Puerto Rico Retirement Plans Will See Tax Provisions Reinstated

Certain provisions regarding plan distributions and loans were erroneously eliminated by a previous bill, a law firm says.

House Bill No. 2172 (HB 2172), which intends to incorporate technical amendments to the Puerto Rico Internal Revenue Code of 2011, as amended, was approved by the Puerto Rico Legislature and sent to the Governor for approval, according to a client alert from law firm McConnell Valdés LLC.

For taxable years commencing in 2019 and thereafter, HB 2172 would amend the PR Code to provide that distributions made by plans qualified under the U.S. Internal Revenue Code of 1986, as amended, and funded through a U.S. trust, to Puerto Rico non-resident individuals, whether participants or beneficiaries, shall not be subject to Puerto Rico income tax, the alert says.

Importantly, the bill will “reinstate certain provisions erroneously eliminated by PR Act 257-2018.” Those provisions include withholding tax provisions on plan distributions.

In addition, for plan loans, they shall not be deemed a taxable distribution if loan repayments are made through substantial equal payments at least on a quarterly basis; and loan repayments are completed within a period of five years or less, unless the loan is taken to finance the purchase of the participant’s principal residence, in which case a longer repayment period is permissible as provided by the plan.