edge legal strategies - doing business in puerto rico · 2020-03-31 · the internal revenue code...
TRANSCRIPT
DoingBusinessinPuertoRico
DoingbusinessinPuertoRico
1
AboutPuertoRico• OfficiallyknownastheCommonwealthofPuertoRico(EstadoLibreAsociadode
PuertoRico),isaselfgoverningterritoryoftheUnitedStates,locatedinthenortheasternCaribbean.
• PuertoRico(Spanishfor"richport")consistsofanarchipelagothatincludesthemainislandofPuertoRicoandseveralislands:Vieques,Culebra,Monaandnumerousislets.
• ItisthesmallestislandoftheGreaterAntilleswithanareaof100mileslongby35mileswide.
• BorderedtothewestbytheDominicanRepublicandHaiti(LaHispañola),separatedbytheMonaPassage("MonaCanal"),totheeastbytheVirginIslands,tothenorthbytheAtlanticOcean,andtothesouthbytheCaribbeanSea.
• PuertoRicoisaself-governingcommonwealthinassociationwiththeUnitedStates.ThechiefofstateisthePresidentoftheUnitedStatesofAmerica.TheheadofgovernmentisanelectedGovernor.
• Government:Republicanformgovernment,withthreebranchesofgovernment:Executive,LegislativeandJudicial.
• Population:Approx.3,620,897• SpanishandEnglisharetheofficiallanguagesofPuertoRico.• Currency:U.S.Dollar(USD)• Climate:Tropical,averagetemperaturesyearroundbetween90°F(32.2°C)and70°F
(21.1°C).
BusinessPresence• ThePuertoRicoGeneralCorporationsActallowsfortheestablishmentofthefollowingbusinesstypes:domesticandforeigncorporationsandlimitedliabilitycompanies,limitedliabilitypartnerships,andcivilpartnerships.Not-for-profit,closeandprofessionalcorporationtypesarealsowidelyused.TheCorporationsActismodeledaftertheStateofDelaware’sGeneralCorporationLaw,thusallowingamplereciprocitybetweenUScorporateentitiesandPRcorporateentities.ThemostpopularentityformsusedarethecorporationandLLC.Typically,investorseitherformdomesticentitiesorqualifytheirexistingentitytodobusinessinPuertoRico.• TheincorporationprocessisverysimilartothatavailableintheUnitedStates.ToincorporateinPuertoRicoyoumustfilethecorrespondingformswiththeDepartmentofStateoftheCommonwealthofPuertoRicoalongwiththepaymentofthefilingfees.Tomaintaintheir“GoodStanding”status,entitiesmustannuallyfileareportand/orrenewalandpayanannualfee.
ForeignInvestment• PuertoRicoprovidesapositivelegalframeworktopromoteUSandforeigninvestment.
SomeofthebenefitsofdoingbusinessinPuertoRicoincludes:• PuertoRicoisaterritoryoftheUnitedStatesandunlessexpresslyexcluded,federalUSlaws
apply.Asaresult,theCommonwealthofPuertoRicois:
DoingbusinessinPuertoRico
2
⇒ PartoftheUSfreetradezonesandcustomssystem.⇒ ProtectedundertheUSlegalframeworkforintellectualpropertyprotection.⇒ UndertheprotectionoftheUSHomelandSecurityAct⇒ ItsbankingsystemisregulatedunderUSlaws(FederalDepositInsurance
Corporation);and⇒ HasaccesstoUSfederalprogramsandfunds.
• Therearenorestrictionsonforeignshareholders.• USfederalgovernment’srestrictionsondoingbusinesswithcertaincountriesapplyin
PuertoRico.• PuertoRicodoesnothaveanyexchangecontrolorcurrencyregulations.
DetermineYourBusinessTypeAnyestablishmentconductingbusinessintheCommonwealthofPuertoRicomustfirstdeterminethetypeofbusinesstheywishtocreateormaintain:whetheracorporation,limitedliabilitycompany,limitedliabilitypartnership,oracivilpartnership.Someofthecharacteristicsoftheseentitiesare:
CorporationsThePuertoRicoGeneralCorporationsLawprovidesforthecreationandoradoptionofforprofit,non-profit,domestic,foreign,closeandprofessionalcorporations.Corporationsareavailableforanylawfulbusiness,withverylimitedexceptions.Ingeneral,corporationsmaybeorganizedbyoneormorepersons,andorjuridicalentities.DomesticCorporations
AredefinedasentitiesorganizedandcreatedunderthelawsoftheCommonwealthofPuertoRico.ClosecorporationsAredomesticcorporationswithlessthan75stockholders.Shareholdersareaffordedadirectparticipationinthemanagementofthebusiness,andthetransferofitsstockmayberestrictedaccordingtothelawandtheshareholdersídiscretion.
