A corporation organisedor created under the laws of Puerto Rico is a domestic corporation. A domestic corporation is a resident corporation even if it does not conduct business operations in Puerto Rico. A corporation created elsewhere is considered a foreign corporation.
Permanent establishment (PE)
The Puerto Rico Tax Code does not provide specific guidance on PE. Facts and circ*mstances need to be analysedin order to determine if a corporation has created a PE in Puerto Rico or not. However, having an office or fixed place of business in Puerto Rico may deem the corporation to be engaged in a trade or business in Puerto Rico (i.e. having a PE).
Sourcing rules pursuant to Act No. 154
Act No. 154's source rules are segregated into two parts. The first part treats a non-Puerto Rico resident manufacturing entity as having an office or fixed place of business in Puerto Rico merely as a result of engaging in transactions above a certain threshold with a related Puerto Rico entity. The second part treats a portion of the income earned by a non-Puerto Rico resident entity as Puerto Rico-source income.
Act No. 154's source rule applies where a non-Puerto Rico resident purchases goods and services from a related company that manufactures personal property or performs services in Puerto Rico that account for 10% or more of the total gross receipts of the seller from sales of such property or services in Puerto Rico, or at least 10% of the purchase cost of personal property and services acquired by the purchaser, for the taxable year or any of the three prior taxable years.
Where Act No. 154's source rule applies, a portion of the income of the non-Puerto Rico resident purchaser from the sale outside of Puerto Rico of personal property manufactured or produced in whole or part in Puerto Rico by the related Puerto Rico seller will be treated as Puerto Rico-source income that is effectively connected with the conduct of a Puerto Rico trade or business. The portion of the non-Puerto Rico resident’s income that is treated as Puerto Rico source is determined under an equally weighted, four-factor (i.e. purchases, sales, property, and payroll) formulary apportionment method. Where the purchaser fails to provide adequate documentation regarding the formulary apportionment factors, 50% of the income of the non-Puerto Rico resident purchaser from the sale outside of Puerto Rico of personal property manufactured or produced in whole or part in Puerto Rico by the related Puerto Rico seller will be treated as sourced where the property is manufactured or produced (i.e. Puerto Rico). The source rule also will apply to agency and commissionaire arrangements, in addition to buy-sell transactions involving related parties. In addition, the source rule contains an anti-abuse provision that disregards a transaction, for purposes of the source rule, where one of the principal purposes of the transaction is avoidance of the source rule.
As of 30 June 2022, the related Puerto Rico manufacturing entity can request an amendment to their tax grant to make an election to be taxed at an alternate fixed tax rate (alternate rate) of 10.5% in exchange for an exemption of the Act 154 sourcing rules for the non-Puerto Rico resident. The alternate rate changes permanently to 15% if the United States ever amends their tax laws to impose a CIT of at least 15%.
Other benefits obtained through the alternate rate election are income and royalties exemptions, which vary depending primarily on if a grantee meets certain thresholds of direct employment and industrial development income.
FAQs
Businesses with a base in Puerto Rico exporting services to other markets are able to reduce their corporate taxes to as little as 4%. Puerto Rico makes sense for US citizens, particularly in high-tax states, who are looking to set up an offshore company but still want to remain in the US system.
How to establish residency in Puerto Rico for tax purposes? ›
Presence Test
- You were present in the relevant territory for at least 183 days during the tax year.
- You were present in the relevant territory for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years.
Every limited liability company is required to maintain in Puerto Rico a registered office and a resident agent, who can be an individual resident in Puerto Rico, a domestic corporation, or a foreign corporation authorized to do business in Puerto Rico.
Do US corporations pay taxes in Puerto Rico? ›
In the case of a non-resident foreign corporation, a 29% withholding tax (WHT) rate is applicable on its Puerto Rico-source gross income not effectively connected with a Puerto Rico trade or business.
