Puerto RicoTax Guide

2012

PKF Worldwide Tax Guide 2012I

foreword

A country’s tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed?

Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. This handy reference guide provides clients and professional practitioners with comprehensive tax and business information for 100 countries throughout the world.

As you will appreciate, the production of the WWTG is a huge team effort and I would like to thank all tax experts within PFK member firms who gave up their time to contribute the vital information on their country’s taxes that forms the heart of this publication. I would also like thank Richard Jones, PKF (UK) LLP, Kevin Reilly, PKF Witt Mares, and Kaarji Vaughan, PKF Melbourne for co-ordinating and checking the entries from countries within their regions.

The WWTG continues to expand each year reflecting both the growth of the PKF network and the strength of the tax capability offered by member firms throughout the world.

I hope that the combination of the WWTG and assistance from your local PKF member firm will provide you with the advice you need to make the right decisions for your international business.

Jon HillsPKF (UK) LLPChairman, PKF International Tax Committee jon.hills@uk.pkf.com

PKF Worldwide Tax Guide 2012 II

important disclaimer

This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication.

This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication.

The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication.

Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.

PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms.

PKF Worldwide Tax Guide 2012III

preface

The PKF Worldwide Tax Guide 2012 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of 100 of the world’s most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current as of 30 September 2011, while also noting imminent changes where necessary.

On a country-by-country basis, each summary addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country’s personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments.

While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice.

In addition to the printed version of the WWTG, individual country taxation guides are available in PDF format which can be downloaded from the PKF website at www.pkf.com

PKF INTERNATIONAL LIMITEDAPRIL 2012

©PKF INTERNATIONAL LIMITEDALL RIGHTS RESERVEDUSE APPROVED WITH ATTRIBUTION

PKF Worldwide Tax Guide 2012 IV

about pKf international limited

PKF International Limited (PKFI) administers the PKF network of legally independent member firms. There are around 300 member firms and correspondents in 440 locations in around 125 countries providing accounting and business advisory services. PKFI member firms employ around 2,200 partners and more than 21,400 staff.

PKFI is the 10th largest global accountancy network and its member firms have $2.6 billion aggregate fee income (year end June 2011). The network is a member of the Forum of Firms, an organisation dedicated to consistent and high quality standards of financial reporting and auditing practices worldwide.

Services provided by member firms include:

Assurance & AdvisoryCorporate FinanceFinancial PlanningForensic AccountingHotel ConsultancyInsolvency – Corporate & PersonalIT ConsultancyManagement ConsultancyTaxation

PKF member firms are organised into five geographical regions covering Africa; Latin America; Asia Pacific; Europe, the Middle East & India (EMEI); and North America & the Caribbean. Each region elects representatives to the board of PKF International Limited which administers the network. While the member firms remain separate and independent, international tax, corporate finance, professional standards, audit, hotel consultancy, insolvency and business development committees work together to improve quality standards, develop initiatives and share knowledge and best practice cross the network.

Please visit www.pkf.com for more information.

PKF Worldwide Tax Guide 2012V

structure of country descriptions

a. taXes payable

FEDERAL TAXES AND LEVIES COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX/VALUE ADDED TAX FRINGE BENEFITS TAX LOCAL TAXES OTHER TAXES

b. determination of taXable income

CAPITAL ALLOWANCES DEPRECIATION STOCK/INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES

c. foreiGn taX relief

d. corporate Groups

e. related party transactions

f. witHHoldinG taX

G. eXcHanGe control

H. personal taX

i. treaty and non-treaty witHHoldinG taX rates

PKF Worldwide Tax Guide 2012 VI

AAlgeria . . . . . . . . . . . . . . . . . . . .1 pmAngola . . . . . . . . . . . . . . . . . . . .1 pmArgentina . . . . . . . . . . . . . . . . . .9 amAustralia - Melbourne . . . . . . . . . . . . .10 pm Sydney . . . . . . . . . . . . . . .10 pm Adelaide . . . . . . . . . . . . 9.30 pm Perth . . . . . . . . . . . . . . . . . .8 pmAustria . . . . . . . . . . . . . . . . . . . .1 pm

BBahamas . . . . . . . . . . . . . . . . . . .7 amBahrain . . . . . . . . . . . . . . . . . . . .3 pmBelgium . . . . . . . . . . . . . . . . . . . .1 pmBelize . . . . . . . . . . . . . . . . . . . . .6 amBermuda . . . . . . . . . . . . . . . . . . .8 amBrazil. . . . . . . . . . . . . . . . . . . . . .7 amBritish Virgin Islands . . . . . . . . . . .8 am

