DoingBusinessinPuertoRico

DoingbusinessinPuertoRico

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AboutPuertoRico• OfficiallyknownastheCommonwealthofPuertoRico(EstadoLibreAsociadode

PuertoRico),isaselfgoverningterritoryoftheUnitedStates,locatedinthenortheasternCaribbean.

• PuertoRico(Spanishfor"richport")consistsofanarchipelagothatincludesthemainislandofPuertoRicoandseveralislands:Vieques,Culebra,Monaandnumerousislets.

• ItisthesmallestislandoftheGreaterAntilleswithanareaof100mileslongby35mileswide.

• BorderedtothewestbytheDominicanRepublicandHaiti(LaHispañola),separatedbytheMonaPassage("MonaCanal"),totheeastbytheVirginIslands,tothenorthbytheAtlanticOcean,andtothesouthbytheCaribbeanSea.

• PuertoRicoisaself-governingcommonwealthinassociationwiththeUnitedStates.ThechiefofstateisthePresidentoftheUnitedStatesofAmerica.TheheadofgovernmentisanelectedGovernor.

• Government:Republicanformgovernment,withthreebranchesofgovernment:Executive,LegislativeandJudicial.

• Population:Approx.3,620,897• SpanishandEnglisharetheofficiallanguagesofPuertoRico.• Currency:U.S.Dollar(USD)• Climate:Tropical,averagetemperaturesyearroundbetween90°F(32.2°C)and70°F

(21.1°C).

BusinessPresence• ThePuertoRicoGeneralCorporationsActallowsfortheestablishmentofthefollowingbusinesstypes:domesticandforeigncorporationsandlimitedliabilitycompanies,limitedliabilitypartnerships,andcivilpartnerships.Not-for-profit,closeandprofessionalcorporationtypesarealsowidelyused.TheCorporationsActismodeledaftertheStateofDelaware’sGeneralCorporationLaw,thusallowingamplereciprocitybetweenUScorporateentitiesandPRcorporateentities.ThemostpopularentityformsusedarethecorporationandLLC.Typically,investorseitherformdomesticentitiesorqualifytheirexistingentitytodobusinessinPuertoRico.• TheincorporationprocessisverysimilartothatavailableintheUnitedStates.ToincorporateinPuertoRicoyoumustfilethecorrespondingformswiththeDepartmentofStateoftheCommonwealthofPuertoRicoalongwiththepaymentofthefilingfees.Tomaintaintheir“GoodStanding”status,entitiesmustannuallyfileareportand/orrenewalandpayanannualfee.

ForeignInvestment• PuertoRicoprovidesapositivelegalframeworktopromoteUSandforeigninvestment.

SomeofthebenefitsofdoingbusinessinPuertoRicoincludes:• PuertoRicoisaterritoryoftheUnitedStatesandunlessexpresslyexcluded,federalUSlaws

apply.Asaresult,theCommonwealthofPuertoRicois:

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⇒ PartoftheUSfreetradezonesandcustomssystem.⇒ ProtectedundertheUSlegalframeworkforintellectualpropertyprotection.⇒ UndertheprotectionoftheUSHomelandSecurityAct⇒ ItsbankingsystemisregulatedunderUSlaws(FederalDepositInsurance

Corporation);and⇒ HasaccesstoUSfederalprogramsandfunds.

• Therearenorestrictionsonforeignshareholders.• USfederalgovernment’srestrictionsondoingbusinesswithcertaincountriesapplyin

PuertoRico.• PuertoRicodoesnothaveanyexchangecontrolorcurrencyregulations.

DetermineYourBusinessTypeAnyestablishmentconductingbusinessintheCommonwealthofPuertoRicomustfirstdeterminethetypeofbusinesstheywishtocreateormaintain:whetheracorporation,limitedliabilitycompany,limitedliabilitypartnership,oracivilpartnership.Someofthecharacteristicsoftheseentitiesare:

CorporationsThePuertoRicoGeneralCorporationsLawprovidesforthecreationandoradoptionofforprofit,non-profit,domestic,foreign,closeandprofessionalcorporations.Corporationsareavailableforanylawfulbusiness,withverylimitedexceptions.Ingeneral,corporationsmaybeorganizedbyoneormorepersons,andorjuridicalentities.DomesticCorporations

AredefinedasentitiesorganizedandcreatedunderthelawsoftheCommonwealthofPuertoRico.ClosecorporationsAredomesticcorporationswithlessthan75stockholders.Shareholdersareaffordedadirectparticipationinthemanagementofthebusiness,andthetransferofitsstockmayberestrictedaccordingtothelawandtheshareholdersídiscretion.

