They withhold from every invoice: what it is and how to get relief

Withholding at source on payments for services rendered works like this: the person or entity engaged in trade or business, or in the production of income in Puerto Rico, that pays a corporation, partnership or individual for services rendered in Puerto Rico does not hand over the full invoice. It withholds a percentage and deposits it with Treasury in the name of whoever provided the service, who then credits it against their tax. For the person receiving payment, that means collecting less during the year even though it is credited later, which is why the relief exists: a certificate authorizing that no withholding be made. Section 1062.03(g) of the Code sets the criteria.

Treasury publishes a list of taxpayer types that may request Relief: individuals or legal entities with business volume equal to or greater than $1,000,000 but less than $3,000,000; individuals or legal entities with business volume equal to or greater than $3,000,000; legal entities current on their tax responsibility; legal entities with a net operating loss; corporations or partnerships showing a carryforward of a substantial net operating loss on their return; individuals or legal entities in the first three years of starting a service activity, who must fully complete Form SC 2678 if individuals or Form SC 2680 if legal entities; individual corporations or partnerships whose shareholders or owners are physicians qualified under Ley 14-2017; individuals aged 16 to 26 eligible for the $40,000 gross income exemption under Ley 135-2014; individuals aged 16 to 35 starting a new business under Ley 135-2014; individuals with a net operating loss; and physicians qualified under Ley 14-2017.

• Meeting one of the criteria of Section 1062.03(g) of the Code, per the list Treasury publishes.Verified against the official source
• Having an active SURI account: since 10 December 2018 the Automatic Relief is issued through SURI and not by post.Verified against the official source
• If applying because you are in the first three years of a service activity: fully completing Form SC 2678 if an individual, or Form SC 2680 if a legal entity.Verified against the official source

• Form SC 2678, for individuals in the first three years of starting a service activity.
• Form SC 2680, for legal entities in the first three years of starting a service activity.

1. 1

   Step 1: Understand what is being withheld and why

   When you invoice for services to a person or entity engaged in trade or business in Puerto Rico, that person is required to withhold a percentage of the payment and remit it to Treasury in your name. They are not overcharging you: it is an advance on your tax, credited later. But during the year you collect less, which is why it is worth knowing whether you qualify for relief.

2. 2

   Step 2: On the percentage, Treasury says two different things

   This has to be said precisely because it affects what you expect to collect. The Withholding on Services Rendered page, inside the Employers and Withholding Agents section — the section that governs the subject — says the taxpayer will find information about the 10% withholding on payments for services rendered. The page on processes and requirements when establishing a business says that, in general, every payment made by a natural or legal person engaged in trade or business or in the production of income in Puerto Rico, to a corporation, partnership or individual for services rendered in Puerto Rico, is subject to a 7% withholding at source. Both are published today. This guide does not choose between them: if the percentage decides something for you, confirm it with Treasury or your tax return specialist, and keep the answer in writing.

3. 3

   Step 3: Check SURI at the end of December

   Taxpayers who qualify for the Automatic Relief and have an active SURI account are issued the Relief automatically through their account, since 10 December 2018. Treasury stopped sending them by post as in prior years. And there is an important note on the calendar: that automatic issuance happens annually and takes place at the end of December each year. If you are waiting for the relief in March, it will not arrive by post and it is not issued then.

4. 4

   Step 4: If it did not arrive and you think you qualify, request it yourself

   Treasury publishes the steps. Go to SURI at https://suri.hacienda.pr.gov and log in with your username and password. At the top of the screen, select "Más Opciones". Find the "Retenciones contributivas" box and select the link "Certificado de Relevo de la Retención en el Origen sobre Pagos por Servicios Prestados en PR". Read the instructions carefully and complete the required information.

5. 5

   Step 5: Check whether you are in one of the eleven categories

   Treasury’s published list of who may request Relief has eleven entries, several of them surprising. By volume: individuals or entities with business volume equal to or greater than $1,000,000 but less than $3,000,000, and those at $3,000,000 or more. By compliance: legal entities current on their tax responsibility. By losses: legal entities with a net operating loss, corporations or partnerships carrying forward a substantial net operating loss, and individuals with a net operating loss. By age of the business: individuals or entities in the first three years of starting a service activity. By profession: individual corporations or partnerships whose partners, shareholders or owners are physicians qualified under Ley 14-2017, and physicians qualified under that same law. And by age: individuals aged 16 to 26 eligible for the $40,000 gross income exemption of Ley 135-2014, and individuals aged 16 to 35 starting a new business under the same law.

6. 6

   Step 6: If you are new, fill in your form in full

   For those applying because they are in the first three years of starting a service activity, Treasury adds an express warning: do not forget to fully complete Form SC 2678 for individuals, or Form SC 2680 for legal entities. "In full" is written on the page itself.

7. 7

   Step 7: Give the relief certificate to whoever pays you

   The relief certificate is no use filed away. The one obliged to withhold is whoever pays you, so it is that person or company you must give the certificate to so they stop withholding. If you work with several clients, each of them needs to know.

SURI, at https://suri.hacienda.pr.gov: Más Opciones, the "Retenciones contributivas" box, link "Certificado de Relevo de la Retención en el Origen sobre Pagos por Servicios Prestados en PR". The Automatic Relief, for those who qualify and have an active account, is issued through SURI at the end of December each year.

• Believing the withholding is an extra tax: it is a creditable advance against your tax.
• Waiting for the relief by post, when since December 2018 it is issued through SURI.
• Looking for the automatic relief in any month: it is issued once a year, at the end of December.
• Getting the relief and not giving it to the clients who pay you, who are the ones withholding.
• Applying on the first-three-years ground without fully completing SC 2678 or SC 2680.
• Ruling yourself out for age or for having losses, when both are on the list of who may apply.
• Taking a percentage as settled without confirming, when Treasury publishes 10% on one page and 7% on another.

These are the government pages this guide is based on.

• Departamento de Hacienda de Puerto Rico

  Hacienda

  hacienda.pr.gov

• What the Withholding Relief Certificate is and how to request it

  hacienda

  hacienda.pr.gov

• Processes and requirements when establishing a business (the page publishing 7%)

  hacienda

  hacienda.pr.gov