ForeignCorporations
ArecorporationsorganizedunderastateoftheUnitedStates,orothercountry.ForeigncorporationsmustrequestacertificateofauthorizationtodobusinessinPuertoRicopriortoengaginginanybusinessoractivity.ProfessionalCorporations
Arecorporationscreatedsolelyforpurposesofrenderingprofessionalservices,whicharedefinedasanytypeofservicewhichrequirestheindividualtoobtainalicenseorotherlegalauthorizationfromtheCommonwealthofPuertoRico,suchasengineers,lawyers,doctors,CPAs,andthelike.LimitedLiabilityCompanies-LLC
Areentitieswithsimilaryetalessformalmanagementstructurethanthatofacorporation.LLCshavelessfilingrequirementsthanitscorporatecounterparts.BothforeignanddomesticLLCsmayberegistered.
DoingbusinessinPuertoRico
3
LimitedLiabilityPartnerships-LLP
Areavailabletoprofessionalswhoengageinprofessionalservices,asdefinedabove,whowishtoavoidtheformalitiesofacorporateentity.Annualrenewalisindispensabletoitsexistence.
CivilPartnerships
PredecessortotheLLP,thisbusinessengagementisexecutedbymeansofawrittenagreementorjointventure;document.Certainlegalformalitiesapply.Itisrecommendedforlesssophisticatedbusinessenterprises.However,itsmembersarenotaffordedlimitedliabilityprotectionlikeitsabovecounterparts.IfyoudecidetodobusinessinPuertoRico,allcorporations,limitedliabilitycompaniesand/orlimitedliabilitypartnershipsmust:• RegisterwiththeDepartmentofStateoftheCommonwealthofPuertoRicoandpaythe
correspondingfee($150forcorporations/$250.00forLLC).• Forcorporations,thefeemayincrease,subjecttothetotalnumberofauthorizedshares.• ExpeditedregistrationsareavailableforLLCs,alsowithincreasedfeepayment.• Onceregistered,corporationsmustfileannualreportsandfinancialstatements,alongwiththe
paymentofthecorrespondingfee($150).• Onceregistered,LLCsandLLPsmustfileannualrenewalformsandpaytherequiredfee.($150
forLLCsand$110forLLPs).
GeneralFilingRequirementsforPuertoRicoBusiness
• Forallbusinesses:AllbusinessmustregisterwiththelocalDepartmentoftheTreasurytoobtainaMerchantsRegistrationand/orExemptionCertificateforpaymentofthelocalsalesandusetax,ifapplicable.Companiesarealsorequiredtofilemonthlysalestaxreturnsandanannualinformativereturn.
• Forallbusinesses:AllbusinessesarerequiredtoregisterwiththemunicipalitywherethebusinessislocatedtoobtaintheMunicipalLicense(knownas“Patente”).Businessmaybesubjecttoadditionalfilingrequirementsbythemunicipality(volumeofbusinessreturn)andpaymentofpropertytaxesandthemunicipallicensetax.
• ForallbusinesseswithphysicalofficesinPuertoRico:Priortocommencementofoperations,allbusinessesthatwillengagefromadesignatedlocationarerequiredtoobtainanUsePermitfromtheOfficeofManagementofPermits(“OGPe”foritsacronyminSpanish)orthecorrespondingmunicipalitywheretheofficeislocated.
• ForEmployers:BusinesswithemployeesmustalsoregisterwiththeCommonwealthofPuertoRicoDepartmentofLaborandHumanResources(unemploymentanddisabilityinsurance)andtheStateInsuranceFundCorporation(workmencompensationinsurance).Filingrequirementsineachagencywillvary.