ForeignCorporations

ArecorporationsorganizedunderastateoftheUnitedStates,orothercountry.ForeigncorporationsmustrequestacertificateofauthorizationtodobusinessinPuertoRicopriortoengaginginanybusinessoractivity.ProfessionalCorporations

Arecorporationscreatedsolelyforpurposesofrenderingprofessionalservices,whicharedefinedasanytypeofservicewhichrequirestheindividualtoobtainalicenseorotherlegalauthorizationfromtheCommonwealthofPuertoRico,suchasengineers,lawyers,doctors,CPAs,andthelike.LimitedLiabilityCompanies-LLC

Areentitieswithsimilaryetalessformalmanagementstructurethanthatofacorporation.LLCshavelessfilingrequirementsthanitscorporatecounterparts.BothforeignanddomesticLLCsmayberegistered.

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LimitedLiabilityPartnerships-LLP

Areavailabletoprofessionalswhoengageinprofessionalservices,asdefinedabove,whowishtoavoidtheformalitiesofacorporateentity.Annualrenewalisindispensabletoitsexistence.

CivilPartnerships

PredecessortotheLLP,thisbusinessengagementisexecutedbymeansofawrittenagreementorjointventure;document.Certainlegalformalitiesapply.Itisrecommendedforlesssophisticatedbusinessenterprises.However,itsmembersarenotaffordedlimitedliabilityprotectionlikeitsabovecounterparts.IfyoudecidetodobusinessinPuertoRico,allcorporations,limitedliabilitycompaniesand/orlimitedliabilitypartnershipsmust:• RegisterwiththeDepartmentofStateoftheCommonwealthofPuertoRicoandpaythe

correspondingfee($150forcorporations/$250.00forLLC).• Forcorporations,thefeemayincrease,subjecttothetotalnumberofauthorizedshares.• ExpeditedregistrationsareavailableforLLCs,alsowithincreasedfeepayment.• Onceregistered,corporationsmustfileannualreportsandfinancialstatements,alongwiththe

paymentofthecorrespondingfee($150).• Onceregistered,LLCsandLLPsmustfileannualrenewalformsandpaytherequiredfee.($150

forLLCsand$110forLLPs).

GeneralFilingRequirementsforPuertoRicoBusiness

• Forallbusinesses:AllbusinessmustregisterwiththelocalDepartmentoftheTreasurytoobtainaMerchantsRegistrationand/orExemptionCertificateforpaymentofthelocalsalesandusetax,ifapplicable.Companiesarealsorequiredtofilemonthlysalestaxreturnsandanannualinformativereturn.

• Forallbusinesses:AllbusinessesarerequiredtoregisterwiththemunicipalitywherethebusinessislocatedtoobtaintheMunicipalLicense(knownas“Patente”).Businessmaybesubjecttoadditionalfilingrequirementsbythemunicipality(volumeofbusinessreturn)andpaymentofpropertytaxesandthemunicipallicensetax.

• ForallbusinesseswithphysicalofficesinPuertoRico:Priortocommencementofoperations,allbusinessesthatwillengagefromadesignatedlocationarerequiredtoobtainanUsePermitfromtheOfficeofManagementofPermits(“OGPe”foritsacronyminSpanish)orthecorrespondingmunicipalitywheretheofficeislocated.

• ForEmployers:BusinesswithemployeesmustalsoregisterwiththeCommonwealthofPuertoRicoDepartmentofLaborandHumanResources(unemploymentanddisabilityinsurance)andtheStateInsuranceFundCorporation(workmencompensationinsurance).Filingrequirementsineachagencywillvary.