CCanada - Toronto . . . . . . . . . . . . . . . .7 am Winnipeg . . . . . . . . . . . . . . .6 am Calgary . . . . . . . . . . . . . . . .5 am Vancouver . . . . . . . . . . . . . .4 amCayman Islands . . . . . . . . . . . . . .7 amChile . . . . . . . . . . . . . . . . . . . . . .8 amChina - Beijing . . . . . . . . . . . . . .10 pmColombia . . . . . . . . . . . . . . . . . . .7 amCroatia . . . . . . . . . . . . . . . . . . . .1 pmCyprus . . . . . . . . . . . . . . . . . . . .2 pmCzech Republic . . . . . . . . . . . . . .1 pm

DDenmark . . . . . . . . . . . . . . . . . . .1 pmDominican Republic . . . . . . . . . . .7 am

EEcuador . . . . . . . . . . . . . . . . . . . .7 amEgypt . . . . . . . . . . . . . . . . . . . . .2 pmEl Salvador . . . . . . . . . . . . . . . . .6 amEstonia . . . . . . . . . . . . . . . . . . . .2 pm

FFiji . . . . . . . . . . . . . . . . .12 midnightFinland . . . . . . . . . . . . . . . . . . . .2 pmFrance. . . . . . . . . . . . . . . . . . . . .1 pm

GGambia (The) . . . . . . . . . . . . . 12 noonGeorgia . . . . . . . . . . . . . . . . . . . .3 pmGermany . . . . . . . . . . . . . . . . . . .1 pmGhana . . . . . . . . . . . . . . . . . . 12 noonGreece . . . . . . . . . . . . . . . . . . . .2 pmGrenada . . . . . . . . . . . . . . . . . . .8 amGuatemala . . . . . . . . . . . . . . . . . .6 am

Guernsey . . . . . . . . . . . . . . . . 12 noonGuyana . . . . . . . . . . . . . . . . . . . .7 am

HHong Kong . . . . . . . . . . . . . . . . .8 pmHungary . . . . . . . . . . . . . . . . . . .1 pm

IIndia . . . . . . . . . . . . . . . . . . . 5.30 pmIndonesia. . . . . . . . . . . . . . . . . . .7 pmIreland . . . . . . . . . . . . . . . . . . 12 noonIsle of Man . . . . . . . . . . . . . . 12 noonIsrael . . . . . . . . . . . . . . . . . . . . . .2 pmItaly . . . . . . . . . . . . . . . . . . . . . .1 pm

JJamaica . . . . . . . . . . . . . . . . . . .7 amJapan . . . . . . . . . . . . . . . . . . . . .9 pmJersey . . . . . . . . . . . . . . . . . . 12 noonJordan . . . . . . . . . . . . . . . . . . . .2 pm

KKazakhstan . . . . . . . . . . . . . . . . .5 pmKenya . . . . . . . . . . . . . . . . . . . . .3 pmKorea . . . . . . . . . . . . . . . . . . . . .9 pmKuwait . . . . . . . . . . . . . . . . . . . . .3 pm

LLatvia . . . . . . . . . . . . . . . . . . . . .2 pmLebanon . . . . . . . . . . . . . . . . . . .2 pmLiberia . . . . . . . . . . . . . . . . . . 12 noonLuxembourg . . . . . . . . . . . . . . . .1 pm

MMalaysia . . . . . . . . . . . . . . . . . . .8 pmMalta . . . . . . . . . . . . . . . . . . . . .1 pmMauritius . . . . . . . . . . . . . . . . . . .4 pmMexico . . . . . . . . . . . . . . . . . . . .6 amMorocco . . . . . . . . . . . . . . . . 12 noon

NNamibia. . . . . . . . . . . . . . . . . . . .2 pmNetherlands (The) . . . . . . . . . . . . .1 pmNew Zealand . . . . . . . . . . .12 midnightNigeria . . . . . . . . . . . . . . . . . . . .1 pmNorway . . . . . . . . . . . . . . . . . . . .1 pm

