Puerto Rico translates from Spanish as “Rich Port” and officially called the “Commonwealth of Puerto Rico” is a United States territory located in the Caribbean Sea.
Puerto Rico corporations operate and are created under the General Corporations Act of 2009.
In addition, Puerto Rico also has a Tax Incentives Act which regulates the corporate income tax at a fixed rate of 7%.
In addition, fish canning industries along with leather products, apparels, shoes, and textiles qualify for a reduction of the corporate rate to 4%. In some cases, depending on the importance of the investment project, the corporate tax rate could be lowered to 2%.
The Controlled Foreign Corporation (“CFC”) system, states that a Puerto Rican subsidiary of a foreign corporation will only be taxed at a 7% rate as its maximum corporate rate with no withholding tax.
Benefits
There are several benefits for choosing to incorporate in Puerto Rico which include:
• Protection by the U.S.: As a U.S. Territory, Puerto Rico is protected by the U.S. military and government.
• Exempt from U.S. Taxes: Puerto Rico’s Controlled Foreign Corporation (CFC) structure allows income generated from selling products to the United States exempt from U.S. Taxes. In addition, products imported from the U.S. are exempt from Duty Taxes.
• Low Corporate Taxes: The maximum tax rate for Puerto Rico corporations is 7%. Some corporations may qualify for a maximum tax rate of only 2% (in some cases, could be 0%) by qualifying for the “Pioneer Industries” program
• Tax Free First Year: Puerto Rico offers a tax deduction of 100% on real estate and personal property taxes during the first-year of operations.
• One Shareholder: A minimum of only one shareholder is allowed for Puerto Rico corporations.
• No Authorized Capital: There is no authorized minimum capital requirement.
• Nominees: Nominee directors and shareholders can be appointed.
Corporate Name
Puerto Rican corporations must select a corporate name which is unique and not similar
Office Address and Local Agent
Puerto Rio corporations must appoint a local registered agent and have a local office address to accept process servers and official notices.
Shareholders
A Puerto Rico corporation must have at least one shareholder. Shareholders can be foreign citizens.
Directors and Officers
A minimum of one director is required to be appointed by every Puerto Rico corporation. Directors can be foreign citizens, and can be shareholders.
Authorized Capital
There is no authorized capital requirement for corporations in Puerto Rico.
Taxes
The maximum corporate tax rate in Puerto Rico is 7%.
Annual Fees
Corporations in Puerto Rico pay $150 USD to incorporate and as their annual renewal fee.
Public Records
The names of shareholders, directors, and officers of Puerto Rico corporations are included in the public records. However, in order to obtain privacy, nominee directors and shareholders can be appointed.
Accounting and Audit Requirements
Corporations are required to maintain financial and accounting records in order to determine their net income under General Accepted Accounting Principles and to shown taxable income under the P.R. Revenue Code. Also, the General Corporation Act of 2009 requires all corporations, foreign or otherwise, doing business in Puerto Rico to maintain accounting books, documents, and financial records.
In addition, every corporation engaged in a trade or business where the volume exceeds $3 million USD, must file financial statements. These statements must be certified by a public accountant licensed in Puerto Rico, along with income tax, property tax, and volume of business returns.
Annual General Meeting
An annual general meeting is required for every Puerto Rico corporation.
Time Required for Incorporation
The estimated time required to complete incorporation in Puerto Rico is 4 to 6 weeks. This turnaround time depends on the corporation’s name registration and the completeness of required documents.
Shelf Corporations
Shelf corporations are available to speed up the incorporation process.
Conclusion
As a protected U.S. Territory, Puerto Rico offers unique benefits to its corporation including: no U.S. taxes for selling products in the U.S., duty free importing of products from the U.S., low corporate tax rates, real estate and personal property taxes are exempt during the first year, one shareholder can form a corporation, no minimum authorized capital, and nominee shareholders and directors can be appointed.
