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Doing business in Puerto Rico

Officially known as the Commonwealth of Puerto Rico, Puerto Rico is a Caribbean island and unincorporated U.S. territory. The country has great natural beauty, and it is an excellent choice for investors and entrepreneurs looking to do business in Latin America. 

According to the International Monetary Fund, Puerto Rico has been categorized as a developed territory with an exceptionally high-income economy. 

Puerto Rico offers a high quality of life, a relatively low cost of living, a warm tropical climate, tax incentives for individuals and businesses that invest in certain industries, and a rich cultural heritage. 

Overall, all these make Puerto Rico an attractive location for businesses looking to expand or establish operations in the Caribbean and Latin American markets. 

Advantages of doing business in Puerto Rico 

  • Puerto Rico has a well-established industrial base that is groomed for investment, it also boasts a strong startup ecosystem and an ideal hub for innovation. 
  • Puerto Rico is strategically located in the Caribbean, and this makes it a gateway to the Latin American market. 
  • In addition to a high quality of life with breathtakingly beautiful surroundings, the country also offers some of the most elegant real estate in the Caribbean. 
  • Puerto Rico offers a business-friendly environment with a well-educated, bilingual workforce, and low barriers to entry. 
  • Puerto Rico offers a spectrum of tax incentives for businesses, including a 4% income tax rate, and exemptions from import duties and excise taxes on raw materials and equipment.
LEGAL SYSTEM

Puerto Rico’s legal system was formulated and designed under the Spanish civil code, known as civil law and it has roots in the legal systems of Spain and France. 

Puerto Rico’s legal system runs within a self-governing territory of the United States that is recognized as “The Commonwealth of Puerto Rico”. 

And as a US territory, Puerto Rico is also subject to US federal law and the US Constitution, and its legal system incorporates elements of common law. In essence, the legal system in Puerto Rico is administered by a number of courts, including municipal courts, superior courts, and the Supreme Court of Puerto Rico. 

Entity Choice in Puerto Rico 

Puerto Rico is welcoming of direct foreign investments. In fact, the country has executed several policies and incentives to encourage foreign investment and economic growth. And it’s welcoming attitude towards foreign investment, incorporated with its favorable tax incentives and business-friendly environment, makes it an attractive location for companies looking to expand or establish operations in the Latin American markets. 

For foreign investors and entrepreneurs looking to do business in Puerto Rico, the most common way is by establishing a company. Outlined below is an overview of all general business legal forms that foreign legal entities can choose from when setting up a company in Puerto Rico: 

Sole Proprietorship 

This is an unincorporated business structure that is owned and operated by a single individual in Puerto Rico. 

Features 

  • It is owned and operated by a single individual 
  • the owner has full control over the business 
  • There is no legal separation between the owner and the business. 
  • the owner is liable for all debts and responsibilities of the business 

Partnership 

This is a Puerto Rican business structure in which two or more people share ownership of a business. 

Features 

  • There are two types of partnerships in Puerto Rico: general partnerships and limited partnerships. 
  • In a general partnership, all partners share in the profits and losses of the business and are liable for its debts and responsibilities. 
  • In a limited partnership, there are general partners who manage the business and limited partners who have limited liability. 
  • Puerto Rican partnerships are owned and operated by two or more individuals 
  • Puerto Rican partnerships can be established with a formal partnership agreement, but it is not required by law. 

Limited Liability Company (LLC) 

This is a Puerto Rican hybrid business structure that incorporates the liability protection of a corporation with the tax benefits of a partnership. 

Features 

  • Its members are not personally liable for the debts and obligations of the business 
  • Its owner’s liability is limited to the amount of their investment in the business. 
  • LLCs in Puerto Rico offer flexibility in management and taxation. 
  • It can be managed by members or by assigned managers 

Corporation 

A Puerto Rican corporation is a separate legal entity from its owners. 

Features 

  • Its shareholders have limited liability and are not personally responsible for the debts and responsibilities of the corporation. 
  • It is managed by a board of directors. 
  • It can be either for-profit or nonprofit. 
  • It offers liability protection for their owners 
  • It is managed by a board of directors elected by the shareholders 
  • It can issue stocks and raise capital through public offerings 

Cooperative 

A Puerto Rican cooperative is a business structure in which members work together to achieve a common objective. 