OOman . . . . . . . . . . . . . . . . . . . . .4 pm

PPanama. . . . . . . . . . . . . . . . . . . .7 amPapua New Guinea. . . . . . . . . . .10 pmPeru . . . . . . . . . . . . . . . . . . . . . .7 amPhilippines . . . . . . . . . . . . . . . . . .8 pmPoland. . . . . . . . . . . . . . . . . . . . .1 pmPortugal . . . . . . . . . . . . . . . . . . .1 pmPuerto Rico . . . . . . . . . . . . . . . . .8 am

international time Zones

AT 12 NOON, GREENwICH MEAN TIME, THE sTANDARD TIME ELsEwHERE Is:

PKF Worldwide Tax Guide 2012VII

QQatar. . . . . . . . . . . . . . . . . . . . . .8 am

RRomania . . . . . . . . . . . . . . . . . . .2 pmRussia - Moscow . . . . . . . . . . . . . . .3 pm St Petersburg . . . . . . . . . . . .3 pm

sSierra Leone . . . . . . . . . . . . . 12 noonSingapore . . . . . . . . . . . . . . . . . .7 pmSlovak Republic . . . . . . . . . . . . . .1 pmSlovenia . . . . . . . . . . . . . . . . . . .1 pmSouth Africa . . . . . . . . . . . . . . . . .2 pmSpain . . . . . . . . . . . . . . . . . . . . .1 pmSweden . . . . . . . . . . . . . . . . . . . .1 pmSwitzerland . . . . . . . . . . . . . . . . .1 pm

TTaiwan . . . . . . . . . . . . . . . . . . . .8 pmThailand . . . . . . . . . . . . . . . . . . .8 pmTunisia . . . . . . . . . . . . . . . . . 12 noonTurkey . . . . . . . . . . . . . . . . . . . . .2 pmTurks and Caicos Islands . . . . . . .7 am

UUganda . . . . . . . . . . . . . . . . . . . .3 pmUkraine . . . . . . . . . . . . . . . . . . . .2 pmUnited Arab Emirates . . . . . . . . . .4 pmUnited Kingdom . . . . . . .(GMT) 12 noonUnited States of America - New York City . . . . . . . . . . . .7 am Washington, D.C. . . . . . . . . .7 am Chicago . . . . . . . . . . . . . . . .6 am Houston . . . . . . . . . . . . . . . .6 am Denver . . . . . . . . . . . . . . . .5 am Los Angeles . . . . . . . . . . . . .4 am San Francisco . . . . . . . . . . .4 amUruguay . . . . . . . . . . . . . . . . . . .9 am

VVenezuela . . . . . . . . . . . . . . . . . .8 amVietnam . . . . . . . . . . . . . . . . . . . .7 pm

PKF Worldwide Tax Guide 2012 1

Puerto Rico

puerto rico

Currency: Dollar Dial Code To: 1 Dial Code Out: 011 (US$)

Member Firm:City: Name: Contact Information:San Juan Jorge A. Guzman 787 758-4620 jguzman@tlsr.com

a. taXes payable

FEDERAL TAxEs AND LEVIEsCORPORATIONsCorporations organised or created under the laws of the Commonwealth of Puerto Rico are subject to tax on their worldwide income determined on a net profits basis.

Puerto Rico corporations are subject to tax on a graduated tax rate structure: • aflattaxof20%onthe‘normal-taxnetincome’• a‘surtax’onthe‘normal-taxnetincome’lesssurtaxcredit(generally$750,000)

with tax rates which presently range from: – 25%ontaxableincomefrom$750,001to$2,500,000 – 30%ontaxableincomeinexcessof$250,000,000

All corporations (with some exceptions) are subject to an alternative minimum tax if it results in a tax liability greater than the regular tax liability. The alternative minimum taxrateisaflat20%leviedon‘alternativeminimumnetincome’.Thisisgenerallycomputed by adding back to net taxable income certain items which receive preferential treatment in computing the regular tax. It does not apply to non-Puerto Rico corporations not engaged in trade or business in Puerto Rico.

Audited financial statements – There is a requirement of accompanying financial statements, audited by a CPA licensed in Puerto Rico, that apply to all domestic or foreign corporations whose volume of business exceeds $3million.

Business with volume of business under $3million but in excess of $1million may, nevertheless, elect to include audited financial statements with their returns. By doing this, they qualify for the automatic waiver granted by the Secretary with respect to withholding from service payments, provided they are up to date with their tax liabilities.

