Company registration in Puerto Rico

The Free Associated State of Puerto Rico is a protected U.S. territory in the northeastern Caribbean Sea. It attracts foreign investors because of its legal security and wide range of preferences. Entrepreneurs who register a business in San Juan or any other city in Puerto Rico can take advantage of tax benefits and deductions. Along with its financial appeal, this territory guarantees privacy. Opening a company in Puerto Rico is advantageous because of its convenient geographical location and ease of doing business.

Advantages of registering a company

• access to the market of Latin America, Canada, USA;
• stable economic and political environment;
• developed infrastructure;
• absence of currency controls and regulations;
• ability to open a company in Puerto Rico with 100% foreign capital;
• requires only one director and one shareholder, which can be the same person.

Main forms of legal presence and doing business

• sole proprietorship;
• partnership (limited - LP, limited liability - LLP);
• limited liability company (LLC);
• corporation (C corp, S corp, B corp, closed, nonprofit);
• cooperative.

Most foreign investors prefer to open a business in Puerto Rico as an LLC. Non-residents may own 100% of the shares of such a company, and their obligations are limited to the number of contributions to the share capital. The minimum number of shareholders of an LLC is 1. In addition, establishing a business requires a minimum of 1 manager. There are no requirements for the amount of share capital.

Registration procedure

• check the uniqueness of the company name in the Registro de Corporaciones y Entidades;
• register the company in Puerto Rico with the Department of State;
• apply to the Puerto Rico Treasury for an Employer Identification Number (EIN);
• obtain a business license (patente municipal);
• open a bank account;
• obtain additional permits and licenses (depending on the type of business).

Legislation and regulatory environment

The Corporations Act regulates the various business entities in Puerto Rico. It requires companies to have a registered office and to appoint a local registered agent. In addition, the law requires all companies registered in Puerto Rico to keep financial records and documentation.

The Tax Code, the Incentives Code, and the Opportunity Zone Development Act establish several incentives to encourage nonresidents to set up businesses.

Tax system

• corporate tax - 37.5% (18.5% is the introductory rate for income below $275,000, which increases by 19% for companies whose income exceeds this threshold) ;
• personal income tax - 0% to 33% (proportional to the amount of income);
• VAT - 4% (for specialized services) or 11.5% (for tangible goods and some services)
• dividend tax - 15% (for non-resident individuals), 10% (for non-resident companies), 0% (for residents)
• capital gains tax - 20%.

Local companies are taxed on their worldwide income. A foreign corporation engaged in trade or business in Puerto Rico - only on income from sources within the jurisdiction.

A study of the Incentive Code clarifies why registering a company in Puerto Rico is advantageous. It defines the conditions under which the corporate tax rate is reduced to 4%. In addition, the legislation represents a list of services a company established in the country can provide non-residents and foreign entities to take advantage of such preferences. If the conditions specified in the Code are met, the business also receives a 100% exemption from property tax and dividend distribution.

The Opportunity Zone Development Act (QOZ) provides tax incentives to local foundations ("ZO Funds") or organizations that invest in them ("ZO Subs"). The preferences include:

• 100% exemption from dividend tax;
• 25% exemption on the purchase of a municipal license;
• 25% exemption from property tax and real estate tax;
• 25% construction tax reduction (if related to related business activities);

By separate rulings, tax exemptions can be increased from 25% to 75%.

Open a business in Puerto Rico: how the lawyers of Prifinance can assist