Types of Taxes in Puerto Rico

Types of Taxes in Puerto Rico

The Commonwealth of Puerto Rico has its own taxation laws. While many rules and regulations from the Internal Revenue Service apply to Puerto Rico residents and businesses, it’s tax system is completely independent from the United States. By virtue of Section 933, bona fide resident and Puerto Rico businesses are exempt from Federal Income Tax from Puerto Rico sources.

Basic Types of Taxes in Puerto Rico:

  • Income tax: just as any most states in the United States, Puerto Rico taxes individuals on their earned income (wages, salaries, tips, etc.)
  • Sales and Use Tax: Puerto Rico has a sales and use tax of 11.5%. From October 1, 2015 to March 31, 2016 a new B2B and designated services will be taxed at 4%. On April 1, 2016, a VAT (Value-Added-Tax) system will commence. The rate will be 11.5% for goods and almost all services.
  • Real Property Tax: Municipalities are in charge of collecting this tax. Exemptions do exist. For example, if the property is your primary residence, the owner has substantial exemption. In many cases, not paying property taxes on the first residence. Secondary and commercial properties almost always pay property taxes, unless the business has a tax decree to exempt the operation from paying such tax.
  • Personal Property Tax: Business are required to pay personal property taxes to the Municipalities where their businesses are located. Unless the business has a tax decree to exempt the operation from paying such tax, this tax must be allocated between the Municipalities where the real property is used.
  • Volume of Business Tax (“Patente Municipal”): The volume of business is a tax ranging from 0.20% to 0.50% on the company’s volume (sales). Notice this tax will be paid to the Municipality where the activity took place, and not necessarily where the business is located.
  • Employer (FICA) Taxes: This is the only Federal Tax that almost every working individual and business needs to comply with. This is a retirement tax paid by every US Citizen and US Business in the United States. The employer must pay 6.2% for Social Security and 1.45% for Medicare on the gross salary. The individual must pay an equal share of 6.2% for Social Security and 1.45% for Medicare, which is discounted from the gross pay of the individual.

If you have a question related to taxes in Puerto Rico, feel free to send me an email to the contact information below.

 


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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