If you as a foreign executive wish to enter the Puerto Rican market you must be aware of your corporate compliance obligations in the country. Understanding and complying with local legislation will help you expand in Puerto Rico as smoothly as possible. Learn everything you need to know about corporate compliance in Puerto Rico.
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Types of companies
Foreign executives who want to enter the Puerto Rican market must decide what type of company incorporation will best suit their needs. They must prepare all the documents and requirements necessary to register their company with the Department of State of Puerto Rico. The most common company types in Puerto Rico are:
- Limited Liability Company (LLC): This is the most common type of company and requires 1 or more people to set up.
- Corporation: In a corporation, the capital stock can be divided into shares that can be transferred. In this type of company, the partners are not personally liable for corporate debts. A minimum of 3 shareholders is required and there is no maximum limit. Corporations can be classified into domestic and foreign corporations, and for-profit or non-profit corporations.
- Domestic corporations: Are those created under the General Corporations Act of Puerto Rico. That is, these are corporations of Puerto Rico.
- Foreign corporations: Those entities which were created in another jurisdiction. In order for a foreign corporation to operate on the island territory, foreign corporations must obtain authorization from the Department of State of Puerto Rico by presenting the following documents:
- A certificate of existence or its equivalent from your jurisdiction of origin, which is no more than 3 months old
- The name and address of the representative of the corporation who resides in Puerto Rico
- Documents showing the corporation’s assets and liabilities
- Documents showing what kind of business the corporation plans to conduct in Puerto Rico
- Names and business addresses of its current directors.
- Any other documents or data that the company believes it should include in the registry report
- For-profit corporations: Are domestic or foreign corporations where owners derive economic benefit from their operation based on their participation in the business
- Non-profit corporations: Are domestic or foreign corporations in which the proceeds of its operation, if any, are used to promote the
- Social benefit corporation: These are domestic or foreign corporations that have a social benefit aspect to their business, that is, their purpose is not to generate net profits, but if there is a net profit, it could be distributed to their owners.
- Partnerships: The main company regulates the rules and assumes the responsibilities before third parties.
Once the company is registered, entrepreneurs must comply with the corporate compliance requirements established in Puerto Rico. Some of these requirements include: requesting the employer identification number, registering with the Department of the Treasury, requesting the Merchant’s Registry and opening a corporate bank account.
What are the requirements for corporate compliance in Puerto Rico?
- Resident agent: The resident agent can be an individual residing in Puerto Rico, or a legal person organized under the laws of the island, or authorized to do business there. The agent is responsible for representing the company. They will receive and process any official communication
- Legal address: A company must register a legal address in Puerto Rico to operate, undergo inspections and receive official notifications.
Requirements established by the State Department
All corporations must file an annual report with the Department of State on or before April 15 of each year, or the next business day if it is a weekend or holiday, containing the following information:
- Name and registration number of incorporation
- Physical and mailing address of the designated office
- Name and physical address of the resident agent
- Name and postal address of at least 2 officers of the corporation who are in an established office at the date of filing the report, including that of the officer who signs the report, and the expiration dates of their respective positions
- The report must contain a status statement of the economic condition of the corporation at the close of operations during the previous calendar year
- If the business volume of the corporation exceeds $3 million USD, this report must be audited by a Certified Public Accountant licensed in Puerto Rico
- The report must be signed by an authorized officer, a director or incorporator
Important: LLCs will not have to file an annual report with the Department of State. They only pay annual fees in the amount of $150 USD on or before April 15 of each year, or the next business day if it is the end of the year or a holiday.
Tax obligations for companies in Puerto Rico
Companies operating in Puerto Rico must obtain a Merchant Registration Number with the Department of Treasury and declare all financial transactions to determine what taxes must be paid.
The four main taxes that any type of entity must declare and pay are:
|Tax||Declaration to the tax office|
|Income Tax: A maximum tax of 39% is applied to the earnings obtained each year.||It must be filed annually, no later than the 15th day of the fourth month following the close of the taxable year.|
|Personal property tax: The maximum tax rate is 9.83% and varies according to the municipality in which the entity is located.||It must be filed annually, no later than May 15 following the taxable year.|
|Municipal Patent: A tax of 0.5% is applied to the operations of non-financial companies, and a maximum of 1.5% for financial companies.||It must be declared each year, no later than the fifth day after April 15 following the taxable year, together with the income tax return.|
|IVU: An 11.5% tax is applied to company invoices, which must be withheld and paid to the Department of the Treasury||All withheld tax must be declared and paid no later than the 22nd of the following month.|
Foreign executives doing business in Puerto Rico must comply with labor regulations of the territory. These regulations include:
- The national minimum wage is $8.50/hr
- Companies are required to pay a December Christmas bonus if the employee meets the established requirements
- Standard working time is 8 hours per day
- Employees are entitled to paid vacation and sick days, depending on their weekly working time
When a company hires a new employee, it must register with the Department of Labor and Human Resources, the Social Security Administration, the Department of the Treasury, and the State Insurance Fund Commission. In addition, the contributions established by the labor laws of Puerto Rico will be calculated based on the salary of each employee, as follows:
|Social Security 6.2%|
|State Unemployment up to 4.4% +1%|
Federal Unemployment 0.6%
CFSE policy 0.7%
|TOTAL ~14.65% calculated from an employee’s salary|
Common Questions for Entity Legal Compliance in Puerto Rico
Based on our extensive experience these are the common questions and doubts of our clients when looking to operate within the country
The following are the most common statutory appointments for Puerto Rican legal entities:
– An appointed Legal Representative who will be personally liable, both legally and financially for the good operation and standing of the company. This should be a local national or a foreigner with the right to live/work in the country.
Yes, a Registered Office Address or local Fiscal Address is required for all entities in Puerto Rico for the receipt of legal correspondence and Governmental visits.
Engage with our specialists to discuss corporate compliance in Puerto Rico.
At Biz Latin Hub, our team of legal and accounting specialists provides comprehensive company formation advice and guidance to support your expansion. With our full suite of bilingual market entry and back-office services, we are equipped to deliver excellence and ensure your business operations’ success in Puerto Rico.
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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.