House Approves Bill Eliminating Insurance Premium Tax
SAN JUAN—The Puerto Rico House of Representatives eliminated a 1% tax on insurance premiums on Wednesday when it approved House Bill 2698, authored by Popular Democratic Party (PDP) Rep. Rafael “Tatito” Hernández.
The insurance premium tax was a holdover from the patente nacional, or gross receipt tax, which officials eliminated early last year. Although the patente was eliminated by law, the 1% tax, which is effectively equivalent to a gross receipt tax on the insurance sector, was for some reason left unchanged.
The Hernández bill, apart from seeking a more fair balance regarding the insurance sector’s tax burden, also wants to level the playing field between local and offshore insurance firms, tax wise. Offshore insurers pay a 4% tax over premiums and a 1% tax over remuneration annuities; a 2005 law had hiked those rates temporarily to 6% and 3%, respectively.
The bill’s statement of purpose regards the current tax rate on offshore insurance firms as unfair to local insurance companies. “Domestic insurers contribute to Puerto Rico’s economic development by creating jobs and hiring local consultants, while foreign insurers do not generate any movement in the local economy,” read the bill. “It is necessary to eliminate such a disadvantage.”
For that reason, the bill seeks to hike such rates once again, this time to a 7% tax over premiums.