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TaxIncentivesforBusiness

• PuertoRicooffersahighlyattractiveincentivespackagethatincludesafixedcorporateincometaxrate–oneofthelowestincomparisonwithanyU.S.jurisdiction–varioustaxexemptionsandspecialdeductions,trainingexpensesreimbursementandspecialtaxtreatmentforpioneeractivities.• Examplesofthemostpopularincentiveslegislationinclude:

o Act20-2012,knownasthe“LawtoPromotetheExportofServices”whichaimstopromotetheenvironmentandopportunitytodevelopPuertoRicoasaninternationalservicecenter,

promotetheretentionandreturnoflocalprofessionalsandattractforeigncapital,promotinginthiswaytheeconomicdevelopmentandsocialimprovementofPuertoRico.

o Act22-2012,knownasthe“LawtoEncouragetheTransferofInvestorstoPuertoRico"withtheobjectivetogranttaxexemptioninregardstorevenue,resultingfrominvestmentsaccruedbyindividualswhoareresidentsinPuertoRico;

o Act73-2008,knownas"EconomicIncentivesfortheDevelopmentofPuertoRicoAct,"allowsqualifyingindustrialoperationsinPuertoRicotoobtainhighprofitswhilestimulatingthelocaleconomicdevelopment.o Keyprovisionswhichmaybeavailableunderincentiveactsinclude:o 100%exemptionapplicabletotheinterestsanddividendsincomeearnedbyaresident

individualinvestor(Act22)⇒ 4%or8%fixedcorporateincometaxrate(Act20,Act73)⇒ 1%incometaxratefor"pioneer"industriesand/or“strategicservices”(Act20,Act73)⇒ Allowsfortaxcreditsontheircorporateincometaxreturnforjobcreationtax,

investmentinmachineryandequipment,purchaseoflocallymanufacturedproducts(Act73)

⇒ Reducedelectricenergycostoftheindustrialexemptbusiness(Act73)⇒ Provides90%exemptionfrompersonalandrealpropertytaxes,60%exemptionfrom

municipallicensetaxesand100%exemptionfromstateandlocalsalesandusetaxonrawmaterial(Act20,73)

TaxationTaxationinPuertoRicotakestheformofbothFederal(US)andCommonwealthtaxes.PuertoRicohasindependenttax-levyingauthoritybyprovisionsof48U.S.C.§734oftheUnitedStatesCode,andthePuertoRicoInternalRevenueCode.

• CorrelationwiththeUnitedStatesTaxLaws.

ThoughtheCommonwealthgovernmenthasitsowntaxlaws,PuertoRicansarealsorequiredtopaymostU.S.federaltaxes:

o IndividualsResidinginPuertoRico.ResidentsofPuertoRicopayintoSocialSecurity,andarethuseligibleforSocialSecuritybenefitsuponretirement.OtherfederaltaxespaidbyPuertoRicoresidentsincludeimport/exporttaxes,andfederalcommoditytaxes.LikeresidentsoftheUnitedStates,residentsofPuertoRicoaresubjecttofederalincometaxontheirworldwideincome.However,U.S.CodeSection933,fortaxpurposes,allowsabonafideindividualresidentofPuertoRicotoexcludePuertoRicosourceincomefromhis/hergrossincome.Theprocessfordeterminingandestablishingbonafideresidenceforincometaxpurposeshingesontheresultofthree

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testsfoundinU.S.CodeSection937:(a)thepresencetest,(b)thetaxhometestand(c)closerconnectiontest.

o EmployersinPuertoRico.AresubjecttobothFederalInsuranceContributionsAct(FICA)tax(apayrollwithholdingtax,whichfundsSocialSecurityandMedicare)andtheFederalUnemploymentTaxAct(FUTA).EmployersinPuertoRicoarelegallyobligatedtowithholdtheemployeeportionofFICAtaxesfromtheiremployees'wagesandcontributetheemployerportionofFICA.

o PuertoRicoCorporations.PuertoRicocorporationsaretreatedasforeigncorporationsforU.S.incometaxpurposes.Thus,PuertoRicocorporationsaresubjecttoa30%U.S.incometaxwithholdingon,amongothers:interest,rents,wages,premiums,annuities,compensation,remuneration,emolumentsandotherfixedordeterminableannualorperiodicalgains,profitsandincomefromsourceswithintheUnitedStates.DividendsreceivedbyaPuertoRicocorporationfromaU.S.corporation,howeverandprovidedcertainconditionsaremet,aresubjecttoareducedU.S.incometaxwithholdinginsteadofthe30%rateapplicabletootherforeigncorporations.PuertoRicocorporationsaresubjecttoregularU.S.taxratesontheirincomeeffectivelyconnectedtoatradeorbusinessintheUnitedStates.