DoingbusinessinPuertoRico
4
TaxIncentivesforBusiness
• PuertoRicooffersahighlyattractiveincentivespackagethatincludesafixedcorporateincometaxrate–oneofthelowestincomparisonwithanyU.S.jurisdiction–varioustaxexemptionsandspecialdeductions,trainingexpensesreimbursementandspecialtaxtreatmentforpioneeractivities.• Examplesofthemostpopularincentiveslegislationinclude:
o Act20-2012,knownasthe“LawtoPromotetheExportofServices”whichaimstopromotetheenvironmentandopportunitytodevelopPuertoRicoasaninternationalservicecenter,
promotetheretentionandreturnoflocalprofessionalsandattractforeigncapital,promotinginthiswaytheeconomicdevelopmentandsocialimprovementofPuertoRico.
o Act22-2012,knownasthe“LawtoEncouragetheTransferofInvestorstoPuertoRico"withtheobjectivetogranttaxexemptioninregardstorevenue,resultingfrominvestmentsaccruedbyindividualswhoareresidentsinPuertoRico;
o Act73-2008,knownas"EconomicIncentivesfortheDevelopmentofPuertoRicoAct,"allowsqualifyingindustrialoperationsinPuertoRicotoobtainhighprofitswhilestimulatingthelocaleconomicdevelopment.o Keyprovisionswhichmaybeavailableunderincentiveactsinclude:o 100%exemptionapplicabletotheinterestsanddividendsincomeearnedbyaresident
individualinvestor(Act22)⇒ 4%or8%fixedcorporateincometaxrate(Act20,Act73)⇒ 1%incometaxratefor"pioneer"industriesand/or“strategicservices”(Act20,Act73)⇒ Allowsfortaxcreditsontheircorporateincometaxreturnforjobcreationtax,
investmentinmachineryandequipment,purchaseoflocallymanufacturedproducts(Act73)
⇒ Reducedelectricenergycostoftheindustrialexemptbusiness(Act73)⇒ Provides90%exemptionfrompersonalandrealpropertytaxes,60%exemptionfrom
municipallicensetaxesand100%exemptionfromstateandlocalsalesandusetaxonrawmaterial(Act20,73)
TaxationTaxationinPuertoRicotakestheformofbothFederal(US)andCommonwealthtaxes.PuertoRicohasindependenttax-levyingauthoritybyprovisionsof48U.S.C.§734oftheUnitedStatesCode,andthePuertoRicoInternalRevenueCode.
• CorrelationwiththeUnitedStatesTaxLaws.
ThoughtheCommonwealthgovernmenthasitsowntaxlaws,PuertoRicansarealsorequiredtopaymostU.S.federaltaxes:
o IndividualsResidinginPuertoRico.ResidentsofPuertoRicopayintoSocialSecurity,andarethuseligibleforSocialSecuritybenefitsuponretirement.OtherfederaltaxespaidbyPuertoRicoresidentsincludeimport/exporttaxes,andfederalcommoditytaxes.LikeresidentsoftheUnitedStates,residentsofPuertoRicoaresubjecttofederalincometaxontheirworldwideincome.However,U.S.CodeSection933,fortaxpurposes,allowsabonafideindividualresidentofPuertoRicotoexcludePuertoRicosourceincomefromhis/hergrossincome.Theprocessfordeterminingandestablishingbonafideresidenceforincometaxpurposeshingesontheresultofthree
DoingbusinessinPuertoRico
5
testsfoundinU.S.CodeSection937:(a)thepresencetest,(b)thetaxhometestand(c)closerconnectiontest.
o EmployersinPuertoRico.AresubjecttobothFederalInsuranceContributionsAct(FICA)tax(apayrollwithholdingtax,whichfundsSocialSecurityandMedicare)andtheFederalUnemploymentTaxAct(FUTA).EmployersinPuertoRicoarelegallyobligatedtowithholdtheemployeeportionofFICAtaxesfromtheiremployees'wagesandcontributetheemployerportionofFICA.
o PuertoRicoCorporations.PuertoRicocorporationsaretreatedasforeigncorporationsforU.S.incometaxpurposes.Thus,PuertoRicocorporationsaresubjecttoa30%U.S.incometaxwithholdingon,amongothers:interest,rents,wages,premiums,annuities,compensation,remuneration,emolumentsandotherfixedordeterminableannualorperiodicalgains,profitsandincomefromsourceswithintheUnitedStates.DividendsreceivedbyaPuertoRicocorporationfromaU.S.corporation,howeverandprovidedcertainconditionsaremet,aresubjecttoareducedU.S.incometaxwithholdinginsteadofthe30%rateapplicabletootherforeigncorporations.PuertoRicocorporationsaresubjecttoregularU.S.taxratesontheirincomeeffectivelyconnectedtoatradeorbusinessintheUnitedStates.