Features 

  • It’s owned by members who work together to achieve a common purpose 
  • Each member has an equal say in decision-making 
  • It is often used by farmers and artisans. 
  • Its profits are shared among members, based on their participation 
  • Its members have limited liability, and are not personally responsible for its debts and obligations 

A Branch 

This is a business entity that is an extension of its parent company, established in a different location. 

Features 

  • It is considered an extension of the parent company 
  • The parent company assumes all the legal and financial responsibilities of the branch office. 
  • It does not have the freedom to engage in different business activities from its parent company. 
  • Its management structure is typically appointed by the parent company 
  • The parent company has ultimate control over the branch office’s decisions. 
  • It is subject to the same tax laws as any other business entity in Puerto Rico. 
  • It must file annual reports with the Department of State and give updates on any changes to the parent company. 

Are you looking to establish a company in Puerto Rico? Contact your Damalion expert now and let us help.

BANKING

Puerto Rico is not only known for its magical beaches, its baseball players, and its musical legends, it is also known for its sound and secure banking system. 

Puerto Rico has a well-developed banking system with a variation of financial institutions, including commercial banks, and savings and loan associations. 

Banks in Puerto Rico 

Puerto Rico has several banks which offer a range of services, including checking and savings accounts, loans, credit cards, and investment products. 

These banks are governed by the Office of the Commissioner of Financial Institutions of Puerto Rico, whose main goal is to ensure that the financial area and the economy are safe by safekeeping an uncompromising regulatory system that ensures investors’ money will be kept safe in the country. 

In addition to the range of services offered, Puerto Rico also has strict bank secrecy laws, so when opening a bank account in Puerto Rico, you can be assured of safety and efficiency. 

Opening a bank account in Puerto Rico 

The process of opening a bank account in Puerto Rico is a fairly straightforward process. Here are the steps you need to follow: 

You just have to choose an appropriate bank, gather the required documents, e.g., a government-issued photo ID, proof of residency, and a social security number, visit the bank, fill out an application, wait for approval, and get the account activated. 

Additionally, you can open a bank account for your Puerto Rican business. 

Note: When choosing a bank account (either personal or business), It’s important to do some research and compare different banking options to find the one that best suits your needs. Also, it’s recommended to consult with an advisor, e.g., Damalion, to ensure compliance with all applicable laws and regulations. 

IMMIGRATION

With a luxurious lifestyle, great weather all year round, reasonable cost of living, and highly impressive tax benefits, Puerto Rico offers foreign nationals unique advantages as a country to live in. 

In order to live in Puerto Rico legally, foreign nationals must get residency. 

And to qualify as a resident of Puerto Rico, foreign nationals must pass 3 tests. Firstly, he/she must be present in Puerto Rico for a specific period. Secondly, he/she should not have a tax home outside of Puerto Rico. Thirdly, he/she should not have a closer connection to a foreign country than to Puerto Rico. 

Once these conditions are acknowledged, the applicant will be good to go. 

Types of residency in Puerto Rico 

Investor 

This type of residency is available to individuals who invest in Puerto Rican businesses or real estate. To qualify, the applicant must make a minimum investment and meet certain other requirements. 

Retiree 

To qualify for this type of residency in Puerto Rico, the applicant must meet certain age and income requirements. 

High-net-worth individual 

This type of Puerto Rico residency is available to individuals who have a net worth of at least $5 million and make a significant investment in Puerto Rican businesses or real estate 

Foreign nationals can also get Puerto Rican residency through Family connections and Employment in the country. 

To make this process simple, it’s recommended to seek the help of a professional. In other words, contact your Damalion expert now and let us help.

TAX REGIME

Puerto Rico has a unique tax system that includes taxes paid to the federal government of the United States and to the Government of the Commonwealth of Puerto Rico. 

Puerto Rico is subject to some federal taxes, such as payroll taxes and social security taxes, but it is exempt from some federal income taxes. 