• PuertoRicoTaxSystem.

TheInternalRevenueCodeforaNewPuertoRico(‘PuertoRicoInternalRevenueCode’)isthemainbodyofdomesticstatutorytaxlaw.Itcoversincometaxes,payrolltaxes,gifttaxes,estatetaxesandmore.

• PersonalIncomeTax.

Individualsaretaxedonagraduateratebasedontheirtaxbracket,whichrangesfrom7%toamaximumof33%.Apersonisconsidereda“resident”ofPuertoRicoifheorshelivesinPuertoRicoforatleast184daysinacalendaryear.Capitalgainsearnedbyresidentindividualsarealsotaxed.Long-termcapitalgainsaregainsearnedfromanasset,whichisheldformorethan6months.Thetaxablegainiscomputedbydeductingtheacquisitioncostsfromthegrosssellingprice.

• PuertoRicocorporations.

PuertoRicocorporateentitiesaretaxedatonagraduatedtaxratestructure.

• Municipaltaxes.

OthertaxesapplicabletothePuertoRicotaxsystemsinclude,excisetax,municipallicensetax(grossvolume)andrealandpersonalpropertytaxes.Thepercentageswillvarydependingonthelocalgovernmentandotherconsiderations.

• SalesandUseTax.

PuertoRicoresidentsandentitiesarealsosubjectto11.5%salesandusetax.

IntellectualPropertyPuertoRicoisprotectedundertheUSlegalframeworkforintellectualpropertyprotection:

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• Patents

PatentsareissuedunderUnitedStatesfederallaw.

• Trademarks

Trademarkrightscanbeusedtopreventothersfromusingthesame,orverysimilarmarkinconnectionwiththesamegoodsorservicesthataresoldunderthetrademark.TrademarksenjoyprotectionunderUnitedStatesTrademarkAct,asamended,andunderAct169-2009,knownas“PuertoRicoTrademarkAct”.Ifmerchandiseisusedininter-statecommerceownersoftrademarkscanregisterthemwiththeUnitedStatesPatentsandTrademarksOffice.ApplicationsfortheregistrationoftrademarksinPuertoRicomustbefiledwiththeRegistryofTrademarksandCommercialNamesofthePuertoRicoDepartmentofState.InPuertoRico,registrationwithintenttouseisallowed.

• Copyright

Copyrightisavailableforauthorsoforiginalworks,includingliterary,dramatic,musical,artistic,andcertainotherintellectualworks.CopyrightisgovernedbyFederal(US)andPuertoRicolaw(VisualArtistsRightsAct,andPRAuthor’sMoralRightsAct,Act55-2012).Copyrightprotectionsubsistsfromthetimetheworkiscreatedinfixedformandimmediatelybecomesthepropertyoftheauthorofthework.CopyrightscanberegisteredwiththeUSCopyrightOfficeoftheLibraryofCongressandwiththeCopyrightRegistryOfficeofthePuertoRicoDepartmentofState.

LaborLaw• TheConstitutionoftheCommonwealthofPuertoRicoestablishestheframeworkforthe

LaborLawsofPuertoRico,throughitsArticles15,16,17and18.TheConstitutionprovidestheminimumrangeofprotectionthatcanbegrantedtoemployees.TheseprovisionscannotbemodifiedbyawrittenemploymentcontractunlessitgrantsworkersfurtherfavorableconditionsthantheonesthataresetasaminimumbytheConstitutionandrelatedlaws.

• TheMinimumWage,VacationandSickLeaveActstatutorilyincorporates,asasubstantiverighttheautomaticandimmediateapplicationoftheFederalMinimumWagetoallworkersinindustriesinPuertoRicocoveredbytheFairLaborStandardsAct(FLSA).

