If you’re benefiting from Puerto Rico’s Act 20 or Act 60 tax incentives, staying on top of compliance is crucial. Missed deadlines or overlooked requirements can lead to penalties, loss of tax benefits, or even revocation of your grant. Here’s a step-by-step guide to conducting a DIY compliance audit to help you manage Act 20 and Act 60 obligations effectively.
Step 1: Verify Your Filing Deadlines
To maintain compliance under Act 20 or Act 60, it’s essential to track all filing deadlines, including forms, reports, and declarations. Below is a detailed list of due dates, extensions, and notes to keep you on track:
- January 31
- Quarterly Employment and Withholding Returns (Forms 499, 941, and 480.6SPs): Required if you have employees, covering income tax withholdings and Social Security contributions. Filed electronically.
- Unemployment and Disability Insurance Returns: Required if you have employees, filed electronically with the Department of Labor and Human Resources.
- February 28
- Informative Returns (Forms 480 series, the Puerto Rico equivalent of Forms 1099): Reports payments made to individuals or entities for services rendered. Filed electronically via the Treasury’s system.
- March 15
- Annual Income Tax Return for pass-through entities under Act 20 or Act 60: Filed electronically via the Puerto Rico Department of Treasury’s system. A six-month extension is available if requested before the due date, extending the deadline to September 15.
- Act 20 or Act 60 Annual Report for pass-through entities: Due 30 days after the income tax return due date, typically April 14 unless it falls on a weekend or holiday. Filed electronically via the DDEC portal; government fee is $505.
- April 15
- Annual Report to the Department of State: Filed electronically; a $150 government fee applies as of now.
- Volume of Business Declaration (Patente Municipal): Due on the 5th business day after April 15. Can be filed electronically or on paper, depending on the municipality’s requirements. Extensions may be available based on municipal guidelines.
- April 30
- Quarterly Employment and Withholding Returns (Forms 499, 941, and 480.6SPs): Required if you have employees, covering income tax withholdings and Social Security contributions. Filed electronically.
- Unemployment and Disability Insurance Returns: Filed electronically with the Department of Labor and Human Resources.
- May 15
- Personal Property Tax Return (CRIM): Filed electronically through CRIM. A three-month extension is possible, extending the deadline to August 15 if requested before May 15.
- June 15
- Act 20 or Act 60 Annual Report for pass-through entities with an extended income tax return due date: Due 30 days after the extended income tax return deadline.
- July 15
- Annual Income Tax Return for entities with C-Corp elections under Act 20 or Act 60: Filed electronically. Six-month extension available if requested before the original due date, extending to January 15 of the following year.
- Act 20 or Act 60 Annual Report for entities with C-Corp elections: Due 30 days after the income tax return due date, typically August 14 unless it falls on a weekend or holiday. Filed via the DDEC portal.
- July 31
- Quarterly Employment and Withholding Returns (Forms 499, 941, and 480.6SPs): Filed electronically; required if there are employees.
- Unemployment and Disability Insurance Returns: Filed electronically with the Department of Labor and Human Resources.
- August 15
- Extended deadline for Personal Property Tax Return (CRIM): Applies if extension was filed before May 15.
- September 15
- Extended deadline for pass-through entities’ Annual Income Tax Return: Filed electronically if an extension was requested.
- Act 20 or Act 60 Annual Report for pass-through entities with an extended income tax return due date: Due 30 days after the extended income tax return deadline, typically October 15.
- October 31
- Quarterly Employment and Withholding Returns (Forms 499, 941, and 480.6SPs): Required if there are employees. Filed electronically.
- Unemployment and Disability Insurance Returns: Filed electronically with the Department of Labor and Human Resources.
- January 15 (Following Year)
- Extended deadline for Annual Income Tax Return for entities with C-Corp elections under Act 20 or Act 60: Filed electronically if an extension was requested before the original July 15 deadline.
- Act 20 or Act 60 Annual Report for entities with C-Corp elections with extended returns: Due 30 days after the extended income tax return deadline, typically February 14.
Additional Note: Estimated tax payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year.
Step 2: Ensure Residency Compliance
For individuals receiving Act 20 or Act 60 benefits, maintaining bona fide Puerto Rico residency is crucial. Ensure you meet the following requirements:
- Physical Presence: You must spend the required number of days in Puerto Rico.
- Closer Connection: Primary ties, such as family, property, and social connections, should be based in Puerto Rico.
Potential Risks:
- Spending too much time outside Puerto Rico or moving back to the mainland could jeopardize tax benefits.
- Major life changes, like marriage or significant property purchases outside Puerto Rico, may necessitate an update to your residency status documentation.
Step 3: Check for Business Expansion or Model Changes
If your business has expanded, changed its operations, or moved locations, confirm that the new activities are aligned with your original Act 20 or Act 60 decree. If your business model or services no longer match the original decree criteria, a re-evaluation or amendment may be necessary. Also, if your business address has changed, be sure to update it with all relevant agencies, including the IRS, Hacienda, Puerto Rico State Department, Department of Labor, and FINCEN (for the BOI report). This keeps your records accurate and prevents unnecessary compliance issues.
Step 4: Prepare for Possible Audits or Compliance Checks
Regular audits and compliance checks by the Puerto Rican Department of Treasury or the Department of Economic Development and Commerce (DDEC) are part of the Act 20 and Act 60 oversight. Be prepared to provide:
- Residency Documentation: Individuals benefiting from Act 20 or Act 60 should maintain records supporting their Puerto Rico residency.
- Business Operation Proof: Businesses may need to demonstrate that their activities align with the export service criteria outlined in their grant.
Step 5: Understand the Consequences of Non-Compliance
Failure to meet the requirements of Act 20 or Act 60 can lead to serious consequences, such as:
- Monetary Penalties: Fines or penalties may be assessed for missed filings or inaccurate records.
- Loss of Tax Benefits: Benefits may be revoked if you fail to meet eligibility or compliance standards.
- Possible Revocation of the Grant: In cases of significant non-compliance, the tax grant itself could be revoked.
Final Thoughts
Conducting a DIY audit of your Act 20 or Act 60 compliance is an effective way to stay organized and protect the benefits you have worked hard to achieve. This list can serve as an annual compliance review, helping you confirm that you’re on track with filings, residency requirements, and any operational changes.
For additional guidance or support with complex requirements, consulting a professional familiar with Act 20 and Act 60 compliance can provide added peace of mind.
For further assistance or information, please contact us at [email protected] or 787-473-8985.
Disclaimer:
The information provided is for informational purposes only and should not be considered legal or tax advice. Consult with a qualified attorney or tax advisor to discuss your specific situation.