Puerto Rico also has a territorial tax system, meaning that taxes are only charged on income earned within Puerto Rico, so income earned outside of Puerto Rico is commonly exempt from Puerto Rican income tax. 

Types of taxes in Puerto Rico 

Income Tax 

Puerto Rico charges a corporate income tax of 37.5% on corporations operating within the territory. 

It also imposes a graduated tax rate on individuals, with rates ranging from 0% to 33%. 

Sales and use tax 

Puerto Rico charges a sales and use tax rate of 11.5% on most goods and services sold within the territory. 

Property tax 

Property taxes are charged on real property in Puerto Rico, and these include land, buildings, and structures. The rate differs depending on the municipality where the property is situated. 

Business-to-business tax 

Puerto Rico charges a tax on specific business transactions between companies. This tax is planned to help fund the island’s municipal government. 

Payroll taxes 

Puerto Rico employers are obliged to withhold payroll taxes from their employee’s paychecks for social security, unemployment insurance, and Medicare. 

Excise taxes 

These taxes are charged on certain goods and services, such as gasoline, and alcoholic beverages. 

Municipal license tax 

Businesses operating in Puerto Rico are mandated to pay a municipal license tax to the municipality where they are situated. 

Tax treaties in Puerto Rico

There are no tax treaties between Puerto Rico and foreign countries because Puerto Rico is a US territory and not a sovereign nation. Rather, tax treaties between the United States and other countries may have implications for inhabitants of Puerto Rico who are US citizens or green card holders. 

In addition, Puerto Rico offers tax incentives for corporations and individuals who invest in specific industries, such as tourism and renewable energy. 

When it comes to tax compliance in Puerto Rico, it’s important to consult with a tax to ensure compliance with all applicable laws and regulations in Puerto Rico. In other words, contact your Damalion expert now for your tax compliance in Puerto Rico.

INTELLECTUAL PROPERTY

Intellectual property laws in Puerto Rico are comparable to those in the United States, as Puerto Rico is an unincorporated sovereignty of the US. This means that patents, trademarks, copyrights, and other forms of intellectual property in Puerto Rico are mainly protected by the same laws that pertain to the rest of the United States. 

The types of intellectual property protections available in Puerto Rico include: 

Patents 

  • A patent is a property right that gives an inventor the sole right to make, use, and sell an invention for a fixed period of time. 
  • Patents protect inventions, including machines, processes, compositions of matter, and designs. 
  • Patents in Puerto Rico are governed by the US Patent and Trademark Office (USPTO). 
  • To obtain a patent, an inventor must file an application with the USPTO that meets the conditions for patentability. 
  • In Puerto Rico, patents are protected for 20 years from the date of filing. 

Trademarks 

  • Trademarks may be a word, phrase, symbol, or design that identifies and distinguishes the source of goods or services. 
  • Trademark protection helps businesses establish brand recognition and prevents others from using similar marks. 
  • Trademarks in Puerto Rico are also overseen by the USPTO. 
  • To obtain a trademark in Puerto Rico, a business or individual must file an application with the USPTO. 
  • In Puerto Rico, trademarks can be protected for 10 years and can be renewed for consecutive 10-year periods. 

Copyrights 

  • Copyright is the lawful way of referring to the rights that creators have over their artistic or literary works. 
  • Copyrights protect original works of authorship, such as books, software, and artwork. Copyright protection gives the owner the sole right to reproduce, distribute, and display the work. 
  • Copyright law in Puerto Rico is governed by the US Copyright Act. 
  • Copyright protection is automatic upon creation of the work, and registration with the US Copyright Office is not mandated, but, it is recommended, as it would be necessary for additional legal protections. 
  • In Puerto Rico, copyrights are generally protected for the life of the author plus an extra 70 years. 

Trade secrets 

  • Trade secrets are classified information that gives a business a competitive advantage, such as formulas and customer lists. 
  • Trade secret protection can be executed through contracts and other legal means. 
  • Trade secrets in Puerto Rico are protected by state and federal law. 
  • In Puerto Rico, trade secrets can be protected for an infinite period of time as long as the information remains classified. 