• BoththeConstitutionandtheLawsofPuertoRicoestablishthateight(8)hoursofworkwithinaperiodof24consecutivehoursconstitutethelegalandregularworkdayinPuertoRico.Forty(40)hoursofworkconstitutetheregularworkweek.Act379-1948requirespaymentofworkinexcessofeighthoursadayorfortyaweekatdoubletheregularrateofpay.IftheemployeriscoveredbytheFairLaborStandardsAct,theemployerhastopayforeachovertimehourofworkinexcessofthelegaleighthoursperday,awagerateofnotlessthanoneandahalftimethewageagreeduponforregularhoursunlessotherwiseestablishedbymandatorydecreeorcollectivebargainingagreement.Inaddition,theemployerandemployeehavetheoptiontoagreetoaflexibleworkscheduleasregulatedbythe“FlextimeAct”,Act83-1995.Thislawallowsforflexibilityindeterminingthebeginningofanemployee’sregularworkdayorthebeginningofhismealperiod.

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• MealPeriodareregulatedbyActNo.379-1948,whichstatesthatthemealperiodshallnotbelessthanonehourthattheemployeecannotworkformorethanfivehoursconsecutivelywithouttakinghismealperiod.

• VacationandSickLeave.Employeesofthecompanyareentitledtoaccruevacationleavewithfullpaytobemadeeffectivewhentheemployeebeginstoenjoythesame,attherateofoneandonefourth(1¼)workingdayforeachmonthinwhichhehasworkedatleastonehundredandfifteen(115)hours.Employeesshallaccruesickleaveattherateofone(1)workingdayforeachmonthinwhichtheyhaveworkedatleastonehundredfifteen(115)hoursfor.Theuseofsickleavewillbeconsideredastimeworkedintheaccrualofthisbenefit.

• OtherPuertoRicolaborlawsissuesaregovernedby:“UnjustDismissalAct”,“MaternityBenefitsandBreastFeeding”,“SafetyandHealthintheWorkPlace”,“Workmen'sAccidentCompensation”,“Non-OccupationalDisabilityandSocialSecurityforChauffeurs”,“UnemploymentInsurance”,lawsthatprohibitdiscriminationandsexualharassment,lawsconcerningveteransandemployeesonmilitaryserviceleave,lawsgoverningjuryduty,witnessleaveforcriminalcases,sportsleave,automobileaccidentdisabilityleaveand“ChristmasBonus”Act.

• FOREIGNEMPLOYEES:

AsaterritoryoftheUnitedStates,PuertoRicoisgovernedbyUSimmigrationlaw.Allforeignemployeesrequireworkpermitsand/orresidencypermitsissuedbytheUnitedStatesCitizenandImmigrationServices,ascribedtotheDepartmentofHomelandSecurity.

ImmigrationU.S.CitizenshipandImmigrationServices(USCIS),ascribedtotheDepartmentofHomelandSecurity,isthegovernmentagencythatoverseeslawfulimmigrationtotheUnitedStates.

OtherLicensingDependingonthenatureofthebusiness,acompanymayalsoberequiredtoobtainlicensesparticulartoitsindustry:(e.g.ahealth-careprovidersareregulatedbytheDepartmentofHealthoftheCommonwealthofPuertoRico,insuranceprovidersbytheOfficeoftheCommissionerofInsurance,bankingorfinancialinstitutionsbytheFinancialInstitutionsCommission,andsoforth.)

EDGEisaResultsOrientedLawFirmAnyandallquestionsinconnectionwithyourinterestindoingbusinessintheCommonwealthofPuertoRicoshouldbeaddressedtoourspecializedattorneysatEDGE,foranin-depthassessmentoftherequirementsforyourparticularbusiness.

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Disclaimer

YouruseofthiswebsiteissubjecttotheTermsandConditionsdescribedinourHomePage.TheinformationprovidedhereinshouldbeconsideredasgeneralguidelinesforsettingupabusinessintheCommonwealthofPuertoRicoandisnotintendednorshallbeconstruedasacomprehensiveoverviewoftherequisites,benefitsorprohibitionsestablishedbylaw,norisitintendedtosubstitutethedirectadviceoflegalcounsel.Furthermore,theseguidelinesdonotaddresstaxconsiderationsapplicabletoallbusinessesthatderiveincomewithintheCommonwealthofPuertoRico.