How do I start a business in Puerto Rico? What steps do I have to take?

How do I start a business in Puerto Rico? What steps do I have to take?

The single most frequented question made by potential entrepreneurs is: How do I start a business in Puerto Rico? What steps do I have to take?

Many people have the impression that because Puerto Rico is not a state of the US, starting a business is completely different from starting a business in the US. And, yes, there are differences, but no more than the differences of starting a business in Florida and in California.

That said, there’s an impression of Puerto Rico having a slow permitting process. It might be somewhat true when compared other jurisdictions, like New Zealand, Canada, or Singapore. But it is definitely no India, Philippines or China. Check the rankings from the OECD. Puerto Rico actually ranks in the top 10%, #18 out of 189 countries. Still there’s an industry of permit handlers that exist for a reason.

For those that have a budget to outsource that mundane permitting process, this post is not for you. But if you need to contact a permit handler, go here and fill the form. For all the others that have the time, continue reading this post.

This is a quick list of the things most companies need to do to start a business.

The most important planning part is to decide how to organize your business. Whether you will be organized as a: sole-proprietorship, corporation, partnership, limited liability partnership, limited liability company, among other options that might apply to your particular business. At this moment, you also need to choose your tax treatment election. Either be taxed as an individual, corporation, or applying for tax decrees, if applicable. For that, you might need to contact your certified public accountant, and/or lawyer.

If you already decided on the structure, you would proceed to register your business with several governmental authorities. You would also open a bank account. At this point, you need to sit down with your certified public accountant (CPA) or adviser to sort out all the steps you need to start your business in full compliance.

  1. Decide structure and tax treatment.
  2. If you decided to become a sole-proprietor, or partnership skip to #4.
  3. Register your Corporation (Inc., Corp.), Limited Liability Partnership (LLP), Limited Liability Company (LLC), or any other corporate vehicle at the Puerto Rico Department of State.
  4. Register with the Internal Revenue Service to obtain your Employer Identification. Number. This number will be your unique ID for most of the following steps.
  5. Register with Hacienda as a taxpayer.
  6. If applicable, file tax treatment Election Form (C-Corporation or Pass-through – similar to a disregarded entity).
  7. Register online for the Sales & Use Tax (“IVU”) and wait for your Merchant Registry to arrive by mail. Be sure to consult with your CPA or advisor what are the steps to comply with the Sales & Use tax regulations. Many people need to report income on monthly tax returns, even though they are not required to collect the sales & use tax from the clients.
  8. At this point you might need to open your bank account. Depending on the bank you might get asked for different paperwork. Just make sure that if you’re synching with an online accounting system, that the bank is on the list of connections of your accounting software. Also, you need to verify business hours, fees for services, and accessibility (branches and technology in place).
  9. Register with the Municipalities where you will establish operations, and obtain a Use Permit. If operating from your house, it is easier, as you do not have to go through some additional safety inspections required by the local municipalities. At this point, if you have the budget you hire a permit handler. For those that do, it is highly recommended. For those that do not, patience is recommended. The good news is that after a couple of visits, you will be done with the most boring task.
  10. Once you obtain your Use Permit, you will also register with the Municipality for the Volume of Business tax (or the “patente municipal”), and the Municipal Sales & Use Tax (“IVU Municipal”).
  11. If you will have employees and/or have people do work for you in your establishment, you will have to register for the Department of Labor and Human Resources and/or the State Insurance Fund.
  12. It is recommended to obtain an insurance policy that covers the risks that might be associated with your particular company. If you are healthcare device distribution that will own vehicles, you might need to obtain a different set of coverage and limits, from someone that is selling mobile web development services.
  13. Apart from any other special regulation that might apply to your particular business or industry, you can now ‘start’ operations.

While this should work as a framework of the process of starting a business, it is highly recommended that you contact your certified public accountant, lawyer or adviser. If you do not have one, we can assist.

Porto Capital provides this service for a fee of $1,000.00 USD:

  • To incorporate or register an entity at the Puerto Rico Department of State,
  • Obtain the Tax Identification Number (or Employment Identification Number) with the Internal Revenue Service,
  • Register as a Merchant with the Puerto Rico Department of Treasury (Sales and Use Tax – PICO System),
  • Register the Business with the Puerto Rico Department of Treasury, and
  • Obtain the Access Code for e-Deposits with the Puerto Rico Department of Treasury.
    • This is exclusive of the Puerto Rico Department of State registration fees:
      • $150.00 USD for Corporations, and
      • $250.00 USD for Limited Liability Companies.

With these documents you will be able to open a bank account with a Puerto Rico Bank. Please note that if you have partners, you will have to draft a Shareholder’s Agreement for a Corporation or an Operating Agreement for a Limited Liability Company. These are generally custom-drafted documents that fit the particular circumstances of the new owners. This is not included as part of the $1,000.00 USD fee. (For more details, see our Fee Schedule.)

We always remind our readers that all the information posted in this webpage was prepared for information purposes only. Visiting or reading this post cannot be construed as Porto Capital, Inc. providing tax, regulatory, or legal advice, or as solicitation of any prospective client. In order to establish a client-relationship with Porto Capital, Inc. or its affiliates, an express written document must be executed between Porto Capital, Inc. and the client.

Note: If you want me to send you more information about this post, or if you have questions or comments, let me know. You can find my contact info below. I will respond to every email with questions or comments, and if they are important, witty and/or relevant, I will incorporate them into a follow-up post.

 


Miguel Nicolas Moreda, CPA, CIRA

Miguel Nicolas is the founder of Porto Capital. Prior to working as a financial and restructuring advisor for small and medium-sized businesses, he worked at GFR Media Real Estate Division as Finance Manager. Before that, he worked in the Business Advisory Division at Ernst & Young US, LLP in the United States.

He is holds an undergraduate degree in accounting from the University of Puerto Rico. He also possess graduate degrees from the University of Puerto Rico School of Law and IE Business School in Spain. Miguel is a Certified Public Accountant (CPA) and a Certified Insolvency and Restructuring Advisor (CIRA).

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