Business Guides.
Staying ahead of the game.
In this section you will find two business guides for enterprises looking to do business in Puerto Rico and Latin America. These useful guides will provide information on types of business entities, tax incentives, and regulations relevant to each specific area.
General Guide to Doing Business in Puerto Rico
General Guide to Doing Business in Puerto Rico
Thinking about forming or growing your business in Puerto Rico and have legal questions?
Go ahead, type your questions and we’ll get going!
For legal advice, please contact us directly at (787) 522-2000 or press here to schedule a free initial consultation.
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:
- Corporations
- Domestic Corporations
- Foreign Corporations
- Professional Corporations
- Limited Liability Companies
- Limited Liability Partnerships
- Civil Partnerships
Corporations
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.
Domestic Corporations
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 direct participation in the management of the business, and the transfer of its stock may be restricted according to the law and the shareholders’ discretion.
Foreign Corporations
Are corporations organized under a state of the United States or another country? Foreign corporations must request a certificate of authorization to do business in Puerto Rico prior to engaging in any business.
Puerto Rico provides a positive legal framework to promote US and foreign investment. Some of the benefits of doing business in Puerto Rico include:
- Puerto Rico is a territory of the United States and, unless expressly excluded, US laws apply. As a result:
- Puerto Rico is part of the US free trade zones and customs system.
- Puerto Rico is protected under the US legal framework for intellectual property protection.
- Puerto Rico is under the protection of the US Homeland Security Act
- Puerto Rico’s banking system is regulated by US laws (Federal Deposit Insurance Corporation).
- Puerto Rico has access to US federal programs and funds.
There are no restrictions on foreign shareholders. US federal government’s restrictions on doing business with certain countries apply in Puerto Rico. Puerto Rico does not have any exchange control or currency regulations.
Professional Corporations
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)
A Limited Liability Company (LLC) is a business structure that combines the liability protection of a corporation with the tax benefits and operational flexibility of a partnership. It protects its owners, known as members, from personal responsibility for its debts and liabilities, while allowing profits to be taxed on a pass-through basis to the members, avoiding the double taxation of corporations. LLCs have fewer filing requirements than their corporate counterparts. Both foreign and domestic LLCs may be registered. LLCs offer flexibility in management and operation, without the need for a board of directors or annual meetings required by corporations.
Limited Liability Partnerships (LLP)
A Limited Liability Partnership (LLP) is a legal entity that combines features of partnerships and corporations. In an LLP, partners have the flexibility to manage the business directly, similar to a traditional partnership, while also enjoying limited liability protection, akin to that of a corporation’s shareholders. This means that partners in an LLP are not personally responsible for the business debts and obligations or for the actions of other partners. However, they may be liable for their own actions or negligence.
LLPs are particularly popular among professionals, such as lawyers, accountants, and consultants, as they allow these professionals to benefit from the advantages of both partnerships and corporations. Its existence and benefits depend on mandatory annual renewals, emphasizing the importance of compliance to maintain its status.
Civil Partnerships
The 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 businesses 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 “sales tax” 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”). A 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: Businesses 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.
The Economic Incentives for the Development of Puerto Rico Act (EIA) offers special economic incentives to eligible businesses 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.
Business Tax Incentives
Act 60-2019, known as the Puerto Rico Incentives Code (the “Incentives Code”), codified the tax incentives formerly granted under Acts 20 and 22, as well as many other tax incentives laws, to encourage long-term economic activity in Puerto Rico. The Incentives Code adopted a streamlined legal and administrative framework for the application, assessment, and grant of incentives by the Government of Puerto Rico. The Incentives Code provides unique opportunities to make Puerto Rico a prime destination for international services, including consulting, electronic data processing services, health services, and education services, among others.
To enjoy the benefits granted under the Incentives Code, an eligible business or individual investor must apply for and obtain a tax exemption decree from the Puerto Rico Department of Economic Development and Commerce. Such decree is a binding contract with the Government of Puerto Rico not subject to subsequent legislative changes. The following is a brief overview of the most significant tax benefits available to businesses and individual investors under the Incentives Code
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, workmen’s 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.
Foreign Employees
As a territory of the United States, Puerto Rico is governed by US immigration law. All foreign employees require work permits and/or residency permits issued by the United States Citizen and Immigration Services, ascribed to the Department of Homeland Security.
Depending on the nature of the business, a company may also be required to obtain licenses particular to its industry: (e.g. 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.)
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.
Puerto Rico is protected under the US legal framework for intellectual property protection:
- Patents
- Trademarks
- Copyright
The Constitution of the Commonwealth of Puerto Rico establishes the framework for the Labor Laws of Puerto Rico, through its Articles 15, 16, 17, and 18. The Constitution provides the minimum range of protection that can be granted to employees. These provisions cannot be modified by a written employment contract unless it grants workers further favorable conditions than the ones that are set as a minimum by the Constitution and related laws.
Act No. 180-1999, as amended, known as the Minimum Wage, Vacation and Sick Leave Act statutorily incorporates, as a substantive right the automatic and immediate application of the Federal Minimum Wage to all workers in industries in Puerto Rico covered by the Fair Labor Standards Act (FLSA). However, certain dispositions of the FLSA only apply to those employees who work in industries covered by the FLSA. As such, not all employees in Puerto Rico are covered by the FLSA.
“Success is walking from failure to failure with no loss of enthusiasm.”
Winston Churchill
Gain a competitive EDGE in Puerto Rico. Schedule a personalized consultation with our legal experts to kickstart your business growth in this vibrant market.
Gain a competitive EDGE in Puerto Rico. Schedule a personalized consultation with our legal experts to kickstart your business growth in this vibrant market.
