DETERMINE YOUR BUSINESS TYPE
Any establishment conducting business in the Commonwealth of Puerto Rico must first determine the type of business they wish to create or maintain: whether a corporation, limited liability company, limited liability partnership, or a civil partnership. Some of the characteristics of these entities are:
The Puerto Rico General Corporations Law provides for the creation and or adoption of for profit, non-profit, domestic, foreign, close and professional corporations. Corporations are available for any lawful business, with very limited exceptions. In general, corporations may be organized by one or more persons, and or juridical entities.
Are defined as entities organized and created under the laws of the Commonwealth of Puerto Rico. Close corporations Are domestic corporations with less than 75 stockholders. Shareholders are afforded a direct participation in the management of the business, and the transfer of its stock may be restricted according to the law and the shareholdersí discretion.
Are corporations organized under a state of the United States, or other country. Foreign corporations must request a certificate of authorization to do business in Puerto Rico prior to engaging in any business.
Are corporations created solely for purposes of rendering professional services, which are defined as any type of service which requires the individual to obtain a license or other legal authorization from the Commonwealth of Puerto Rico, such as engineers, lawyers, doctors, CPAs, and the like.
Limited Liability Companies (LLCs)
Are entities with similar yet a less formal management structure than that of a corporation. LLCs have less filing requirements than its corporate counterparts. Both foreign and domestic LLCs may be registered.
Limited Liability Partnerships (LLP)
Are available to professionals who engage in professional services, as defined above, who wish to avoid the formalities of a corporate entity. Annual renewal is indispensable to its existence.
Predecessor to the LLP, this business engagement is executed by means of a written agreement or joint venture; document. Certain legal formalities apply. It is recommended for less sophisticated business enterprises. However, its members are not afforded limited liability protection like its above counterparts. If you decide to do business in Puerto Rico, all corporations, limited liability companies and/or limited liability partnerships must:
• Register with the Department of State of the Commonwealth of Puerto Rico and pay the corresponding fee ($150 for corps / $250.00 for LLC).
• For corporations, the fee may increase, subject to the total number of authorized shares.
• Expedited registrations are available for LLCs, also with increased fee payment.
• Once registered, corporations must file annual reports and financial statements, along with the payment of the corresponding fee ($150).
• Once registered, LLCs and LLPs must file annual renewal forms and pay the required fee. ($150 for LLCs and $110 for LLPs).
GENERAL FILING REQUIREMENTS FOR PUERTO RICO
• For all businesses: All business must register with the Department of the Treasury to obtain a Merchants Registration and/or Exemption Certificate for payment of the local sales and use tax, if applicable. Companies are also required to file monthly ìsales taxî returns and an annual informative return.
• For all businesses: All businesses are required to register with the municipality where the business is located to obtain the Municipal License (known as “Patente”). Business may be subject to additional filing requirements by the municipality (volume of business return) and payment of property taxes and the municipal license tax.
• For all businesses with physical offices in Puerto Rico: Prior to begin operations, all businesses that will engage from a designated location are required to obtain an Use Permit from the Office of Management of Permits (“OGP” for its acronym in Spanish) or the corresponding municipality where the office is located.
• For Employers: Business with employees must also register with the Commonwealth of Puerto Rico Department of Labor and Human Resources (unemployment and disability insurance) and the State Insurance Fund Corporation (workmen compensation insurance). Filing requirements in each agency shall apply.
Special Economic Incentives for Industries and Service Units
The Economic Incentives for the Development of Puerto Rico Act (EIA) offers special economic incentives to eligible business engaged in a particular industry or service. Certain industrial units dedicated to the production of manufactured goods on a commercial scale are eligible, as well as service units that render designated services to the U.S., or other foreign markets. Eligible businesses include, but are not limited to: research laboratories, renewable power producers, recycling industries, software development, and social-interest housing developers. Eligible Service units include, but are not limited to: investment banking services, advertising and public relations services, commercial and graphic arts services, among others.
In general, the special incentives offered by the EIA to eligible businesses are:
• A 4% fixed income tax rate of their net income (derived from the eligible industry);
• 0 – 1% fixed income tax rate for novel or pioneer activity, as defined by the EIA;
• 90% exemption from property taxes;
• 60 – 90% exemption from municipal license tax, depending on the location and size of the business;
• 100% exemption from sales and use tax for certain material and/or equipment;
• Tax credits and/or deductions for equipment, investment, job creation and reduction of electricity cost. Eligible businesses are required to file an application with the Office of Industrial Tax Exemption, ascribed to the Department of Economic Development and Commerce of the Commonwealth of Puerto Rico, to obtain the benefits of the EIA. Once the tax grant is awarded, businesses are subject to reporting duties and the payment of annual fees. Other provisions and/or limitations apply.
Businesses with Employees
For Employers: The Commonwealth of Puerto Rico law provides extensive and protectionist labor legislation. There is special legislation for areas such as, but not limited to: unemployment and disability insurance, workmenís compensation insurance, unjustified termination indemnity, discrimination, vacation and sick leave, wages, Christmas bonuses, maternity and paternity leave, among others. Contact us for further information on applicable labor statutes.
Depending on the nature of the business, a company may also be required to obtain licenses particular to its industry: (e.g. a health-care providers are regulated by the Department of Health of the Commonwealth of Puerto Rico, insurance providers by the Office of the Commissioner of Insurance, banking or financial institutions by the Financial Institutions Commission, and so forth.)
EDGE IS A RESULTS ORIENTED LAW FIRM
Any and all questions in connection with your interest in doing business in the Commonwealth of Puerto Rico should be addressed to our specialized attorneys at EDGE, for an in-depth assessment of the requirements for your particular business.
Disclaimer: Your use of this website is subject to the Terms and Conditions described in our Home Page. The information provided herein should be considered as general guidelines for setting up a business in the Commonwealth of Puerto Rico and is not intended nor shall be construed as a comprehensive overview of the requisites, benefits or prohibitions established by law, nor is it intended to substitute the direct advice of legal counsel. Furthermore, these guidelines do not address tax considerations applicable to all businesses that derive income within the Commonwealth of Puerto Rico.