How to Register a Company in Puerto Rico: A Comprehensive Guide

Business Opportunities in Puerto Rico

Puerto Rico is an attractive prospect for entrepreneurs due to the island’s skilled labor, special tax benefits, and natural wealth. The stunning Caribbean island attracts visitors worldwide because of its stunning beaches and lively culture.

Because Puerto Rico is a secured American territory, foreign companies can expand there more easily than in other nations. Its status as US territory and strong ties with the US have made it a hotspot for foreign investors. The cost of real estate, corporate taxes, and wages in Puerto Rico are relatively modest when equated to the mainland.  The recently passed Act 20 and Act 22 offer a 100% tax exemption on all income from investment, interests, and profits.

Compared to operating a business elsewhere in the Caribbean, the island presents some excellent chances for firms in various sectors. Its proximity to the American mainland makes exporting and importing more profitable.

Benefits of Starting a Business in Puerto Rico

Doing business in Puerto Rico can provide the perfect mix for international investors wishing to expand into Latin America and the Caribbean. It offers several advantages associated with a regional launch while keeping some advantages businesses enjoy at home. Some benefits of starting a business in Puerto Rico are listed below:

US territory

Puerto Rico’s status as a US territory offers various benefits for conducting business. One of the apparent benefits is having the US dollar as the island’s official currency for investors headquartered in the US or who do business primarily in dollars. This gives major savings on transferring capital in and out of the country.

Because formal procedures are frequently modeled on US standards as a US territory, there is substantially less red tape than in some other nations in the region. Meanwhile, manufacturers profit by claiming “Made in the USA” on their products.

Tax advantages

Operating a company in Puerto Rico offers a variety of tax benefits to attract investors. Some tax advantages include a 4% income tax rate, a 100% tax deduction on dividends from earnings and profits, and a 90% exemption from private property taxes for various firms.

That essentially provides some advantages investors want from a tax haven while staying on US soil and makes numerous goods and services substantially cheaper than in the US or overseas.

Premier location

Puerto Rico’s strategic location, sandwiched between the Dominican Republic and the US Virgin Islands, allows it quick access to marketplaces throughout the Latin American and Caribbean region.

Due to the island’s close relations with the US, daily flights link Luis Munoz Marin International Airport in San Juan with several significant US cities. International flights to Miami take less than three hours. 

Satisfactory infrastructure

Puerto Rico has a much more robust infrastructure than many countries in Latin America because it is a US territory, including well-developed roads, schools, hospitals, and social utilities.

Additionally, the island depends on infrastructure that supports the import/export economy due to the well-established manufacturing capacity, with most international traffic passing through San Juan’s sizable container port.

Substantial opportunities

In addition to having a developed industrial basis ready for investment, Puerto Rico also has a robust startup ecosystem, with the island recently emerging as a center of innovation.

A San Juan-based accelerator known as Startup 18 is strengthening that ecosystem. Since its founding in 2015, it has helped more than 200 startups grow and has generated more than $126 million in funding.

Requirements for Starting a Business in Puerto Rico

Organizations must have a solid overview of the project, research the country’s economy, and launch procedures before establishing a business in Puerto Rico. Other essential prerequisites include:

Business authorization

Before starting activities, companies (corporations, LLCs, and LLPs) must register themselves with the Puerto Rico State Department. We advise checking the availability of a preferred company name before registering with the Corporations Registry,  Department of State of Puerto Rico division. Every legal entity enrolled with the State Department is subject to annual reporting and/or fee requirements. Most of these documents must be filed and fees paid by April 15 or earlier.

Federal employer identification number

Companies established in the country are identified through their taxpayer ID known as Employer Identification Number (EIN). Entities can apply for the Federal Employer Identification Number to the US Internal Revenue Service (IRS). The EIN is used for federal and state taxes, including Puerto Rico income taxes and Medicare and Social Security taxes.

Puerto Rico Department of Treasury Notification

The Puerto Rico Treasury Department was established in October 2016 to take care of matters related to collecting and paying tax, sales, income tax, excise tax, and others. Companies must send a copy of the certificate of incorporation and the EIN to the PRDT. Businesses must enroll with the PRDT Registry of Business a minimum of 30 days before conducting business in Puerto Rico.