Consolidated financial statements – Every group of related entities engaged in trade or business in Puerto Rico shall submit the financial statements on a consolidated basis presenting the financial position and the results of operations of the parent company and its subsidiaries as if they were a single entity. In this case, such consolidated financial statements shall be submitted with a consolidating schedule also subject to audit or review.

The accounting books and all pertinent documents of the operations of the branches or divisions shall be kept available at all times in Puerto Rico.

PARTNERsHIPsPartnerships are not subject to tax on their income at partnership level In Puerto Rico but partners are subject to tax on it, even though the corresponding income is not distributed.

FOREIGN CORPORATIONs AND PARTNERsHIPsNon-Puerto Rico corporations and partnerships which have net income effectively connected with the operation of a trade or business in Puerto Rico are subject to the same income tax rates that apply to Puerto Rico corporations and partnerships.

Non-effectively connected fixed or determinable annual or periodical income derived from sources within Puerto Rico by non-resident foreign corporations and partnershipsisgenerallytaxedatarateof29%,exceptthatthetaxrateondividendsis10%andthereisnotaxoninterestunlessitispaidbyarelatedparty.

CAPITAL GAINs TAxGains from the sale or exchange of capital assets held for more than six months are subjecttoamaximumtaxof10%forindividualsand15%forcorporations.Capitallosses may be carried forward for five years but may be used only against capital gains.

BRANCH PROFITs TAxPuertoRicoalsoimposesabranchprofitstaxof10%tonon-PuertoRicocorporationsandpartnershipsthatderivelessthan80%oftheirgrossincomefromPuertoRicosources.Thetaxisimposedonthebranch’s‘dividendequivalentamount’,which

PKF Worldwide Tax Guide 20122

represents profits of the branch that are effectively connected with a trade or business in Puerto Rico and are not reinvested in the Puerto Rico business operation.

sALEs TAxEs/VALUE ADDED TAx (VAT)From 15 November 2006 Puerto Rico has implemented a Sales and Use Tax. It is imposedatarateof5.5%atthestateleveland1.5%atthemunicipallevel.Thesalesand use tax generally applies to all retail sales including mail order, sale of tangible personal property or services, admission fees, storage, use or consumption in Puerto Rico. Limited exceptions include non-processed foods, prescription medicines, most rental of real property, and the following services: medical-hospital, professional, educational, financial, governmental, inter-business and insurance, among others.

Vendors must register and collect sales tax. The sale and use tax introduced by the Act replacesthegeneral6.6%excisetaxapplicabletomostarticlesimportedtoPuertoRico.

OTHER TAxEsOther taxes imposed by Puerto Rico include excise taxes, property taxes, unemployment insurance tax (creditable against the US unemployment tax) and licence fees on certain businesses. Municipalities also impose a municipal licence tax on the gross volume ofbusinesseachyear.Thisrangesfrom27%to50%forbusinessestablishments(includingself-employedindividuals)andfrom1%to1.50%forfinancialinstitutions.ThesaleandusetaxintroducedbytheActreplacesthegeneral6.6%excisetaxapplicable to most articles imported to Puerto Rico. The existence of specific-item excise tax is retained for cement, cigarettes, gasoline and other fuels, vehicles and horseracingwinnings.Thegeneral6.6%excisetaxisretainedforplastic.

b. determination of taXable income

The net taxable income of a corporation or partnership is determined by subtracting all allowable deductions from gross (non-exempt) income. Generally, all expenses and losses directly connected with the trade or business may be deducted. There are, however, some special rules and limitations with respect to certain expenses and losses.

DEPRECIATIONDepreciable assets are written off over their useful lives under the straight-line method but fixed assets acquired by purchase during taxable years starting after 30 June 1995 may be depreciated under an accelerated cost recovery system. Goodwill acquired by purchase during taxable years starting after 30 June 1995 may be amortised for a period of 15 years under the straight-line method.

DIVIDENDsGenerally,PuertoRicocorporationsandpartnershipsmaydeduct85%ofdividendsor partnership profits received from other Puerto Rico corporations or partnerships.

CHARITABLE CONTRIBUTIONsQualifying charitable contributions made by corporations and partnerships may be deductedatanamountnotinexcessof5%ofthenettaxableincomeascomputedwithout considering the charitable contributions.

LOssEsNet operating losses incurred by a corporation or partnership may not be carried back but shall be carried over to each of the seven succeeding tax years.

ExPENsEs RELATED TO ExEMPT INCOMEExpenses attributable to exempt income are not allowed.