• PuertoRicoTaxSystem.
TheInternalRevenueCodeforaNewPuertoRico(‘PuertoRicoInternalRevenueCode’)isthemainbodyofdomesticstatutorytaxlaw.Itcoversincometaxes,payrolltaxes,gifttaxes,estatetaxesandmore.
• PersonalIncomeTax.
Individualsaretaxedonagraduateratebasedontheirtaxbracket,whichrangesfrom7%toamaximumof33%.Apersonisconsidereda“resident”ofPuertoRicoifheorshelivesinPuertoRicoforatleast184daysinacalendaryear.Capitalgainsearnedbyresidentindividualsarealsotaxed.Long-termcapitalgainsaregainsearnedfromanasset,whichisheldformorethan6months.Thetaxablegainiscomputedbydeductingtheacquisitioncostsfromthegrosssellingprice.
• PuertoRicocorporations.
PuertoRicocorporateentitiesaretaxedatonagraduatedtaxratestructure.
• Municipaltaxes.
OthertaxesapplicabletothePuertoRicotaxsystemsinclude,excisetax,municipallicensetax(grossvolume)andrealandpersonalpropertytaxes.Thepercentageswillvarydependingonthelocalgovernmentandotherconsiderations.
• SalesandUseTax.
PuertoRicoresidentsandentitiesarealsosubjectto11.5%salesandusetax.
IntellectualPropertyPuertoRicoisprotectedundertheUSlegalframeworkforintellectualpropertyprotection:
DoingbusinessinPuertoRico
6
• Patents
PatentsareissuedunderUnitedStatesfederallaw.
• Trademarks
Trademarkrightscanbeusedtopreventothersfromusingthesame,orverysimilarmarkinconnectionwiththesamegoodsorservicesthataresoldunderthetrademark.TrademarksenjoyprotectionunderUnitedStatesTrademarkAct,asamended,andunderAct169-2009,knownas“PuertoRicoTrademarkAct”.Ifmerchandiseisusedininter-statecommerceownersoftrademarkscanregisterthemwiththeUnitedStatesPatentsandTrademarksOffice.ApplicationsfortheregistrationoftrademarksinPuertoRicomustbefiledwiththeRegistryofTrademarksandCommercialNamesofthePuertoRicoDepartmentofState.InPuertoRico,registrationwithintenttouseisallowed.
• Copyright
Copyrightisavailableforauthorsoforiginalworks,includingliterary,dramatic,musical,artistic,andcertainotherintellectualworks.CopyrightisgovernedbyFederal(US)andPuertoRicolaw(VisualArtistsRightsAct,andPRAuthor’sMoralRightsAct,Act55-2012).Copyrightprotectionsubsistsfromthetimetheworkiscreatedinfixedformandimmediatelybecomesthepropertyoftheauthorofthework.CopyrightscanberegisteredwiththeUSCopyrightOfficeoftheLibraryofCongressandwiththeCopyrightRegistryOfficeofthePuertoRicoDepartmentofState.
LaborLaw• TheConstitutionoftheCommonwealthofPuertoRicoestablishestheframeworkforthe
LaborLawsofPuertoRico,throughitsArticles15,16,17and18.TheConstitutionprovidestheminimumrangeofprotectionthatcanbegrantedtoemployees.TheseprovisionscannotbemodifiedbyawrittenemploymentcontractunlessitgrantsworkersfurtherfavorableconditionsthantheonesthataresetasaminimumbytheConstitutionandrelatedlaws.
• TheMinimumWage,VacationandSickLeaveActstatutorilyincorporates,asasubstantiverighttheautomaticandimmediateapplicationoftheFederalMinimumWagetoallworkersinindustriesinPuertoRicocoveredbytheFairLaborStandardsAct(FLSA).