Municipal license tax

Laws in Puerto Rico permit municipalities to levy and collect municipal licensing taxes up to 0.5% of gross profits, depending on the number of transactions. Puerto Rico’s financial businesses must pay 1.5% of tax on gross receipts. Within 30 days of starting operations, organizations and people that open companies in Puerto Rico must register for a municipal business license in the relevant municipality.

Unemployment and disability identification number

Unemployment insurance is administered by the Puerto Rico Labor and Human Resources Department (PRDOL). Companies must get an unemployment and disability account number from them. Privately purchased short-term disability insurance is available; however, the PRDOL must receive documentation of this insurance. Having coverage via the Puerto Rico Non-Occupational Disability Insurance Bureau can also satisfy this criterion.

Worker’s compensation fund

The State Insurance Fund Corporation’s workers’ compensation insurance is mandated by law for all companies. The risk associated with the various employment groups is considered when determining insurance premiums. Unless the company purposefully caused the accident or sickness, employers with adequate policy coverage are entirely immune from legal liability relating to employee occupational injuries or illnesses.

Manufacturer’s excise tax identification number

The Excise Tax Act exempts raw materials, machinery, and equipment utilized in industrial facilities from taxation. To take raw resources at entry points and to demonstrate exemption status, businesses looking to take advantage of this exemption must acquire a Manufacturer’s Excise Tax Identification Number from the Excise Tax Bureau.

Types of Business Structures in Puerto Rico

You can opt for one of the following as your self-employment status:

Sole Proprietorship:

• A business is considered a sole proprietorship if one person owns all of its assets rather than a different legal body. 
• Companies can establish a sole proprietorship without meeting any additional legal conditions. 
• Sole proprietorship is not taxed separately; all income goes to the owners. The owner of the company is taxed at an individual rate. 
• The sole proprietor will be personally responsible for all of the company’s debts and responsibilities.

Traditional Partnership:  

• Contrary to other business entities in Puerto Rico, a conventional partnership is regulated by the Puerto Rico Civil Code regarding its structure, administration, operations, obligations, and termination. 
• A partnership forms when two or more legal or natural individuals commit to managing and running a business together to share the profits. 
• The partnership agreement that creates the partnership itself is crucial to its management and capitalization. 
• Except as otherwise specified in the partnership agreement, partners typically have equivalent interests in the business.

Limited Liability Partnership: 

• At least two natural persons can create limited liability partnerships (LLPs), which must subsequently be registered with the island’s Department of State. 
• While registering an LLP to the Department of State, companies must submit a certified copy of a public deed with a $100 fee. 
• The partner in an LLP is not personally liable for the debts and obligations of the partnership for negligent behavior or unlawful acts by the partner or no prior knowledge of such actions. 
• LLPs must be renewed annually. If a renewal is not submitted on time, the LLP could become communal property, and the partners would be subject to unlimited responsibility.

Corporation

• Among the most popular business structures in Puerto Rico is the corporation. 
• Companies may set up corporations in Puerto Rico for business or charitable purposes. 
• A corporation is a distinct legal body apart from its stockholders, who have only limited personal liability for the corporation’s debts and liabilities. 
• The taxation of corporations’ revenue occurs on two different levels: the business is taxed on its net earnings at the company level, and stockholders are taxed at the individual level on dividend payments they obtain from the corporation.

Professional Service Corporation

• A professional service corporation (PSC) is a legal structure that one or more stockholders can create if their only goal is to provide professional services. 
• According to the Puerto Rico General Corporations Act of 2009 (GCA), skilled professionals are those for which a specialized license is necessary, including those provided by certified public accountants or attorneys. 
• In Puerto Rico, a PSC’s stockholders and officials must all obtain a professional license to provide the same professional services. 
• The same standard business governance laws apply to regular businesses and PSCs. 
• PSC shareholders enjoy limited liability, similar to corporations unless there is evidence of professional culpability, carelessness, or willful wrongdoing during service delivery.

Company Registration Process

The procedures for registering an offshore business in Puerto Rico are as follows:

Step 1: Reserve your company name

• Business name registration in Puerto Rico is the most important initial step when launching a business in Puerto Rico. To ensure that no one is doing business under the same or a name that sounds close to your selected name, you must cross-reference your choice with government databases. 