Industrial designs 

  • Industrial designs protect the aesthetic aspects of a product. 
  • Industrial designs can be protected by obtaining a design patent or through other legal means. 
  • industrial designs in Puerto Rico are primarily protected under U.S. federal law. 
  • The protection period for industrial designs in Puerto Rico is 15 years from the date of the grant for design patents. 

Intellectual property Enforcement in Puerto Rico 

Once you have acquired intellectual property protection, you must take steps to implement your rights. Intellectual property rights in Puerto Rico are enforced through the US federal court system, and individuals and businesses can seek legal remedies for infringement. 

In Puerto Rico, it is important for businesses and individuals to be aware of their intellectual property rights and to take steps to protect their valuable creations, so it’s recommended to consult with a professional, e.g., Damalion, to guide them through the process.

LABOR AND EMPLOYMENT

Labor and employment in Puerto Rico are governed by a combination of federal and local laws, which are generally comparable to those in the United States, but with some significant differences due to Puerto Rico’s status as an unincorporated territory of the US. 

Some of these laws include the Fair Labor Standards Act (FLSA), Puerto Rico Minimum Wage, Vacation and Sick Leave Act, Puerto Rico Anti-Discrimination Law, and Puerto Rico Unjust Dismissal Law. 

Employment contract in Puerto Rico 

An employment contract in Puerto Rico is a legal agreement between an employer and an employee that defines the terms and conditions of the employment relationship. 

Employment contracts in Puerto Rico include key terms such as the employee’s job duties, compensation, schedule, and any benefits or perks that the employee is entitled to. 

Types of employment Contracts in Puerto Rico 

Indefinite-term contract: this is the most popular type of employment contract in Puerto Rico. It allows the employer to terminate the employment relationship at any time, for any legal reason, provided that proper notice is given to the employee, and it does not have a specified end date. 

  • Fixed-term contract: this type of employment agreement has a specified end date, and is often used for seasonal or temporary employment. 
  • Part-time contract: this is a type of employment agreement where the employee works fewer hours than a full-time employee. This type of contract is often used for employees who work less than 40 hours per week. 

Other types of employment contract in Puerto Rico include Independent contractor agreement And Probationary contract. 

Employment benefits in Puerto Rico 

  • Working hours: the standard Puerto Rico workweek is 40 hours, with eight-hour per day. Employees are prone to overtime but are liable to extra payment. 
  • Discrimination: Puerto Rico has anti-discrimination laws, which prohibit employers from discriminating against employees on the basis of race, sex, age, religion, or disability. 
  • Health insurance: many Puerto Rican employers offer health insurance as a benefit to their employees, but the cost of health insurance varies depending on the type of plan and the employer’s contribution. 
  • Vacation leave: apart from the several public holidays, employers in Puerto Rico are required by law to provide their employees with vacation leave. Every Puerto Rican employee shall be authorized to a minimum vacation leave accrual after working a minimum of 130 hours a month. 
  • Maternity and paternity leave: under Puerto Rico law, employers are required to provide female employees with a minimum of eight weeks of paid maternity leave, with four weeks normally taken before the birth and four after the birth. Male employees are authorized to have up to two weeks of paternity leave. 
  • Disability benefits and workers’ compensation: Employers in Puerto Rico are required to provide disability benefits to employees who are unable to work due to an injury or illness. Also, employers are required to provide workers’ compensation insurance to employees who are injured on the job. 
  • Sick leave: employers in Puerto Rico are required by law to provide their employees with sick leave. But to earn sick leave employees, must work a minimum of 115 hours a month. 
  • Employment termination/severance: Puerto Rican employers may terminate a permanent contract only for just cause. A Puerto Rican employee terminated for any reason other than just cause must be paid severance. 

Are you interested in entering the Puerto Rican market?

Your Damalion experts are here for you. In addition to providing various integral business solutions, including compliance, entity management, accounting, taxation, and payroll support, we have the expertise and experience that allows us to guide clients during the activity of building a company in Puerto Rico. 

Contact us now to register your company in Puerto Rico. 

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