What is the tax loophole in Puerto Rico? ›
In 2019, Act 60 consolidated two tax havens, Act 22, which applies to individual investors, and Act 20, used for export services companies. The provision provides these new residents of Puerto Rico with a 100% federal tax exemption from Puerto Rico-sourced income, interest, dividend and capital gains income.
Is it worth moving to Puerto Rico to avoid taxes? ›
As a U.S. territory, Puerto Rico is uniquely able to offer incentives unavailable anywhere else in the world now. If you are willing to establish bona fide residency in Puerto Rico, you can significantly decrease income, capital gains and dividend taxes. Call us at 410-497-5947 if you have tax questions.
Can I work for a US company and live in Puerto Rico? ›
A new law in Puerto Rico, Act No. 27-2024 (Act 27), makes it easier for foreign employers to hire employees to work from within Puerto Rico, and for persons to relocate to work remotely within Puerto Rico for employers that do not maintain a presence on the island.
How long do you have to live in Puerto Rico for tax purposes? ›
The term 'resident individual' means an individual who is domiciled in Puerto Rico. It should be presumed that an individual is a resident of Puerto Rico if they have been present in Puerto Rico for a period of 183 days during the calendar year.
What is the bona fide residence test for Puerto Rico? ›
Bona Fide Residents of Puerto Rico: Generally, you are a bona fide resident of Puerto Rico if during the tax year, you: Meet the presence test • Do not have a tax home outside Puerto Rico, and • Do not have a closer connection to the United States or to a foreign country than to Puerto Rico.
What is the 27 2024 law in Puerto Rico? ›
On January 26, 2024, Puerto Rico enacted Law 27-2024, which exempts certain remote workers and their employers from complying with Puerto Rico's employment laws.
With a diverse and talented workforce, tax benefits and incentives, robust infrastructure and more, Puerto Rico has positioned itself as a destination where businesses thrive. Explore the top reasons why and how Puerto Rico enables the success of your entrepreneurial vision.
Can I move my business to Puerto Rico? ›
For individuals and businesses interested in relocating to Puerto Rico, here's good news: If you're coming from the United States mainland, you don't need a work or travel visa. If your income comes from a company in Puerto Rico, you don't pay federal income taxes on local earnings.
Is Puerto Rico a corporate tax haven? ›
Located in the Caribbean Sea, the U.S. territory of Puerto Rico is a spectacular tax haven for businesses and individuals. Much of this is due to Act 60, a piece of legislation passed to boost economic development on the island.
What is the rule 60 in Puerto Rico? ›
However, Act 60 provides financial incentives to entice Americans to move to the island permanently. If you qualify for an Act 60 decree, it includes a 4% income tax rate, a 75% discount on property tax, and no tax on capital gains accrued while on the island.
What is the corporate surtax rate in Puerto Rico? ›
For tax years beginning after 31 December 2018, the basic corporate tax rate is reduced from 20% to 18.5%, resulting in a maximum rate of 37.5% with the additional surtax. The graduated surtax rates are as follows after a surtax deduction of USD 25,000 from net taxable income: up to USD 75,000 - 5%
Is Puerto Rico tax exempt? ›
If you're a bona fide resident of Puerto Rico, you generally aren't required to file a U.S. federal income tax return if your only income is from sources within Puerto Rico.
Is Puerto Rico considered US for tax purposes? ›
Puerto Rico is an unincorporated territory of the United States and Puerto Ricans are U.S. citizens; however, Puerto Rico is not a U.S. state, but a U.S. insular area. Consequently, while all Puerto Rico residents pay federal taxes, many residents are not required to pay federal income taxes.
Is Puerto Rico a crypto tax haven? ›
Puerto Rico crypto tax rules are highly favorable for bona fide residents, who are not subjected to tax on capital gains from crypto. Corporations are only subject to a 4% income tax.
What is the law 60 in Puerto Rico? ›
What does this mean? It means that once the person becomes a resident individual investor of Puerto Rico unde Puerto Rico Incentives Code 60 — and until 1/1/2036 — any dividend or interest income is exempt from tax in Puerto Rico.