• Companies can check the availability of names through the Puerto Rico Department of State.

Step 2: Make a legal representative available

• Anyone managing their company from outside Puerto Rico or planning to be absent for an extended period must designate a legal agent through a power of attorney.
• The appointed legal representative can operate on their account and promote them appropriately, including executing legal documentation.

Step 3: Make the corporate bylaws

• Before setting up a company in Puerto Rico, the company must set its bylaws.
• Corporate bylaws define the business entity’s objectives, operations, organizational structure, and shareholder information.

Step 4: Register the business

• Once the bylaws are in place, the business can register with local organizations like the Puerto Rico Chamber of Commerce. 
• Legal representatives can also complete the company registration process in Puerto Rico.

Step 5: Open a business bank account

• Companies must open a corporate bank account to complete the process of opening a business in Puerto Rico. 
• Your selected legal representation on the island should be able to advise you on the best service provider to engage with if they are an industry veteran.

Once you have completed the steps of company incorporation in Puerto Rico, you can register your business as an employer. After that, you can start your business and hire new employees.  

How Much Does it Cost to Incorporate a Company in Puerto Rico?

The cost of incorporating a company in Puerto Rico varies depending upon the legal structure a company takes while setting up. 

•  For a for-profit organization, applying for a Certificate of Incorporation is approximately $150. 
• The filing fee for limited liability firms is $250. In contrast, the filing fee for non-profit organizations is $5. 

Are Foreigners in Puerto Rico on Certain Passes Allowed to Start a Business in Puerto Rico?

There are specific requirements to do business in Puerto Rico for foreigners, which are listed below:

• A Single Use Permit, or Permiso Nico in Spanish, is necessary for businesses in Puerto Rico that intend to occupy physical space. This document authorizes the use of the property. Depending on the type of company, the Single Use Permit may also combine health, fire safety, and ecological department approvals. An authorized government inspector must visit the property to conduct the Single Use Permit inspection.
• Subject to certain limitations, every company wishing to conduct business in Puerto Rico shall be deemed a “merchant” and be subject to enrolling with the Puerto Rico Treasury Department through the SURI portal. The Puerto Rico Treasury Department will provide a Merchant’s Registry Certificate on filing a sales and then using a tax account, designating the merchant as either one required to make sales and use tax withholdings or one exempt from doing so. The firm may also be listed on the Merchant’s Registry Certificate as an exhibitor or temporary operation, as appropriate. You will need the  Merchant’s Registry Certificate frequently while creating bank accounts and in the regular course of business.

Government Assistance for Foreign-owned Businesses in Puerto Rico

Puerto Rico is renowned for its favorable tax program encouraging foreign investors to invest there. 

The 15-year term tax deductions under the Puerto Rico Incentives Code (Act 60), established on July 1, 2019, could be prolonged for the subsequent fifteen years. Export (Goods and Services), Banking and Insurance offerings, Visitor Economy, infrastructure, manufacturing, agriculture, the entertainment industries, business, and air and sea transportation are some industries free from some taxes. 

Puerto Rico is responsible for establishing its own local tax rules and all inhabitants are exempt from paying federal taxes in the United States. For instance, an export service provider with a Puerto Rico office can benefit from a 4% corporate tax rate and a total dividend tax deduction. If the firm’s yearly income exceeds $3 million, it is only essential to employ one local worker. The Act also fully exempts anyone who hasn’t resided in Puerto Rico for the previous ten years from state taxes on unearned income. Additionally, the person must buy a home and contribute at least $10,000 annually to a local nonprofit.

How Multiplier Can Help

When beginning a business abroad, much consideration must be given to planning, researching, and funding the business idea. When the primary incorporation process is complete, you must hire the right people to ensure smooth operation. It is a protracted process that could be difficult without assistance from a global PEO-EOR company like Multiplier.

Multiplier will reduce your HR workload by managing your worldwide employee team, taking care of employee payroll, and onboarding new hires. Our professionals can help you hire employees abroad and grow your company internationally without the need to establish a subsidiary. You get to innovate in new markets and focus on the administrative aspects of your firm while we handle the routine HR tasks.