On September 29, 2018, the Disaster Tax Relief and Airport Extension Act of 2017, as amended (the "Act"), was adopted to, among other goals, provide tax relief to those affected by Hurricanes Irma and Maria. The Act includes an employee retention benefit (the "Benefit") available to eligible employers.
The Act provides that the Benefit for employers in Puerto Rico will be available if the government of Puerto Rico establishes a plan, approved by the U.S. Department of the Treasury (the "U.S. Treasury"), to promptly distribute each payment to its residents. In addition, the U.S. Treasury must determine the Benefit applicable to eligible employers in Puerto Rico, taking into consideration the tax particularities of Puerto Rico employers.
The Puerto Rico Treasury, in conjunction with the U.S. Treasury, has already established the plan, and the U.S. Treasury has recently determined the Benefit applicable to eligible employers in Puerto Rico. As a result, on June 8, 2018, the Puerto Rico Department of the Treasury (the "PR Treasury") issued Internal Revenue Circular Letter No. 18-11 ("CL 18-11"), establishing the eligibility requirements and the procedure to request the Benefit. In addition to CL 18-11, the PR Treasury has issued further guidance in the format of Q&As. The following summarizes the most important aspects of CL 18-11 and the Q&As:
Who is an Eligible Employer? An eligible employer is an employer that: (i) on September 16, 2017 (or September 4, 2017 for Hurricane Irma) was engaged in trade or business in Puerto Rico; (ii) whose business became inoperable on any day after such date and before January 1, 2018, due to damage caused by Hurricanes Irma or Maria; and (iii) continued to pay wages to its eligible employees (as defined below) during the period in which the business was inoperable. Non-profit organizations are not considered eligible employers. Who is an Eligible Employee? An eligible employee is an employee of an eligible employer, whose principal place of employment as of September 16, 2017 was in Puerto Rico, and who received wages reported on Form 499R-2/W-2PR. In case of Hurricane Irma, the principal place of employment as of September 4, 2017 should have been located in any of the following municipalities: Canóvanas, Cataño, Culebra, Dorado, Fajardo, Loiza, Toa Baja, Vega Baja or Vieques. Only employees on the eligible employer's payroll as of September 16, 2017 (or September 4 for Hurricane Irma) qualify as eligible...