Our Global Network

Doing business in Puerto Rico

How quickly can I set up a business?

The Department of State of the Government of Puerto Rico provides online services for corporations, limited liability companies and limited liability partnerships.

What is the minimum investment needed?

No minimum investment required.

How can I raise finance?

Own funds, private banking, capital markets.

What are the legal requirements for setting up my business?

Corporations are classified into domestic or foreign corporations and into for-profit, nonprofit or public benefit corporations.

• Domestic Corporations – Are those created under the General Corporations Act of Puerto Rico. That is, these are corporations of Puerto Rico.
• Foreign Corporations – Are those created under the laws of other countries and states of the United States. For a foreign corporation to operate and do business in Puerto Rico, it must obtain authorization from the Department of State of the Commonwealth of Puerto Rico.
• For Profit Corporations – Are domestic or foreign corporations where owners derive economic benefit of its operation based on their participation in the business.
• Nonprofit Corporations – Are domestic or foreign corporations in which the proceeds of its operation, if any, are used to promote the purposes of the corporation itself and not to benefit financially the members of that entity through profit distribution.
• Public Benefit Corporation – Are domestic or foreign corporation with a primary public benefit purpose, in other words, their main purpose is not to generate net profits, but if there are, it could be distributed to its owners.

What structure should I consider?

There are advantages and disadvantages of what structure should consider use for a business, and there is no one correct answer, it is all dependent on your specific business circumstances and needs. A brief overview of the main structures is:

Foreign Corporation (a branch or subsidiary of the overseas business):

• A foreign corporation may not conduct business in Puerto Rico prior to receiving authorization from the Secretary of State.
• The branch is not a separate legal entity, but an extension of the overseas parent company and the Subsidiary is a separate legal entity.
• Provides limited liability or ring-fencing of the Puerto Rico operations.
• File a corporation tax return and pay tax on company profits from Puerto Rico operations.
• Branch is subject to a deemed distribution 10% branch profit tax on advances to parent company.
• Subsidiary actual repatriation of dividends will be subject to a 10% withholding at source.
• Accounts require auditing if Annual Revenues from Puerto Rico operations are over $ 10 million.

Domestic Corporation:

• Organized under the laws of Puerto Rico.
• Provides limited liability and ring-fencing to Puerto Rico operations
• Gives a perception of a local business, with longevity.
• File a corporation tax return and pay tax on company’s worldwide profits.
• Accounts require auditing if Annual Revenues are over $ 10 million.

Partnership:

• Partnerships are flow-through entities and profits are allocated to members who then pay Income Tax on these profits personally.
• Accounts require auditing if Annual Revenues are over $ 10 million.

Limited Liability Partnership:

• Members (partners) have limited liability.
• Profits are allocated to members who then pay Income Tax on these profits personally.
• Accounts require auditing if Annual Revenues are over $ 10 million.

Limited Liability Company:

• Any natural or judicial person may organize a limited liability company in Puerto Rico, and the articles of organization are required to be filed with the Department of State.
• Provides limited liability and ring-fencing to Puerto Rico operations
• For income tax purposes, limited liability companies will be taxed in the same manner as corporations but may elect taxation as a partnership.
• Accounts require auditing if Annual Revenues are over $ 10 million.

What advice can you give me in regards to payroll and taxation requirements?

Corporate Income Tax:

• Corporate regular income tax is made up of a normal income tax and surtax.
• The normal tax is computed on the net taxable income of the corporation. The normal tax rate is 18.5%.
• The surtax is computed on the surtax net income (net taxable income less the surtax deduction of $25,000). Surtax tax rates range from 5% to 19%.

Individual Income Tax:

• Puerto Rico individual residents are subject to Puerto Rico tax laws.
• If the individual has been present in Puerto Rico for at least 183 days during the year is presumed to be a resident.
• The individual is subject to Puerto Rico income tax on Puerto Rico source income.
• Individual tax rates range from 7% in excess taxable income over $9,000 to 33%.

Social Security Tax:

• Employers and employees also have to pay social security tax in Puerto Rico.
• The provisions of the United States’ Old Age, Survivors and Disability Insurance Act (“OASDI”) and the Hospitalization Insurance Tax (Medicare), commonly known as FICA or social security, are applicable in Puerto Rico.
• The tax rate for Social Security is 6.20% and for Medicare is 1.45%.

Sales and Use Tax (SUT):

• The SUT is imposed at a rate of 10.5% at the state level and 1% at the municipality level. The SUT generally applies to all retail sales including mail orders, sale of tangible personal property or services, admissions fees, storage, use or consumption in Puerto Rico.
• A 4% Special SUT Rate is imposed to the Services rendered Business to Business and the Designated Professional Services that are the legal services and the services provided by duly licensed professionals.
• A 4% Special SUT also apply to the services rendered by a non-resident person to a person located in Puerto Rico, regardless of where the service has been rendered, provided such service is directly or indirectly related with the operations in Puerto Rico.

Is there anything else that I should know?

Puerto Rico Incentives Code Act: An economic development tool based on fiscal responsibility, transparency, and ease of doing business.

In order to promote the necessary conditions to attract investment from industries, support small and medium merchants, face challenges in medical care and education, simplify processes, optimize, and provide greater transparency, Act 60-2019 was signed, which establishes the new Puerto Rico Incentives Code.

Puerto Rico Incentives Code Act: Its main objective is to promote economic development on our island. It provides certainty related to the types of incentives that Puerto Rico offers to attract investment and create jobs in very important and traditional sectors such as manufacturing, tourism, and agriculture, as well as aerospace, biosciences, technology, renewable energy, entrepreneurship, and export services. In addition, it defines new incentives to support emerging sectors, such as the creative, eSports and entertainment industries. And it is based on metrics that will measure its effectiveness and the return on investment of all the incentives granted.

• Puerto Rico is a very attractive place to set up corporate headquarters if over 90% of the entity’s gross income is derived of services for export and these services are considered strategic services.

• The tax inventive for these businesses is a 4% fixed tax rate on the net export services income, 100% exemption on dividend distributions and 90% exemption on property tax and municipal tax.

• Puerto Rico also offers to eligible businesses highly attractive tax incentive packages that include a fixed corporate income tax rate (4% to 8%) – one of the lowest in comparison with any U.S. jurisdiction – various tax exemptions and special deductions, training expenses reimbursement and special tax treatment for pioneer activities.

Our firms in Puerto Rico
How can Kreston grow your business?
Select your business type:

Latest news

Clients place significant value on use of technology

The International Accounting Bulletin’s (IAB) latest piece delves into our network’s perceptions of technology and its role in the future […]

Will developing countries block the G7 minimum tax deal?

Below is the International Accounting Bulletin’s (IAB) latest piece discusses the post-pandemic options for developing countries in relation to tax, […]

Hot topic: accounting and auditing for cryptocurrencies

HMRC recently published its long-awaited ‘Cryptoassets manual’ signalling that the wait-and-see era might be over when it comes to accounting […]