PR Treasury Finally Issues Guidance on the Pre-Payment of the Special Reduced Tax on Amounts Accumulated Under Qualified and Non-Qualified Retirement Plans

The Puerto Rico (PR) Treasury has issued Administrative Determination Letter 14-16 of August 6, 2014 (AD 14-16) providing rules governing the pre-payment of amounts accumulated under a retirement plan at a special reduced tax rate, allowed under Act 77 of July 1, 2014 (Act 77). The PR Treasury has also issued forms SC 2911 (for qualified plans) and SC 2912 (for non-qualified plans) for making these pre-payments. As previously discussed, as result of Act 77, during the period from July 1, 2014 to October 31, 2014 (the Window Period), participants in retirement plans (whether qualified or not) can elect to pre-pay at a reduced tax rate part or the total amount accumulated under the plan that is not currently distributable. The implementation of this window was on hold pending the issuance of guidance by the PR Treasury since the applicable rate and the rules for implementing such pre-payments were unclear.