• BoththeConstitutionandtheLawsofPuertoRicoestablishthateight(8)hoursofworkwithinaperiodof24consecutivehoursconstitutethelegalandregularworkdayinPuertoRico.Forty(40)hoursofworkconstitutetheregularworkweek.Act379-1948requirespaymentofworkinexcessofeighthoursadayorfortyaweekatdoubletheregularrateofpay.IftheemployeriscoveredbytheFairLaborStandardsAct,theemployerhastopayforeachovertimehourofworkinexcessofthelegaleighthoursperday,awagerateofnotlessthanoneandahalftimethewageagreeduponforregularhoursunlessotherwiseestablishedbymandatorydecreeorcollectivebargainingagreement.Inaddition,theemployerandemployeehavetheoptiontoagreetoaflexibleworkscheduleasregulatedbythe“FlextimeAct”,Act83-1995.Thislawallowsforflexibilityindeterminingthebeginningofanemployee’sregularworkdayorthebeginningofhismealperiod.
DoingbusinessinPuertoRico
7
• MealPeriodareregulatedbyActNo.379-1948,whichstatesthatthemealperiodshallnotbelessthanonehourthattheemployeecannotworkformorethanfivehoursconsecutivelywithouttakinghismealperiod.
• VacationandSickLeave.Employeesofthecompanyareentitledtoaccruevacationleavewithfullpaytobemadeeffectivewhentheemployeebeginstoenjoythesame,attherateofoneandonefourth(1¼)workingdayforeachmonthinwhichhehasworkedatleastonehundredandfifteen(115)hours.Employeesshallaccruesickleaveattherateofone(1)workingdayforeachmonthinwhichtheyhaveworkedatleastonehundredfifteen(115)hoursfor.Theuseofsickleavewillbeconsideredastimeworkedintheaccrualofthisbenefit.
• OtherPuertoRicolaborlawsissuesaregovernedby:“UnjustDismissalAct”,“MaternityBenefitsandBreastFeeding”,“SafetyandHealthintheWorkPlace”,“Workmen'sAccidentCompensation”,“Non-OccupationalDisabilityandSocialSecurityforChauffeurs”,“UnemploymentInsurance”,lawsthatprohibitdiscriminationandsexualharassment,lawsconcerningveteransandemployeesonmilitaryserviceleave,lawsgoverningjuryduty,witnessleaveforcriminalcases,sportsleave,automobileaccidentdisabilityleaveand“ChristmasBonus”Act.
• FOREIGNEMPLOYEES:
AsaterritoryoftheUnitedStates,PuertoRicoisgovernedbyUSimmigrationlaw.Allforeignemployeesrequireworkpermitsand/orresidencypermitsissuedbytheUnitedStatesCitizenandImmigrationServices,ascribedtotheDepartmentofHomelandSecurity.
ImmigrationU.S.CitizenshipandImmigrationServices(USCIS),ascribedtotheDepartmentofHomelandSecurity,isthegovernmentagencythatoverseeslawfulimmigrationtotheUnitedStates.
OtherLicensingDependingonthenatureofthebusiness,acompanymayalsoberequiredtoobtainlicensesparticulartoitsindustry:(e.g.ahealth-careprovidersareregulatedbytheDepartmentofHealthoftheCommonwealthofPuertoRico,insuranceprovidersbytheOfficeoftheCommissionerofInsurance,bankingorfinancialinstitutionsbytheFinancialInstitutionsCommission,andsoforth.)
EDGEisaResultsOrientedLawFirmAnyandallquestionsinconnectionwithyourinterestindoingbusinessintheCommonwealthofPuertoRicoshouldbeaddressedtoourspecializedattorneysatEDGE,foranin-depthassessmentoftherequirementsforyourparticularbusiness.
DoingbusinessinPuertoRico
8
Disclaimer
YouruseofthiswebsiteissubjecttotheTermsandConditionsdescribedinourHomePage.TheinformationprovidedhereinshouldbeconsideredasgeneralguidelinesforsettingupabusinessintheCommonwealthofPuertoRicoandisnotintendednorshallbeconstruedasacomprehensiveoverviewoftherequisites,benefitsorprohibitionsestablishedbylaw,norisitintendedtosubstitutethedirectadviceoflegalcounsel.Furthermore,theseguidelinesdonotaddresstaxconsiderationsapplicabletoallbusinessesthatderiveincomewithintheCommonwealthofPuertoRico.