INsURANCE PREMIUMsPremiums on insurance policies against any risks paid to an insurer not authorised to contract insurance in Puerto Rico are not deductible.

LIFE INsURANCE PREMIUMsPremiums paid on any life insurance policy covering the life of any officer or employee are not deductible when the corporation or partnership is a beneficiary under the policy.

MEALs AND ENTERTAINMENTThedeductionformealsandentertainmentislimitedto50%.

INCENTIVEsPuerto Rico provides tax incentives by means of special tax exemptions and deductions for specified industries. Qualifying manufacturing operations, recycling businesses, agriculture, hospital facilities, hotels and related tourist activities are eligible for partial exemption from property and municipal taxes. For industrial development income, there isasingleflatincometaxratethatisgenerally7%.Forhospitalfacilitiesthereisataxcreditofupto15%tiedtothehospitalfacility’spayrollexpenses.

Puerto Rico

PKF Worldwide Tax Guide 2012 3

An eligible business (engaged in business in Puerto Rico) is allowed a credit against the income tax for the purchase of products manufactured in Puerto Rico for either exportorlocalsaleconsumption.Thecreditis10%ofthevalueofqualifyingpurchases in excess of the average value of such purchases made during the three taxable year period preceding the year in which the credit is claimed. It may not reducetheincometaxforanyparticulartaxableyearbymorethan25%.

c. foreiGn taX relief

Puerto Rico corporations and partnerships can claim a tax credit (with certain limitations) for taxes paid to a foreign jurisdiction on income taxed in Puerto Rico. Non-Puerto Rico corporations and partnerships are allowed a credit, with certain limitations, for taxes paid to a foreign jurisdiction with respect to income from sources without Puerto Rico effectively connected with the conduct of a trade or business within Puerto Rico.

d. corporate Groups

There is no provision for consolidated tax returns.

e. related party transactions

Related corporations and partnerships are not allowed to file consolidated tax returns. Each corporation or partnership with a legal entity must file a separate tax return. The Secretary of the Treasury is empowered to distribute, apportion or allocate gross income, deductions, credits or allowances between related organisations if it is determined that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or to reflect clearly the income of any of such related organisations.

f. witHHoldinG taX

Withholding taxes must be deducted from dividends, interest, rents, royalties, salaries, annuities, compensation or other fixed or determinable, annual or periodic income paid to non-resident individuals and non-Puerto Rico corporations or partnerships not engaged in trade or business in Puerto Rico. No withholding is required from interest on bank deposits paid to such individuals, corporations and partnerships. Generally, thewithholdingrateis29%butthewithholdingratefornon-residentswhoarecitizensoftheUnitedStatesis20%.Therateis10%ondividends.Interestisnotsubjecttowithholding unless the debtor and recipient are related persons.

Payments made to resident individuals or corporations engaged in trade or business in Puerto Rico for services rendered are subject (with some exceptions) to a withholdingrateof7%unlesstherecipientsecuresawaiverfromtheSecretaryofthe Treasury granting partial exemption from the withholding.

G. eXcHanGe control

No exchange controls are in effect.

H. personal taX

Income tax is payable by all resident individuals on non-exempt income derived from all sources. Non-resident individuals are only required to pay tax on income from Puerto Rico sources. A resident individual is one who has been present in Puerto Rico for a period of not less than 183 days during the calendar year.

Resident individuals are taxed on their net taxable income after deducting allowable deductions, personal exemptions and credits for dependents. Most individuals have their income tax withheld from salaries and wages paid by their employers. Self-employed individuals must pay tax instalments in advance. These are then credited against their taxliabilityfortheyear.Theincometaxratesforresidentindividualsrangefrom7%ontheexcessof$5,000ofnettaxableincometo33%onnettaxableincomeinexcessof$60,000. Individuals with adjusted gross income in excess of $150,000 are subject to an alternative basic tax if the amount of such tax is higher than the individual’s regular tax.

The tax rates for non-resident individuals (not United States citizens) with income effectively connected with a trade or business in Puerto Rico are the same as those for resident individuals. Citizens of the United States are taxed at the same rates applicable to residents of Puerto Rico whether or not they are engaged in trade or business in Puerto Rico.

i. treaty and non-treaty witHHoldinG taX rates

No treaties are signed or in force.

Puerto Rico

PKF Worldwide Tax Guide 2012 565

www.pkf.com$100