System gives the agency the necessary tools to monitor and improve the services provided to taxpayers. The system also makes it possible to identify faults in compliance with tax obligations.
Regarding the other issues discussed, the Tax Reform’s benefits for small merchants that provide services to construction companies were discussed.
Under the new statute, there is no need to charge the sales and use tax in the B2B tax applied to these companies, if their sales volume is less than $200,000.
Finally, the AGC-PR emphasized that, starting in 2019, the general contractors and subcontractors have to prepare Informative Returns for all suppliers that render professional services so as not to lose this deduction when calculating the Minimum Alternative Tax or Alternate Basic Tax.