Corporate Compliance in Puerto Rico: A Guide for Companies

If you wish to enter the local market, you must be aware of your corporate compliance in Puerto Rico. After you incorporate a business in Puerto Rico, this will kick in. Understanding and complying with local legislation will help you expand in the territory as smoothly as possible. Just like every other part of the USA, this is of paramount importance. However, you may find that a dedicated provider of back office services to help with corporate compliance in Puerto Rico is your most suitable partner. This guide details the statutory maintenance required to keep a Puerto Rican corporation in ‘Good Standing’ with the Department of State and local municipalities.

Key Annual Compliance Requirements in Puerto Rico

Every corporation admitted to do business in the US territory must maintain a physical office and at least one resident agent on the island.

• 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.

1. Filing the Annual Corporate Report

Every corporation must file an annual report with the Department of State by April 15th each year. This report confirms the company’s current information and must be accompanied by a fee.

Expert Tip: The April 15th Deadline

From our experience, the April 15th deadline for the Annual Report is strict. While extensions can be requested (usually until June), they must be filed before the original deadline expires. Many foreign companies confuse this with their tax filing deadlines. We advise clients to treat the Corporate Annual Report as a separate, critical milestone. If you have an LLC, note that you also have an annual fee (Derechos Anuales) to pay, even if the reporting requirements differ slightly from a Corporation.

2. Maintaining a Registered Agent

Corporations must continuously maintain a registered agent with a physical street address in Puerto Rico. This agent is the official point of contact for legal and government notices.

3. Fulfilling Tax Obligations

Corporations must file an annual corporate income tax return with the Puerto Rico Department of Treasury (Departamento de Hacienda). They are also responsible for collecting and remitting sales and use tax (IVU).

4. Holding Annual Meetings

Corporations are required to hold annual meetings for both shareholders and the board of directors. Minutes of these meetings must be kept as part of the official corporate records.

5. Obtaining a Municipal Business License (Patente Municipal)

All businesses must obtain and renew a municipal business license in the municipality where they operate. This license is subject to a tax based on the company’s volume of business.

The Role of the Department of State

The Puerto Rico Department of State is the government entity responsible for the registration and regulation of corporations. All legal entities must file their articles of incorporation and annual corporate reports with this department. It also issues official documents, such as the Certificate of Good Standing, which confirms a company’s compliance status. 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 USD$3 million, 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

LLCs will not have to file an annual report with the Department of State. They only pay annual fees in the amount of USD$150 on or before April 15 of each year, or the next business day if it is the end of the year or a holiday.

The Consequences of Bad Standing

If a corporation fails to file its Annual Report for two consecutive years, the Secretary of State is authorized to revoke its Certificate of Incorporation. Once revoked, the entity loses its legal capacity to sue, enter contracts, or defend itself in court. Reinstatement is possible but involves paying all back fees plus substantial penalties.

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.

What labor regulations must be followed in Puerto Rico?

Foreign executives doing business in Puerto Rico must comply with labor regulations of the territory. These regulations include:

• The national minimum wage is $10.50/hr (from July 2024)
• 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:

Employer Contributions — Employer Contributions (%)

Social Security — 6.2%

Medicare — 1.45%

State Unemployment • • Federal Unemployment — Up to 4.4% +1% • • 0.6%

Disability • • CFSE policy — 0.3% • • 0.7%

TOTAL — 14.65% (calculated from an employee’s salary)

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. Then, 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. Setting it up requires 1 or more people.
• 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, 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 it.
• 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: Where 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.

FAQs on corporate compliance in Puerto Rico

Based on our extensive experience these are the common questions and doubts of our clients on entity legal compliance in Puerto Rico:

1. What are the common statutory appointments for a company in Puerto Rico?

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.

2. Is a registered office address needed for a legal entity in Puerto Rico?

Yes, a registered office address or local fiscal address is required for all entities in Puerto Rico for the receipt of legal correspondence and government visits.

3. When must a tax auditor be appointed in Puerto Rico?

If you are among the obligated entities to appoint a tax auditor, you must submit this appointment before the 15th day of the fourth month after the closure of the fiscal year and by the deadline of April 15th in Puerto Rico.

4. When must a company hold a general shareholders meeting in Puerto Rico?

The ordinary general shareholders meeting must be held within five months following the closure of the fiscal year and by the deadline of April 15th in Puerto Rico.

5. What is the deadline for companies to submit their annual income tax declaration in Puerto Rico?

Companies in Puerto Rico have until the 15th day of the fourth month after closure of the fiscal year to submit their annual income tax declaration which will be by the deadline of April 15th.

What information is included in the annual corporate report?

The annual corporate report confirms basic information about the company. This includes the corporation’s name, registered agent and address, the names and addresses of its directors and officers, and the name of the person filing the report.

What is the role of a registered agent?

A registered agent is a mandatory requirement. This individual or company, with a physical address in Puerto Rico, is designated to receive official legal and tax correspondence on behalf of the corporation.

What is the corporate income tax rate in Puerto Rico?

The corporate income tax system in Puerto Rico includes a normal tax and a surtax. The total effective rate can be up to 37.5%. However, Puerto Rico offers significant tax incentives through programs like Act 60, which can dramatically reduce tax liability for eligible export service and manufacturing companies.

How do you obtain a Certificate of Good Standing?

A Certificate of Good Standing is obtained by submitting a request to the Department of State. The certificate will only be issued if the corporation has filed all its annual reports and paid all associated fees. This document is often required by banks and for government contracts.

What is the Municipal License renewal?

The “Patente Municipal” is a tax on gross volume of business. A provisional declaration must be filed shortly after commencing operations, and then renewed annually (usually by April) with the specific municipality where the office is located.

Biz Latin Hub can help with 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.

Learn more about our team and expert authors.