Puerto Rico personal income tax rates are progressive up to 33%. A tax of 7% is imposed on the first $2,000 of net taxable income and 33% on net taxable income in excess of $50,000.
For taxable years 2009-2011, an additional surtax of 5% is imposed on the tax liability determined if the adjusted gross income exceeds USD 100,000 in the case of married taxpayers, and USD 150,000 for those filing jointly.
Therefore, maximum effective personal income tax rate in Puerto Rico is 34.65%.
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.
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. Selfemployed individuals must pay tax instalments in advance, which are credited against their tax liability for the year.
Residence – An individual is resident if he/she is domiciled in Puerto Rico. For tax purposes, there is a presumption that an individual who is present in Puerto Rico for a period of 180 days or more in a calendar tax year is a resident. The facts and circumstances are critical in determining residence status.
Tax Filing status – Depending on a taxpayer's civil status, dependents and personal circumstances, he/she may file as single, married filing jointly, married filing separately, married not living with a spouse or head of household.
Taxable income – Individuals must include all forms of remuneration, less qualified exclusions, in taxable income. Adjustments may be made for deductions, personal exemptions and credits for dependents.
Capital gains – Capital gains are taxed at a rate of 10%.
Tax Deductions and tax allowances – Residents of Puerto Rico are entitled to a standard deduction in an amount that varies from USD 1,575 to USD 3,150, depending on filing status. Alternatively, taxpayers can opt to itemise deductions.
Other taxes on individuals:
Capital duty – No
Stamp duty – The transfer of real property is subject to a stamp tax of approximately 1.5%.
Capital acquisitions tax – No
Net wealth/net worth tax – No
Real property tax – The tax rate varies by location, but most municipalities assess a tax of approximately 8% to 10% of the 1958 market value of the property.
Inheritance/estate tax – No estate tax is generally levied where the property is located in Puerto Rico and the deceased was born in Puerto Rico. Individual taxpayers born outside Puerto Rico are subject to a specific tax regime under which a portion of their estate may be subject to tax.
Social security contributions – Social security taxes are comprised of old age/survivor/disability taxes (OASDI) and Medicare / hospitalisation insurance, both borne equally by the employer and the employee as a percentage of the employee's wages, with the employer responsible for remitting the tax to the federal government. The combined OASDI rate is 12.4% (i.e. 6.2% each) and the combined Medicare rate is 2.9%. OASDI is levied on the first USD 106,800 of wages for 2010. Medicare is levied on total wages. The portion of social security taxes borne by the employer is tax deductible.
Administration and compliance:
Puerto Rico Tax year – Puerto Rico tax year is calendar year
Tax Filing and tax payment – Taxpayers are required to file their taxes by 15 April following the close of the previous tax year. Extensions may be requested.
Penalties – Penalties may be imposed at rates of up to 25%, in addition to a 10% surcharge. Other civil and criminal penalties may also apply.
Puerto Rico corporations and partnerships are subject to tax on a graduated tax rate structure.
(1) The flat corporate tax of 20% (the base rate), plus
(2) A graduated surcharge which is levied in addition to the corporate income tax, at rates ranging from 15% to 19%.
(3) For taxable years 2009-2011, there is an additional surtax of 5% (recovery of tax for differences in tax rates) which is imposed on net taxable income in excess of $500,000.
Therefore, the maximum effective tax rate in Puerto Rico is 40.95%.
The first USD 25,000 of net income is not subject to the surcharge.
Surcharge rates above this level range from 5% on the first $75,000 to 19% in excess of $275,000.
If a corporation is under common control, the surcharge exclusion is granted to 1 entity or may be allocated among the controlled group.
Corporations and partnerships 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.
Non-Puerto Rico corporations and partnerships having 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 partnerships is generally taxed at a rate of 29%, except that the tax rate on dividends is 10% and there is no tax on interest unless it is paid by a related party.
All corporations and partnerships (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 tax rate is a flat 22% levied on 'alternative minimum net income', which is generally computed 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 and partnerships not engaged in trade or business in Puerto Rico.
CAPITAL GAINS TAX
Gains from the sale or exchange of capital assets held for more than six months are subject to a maximum tax of 10% for individuals and 15% for corporations. Capital losses may be carried forward for five years but may be used only against capital gains.
BRANCH PROFITS TAX
Puerto Rico also imposes a branch profits tax of 10% to non-Puerto Rican corporations and partnerships that derive less than 80% of their gross income from Puerto Rican sources. The tax is imposed on the branch's 'dividend equivalent amount', which represents profits of the branch that are effectively connected with a trade or business in Puerto Rico and that are not reinvested in the Puerto Rican business operation.
Other 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 of business each year. This ranges from 27% to 50% for business establishments (including self-employed individuals) and from 1% to 1.50% for financial institutions.
The sale and use tax introduced by the Act, replaces the general 6.6% excite tax applicable to most articles imported to Puerto Rico. The existence specific-item excise tax is retained for cement, cigarettes, gasoline and other fuels, vehicles and horse racing winnings. The general 6.6% excise tax is retained for plastic.
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.
Depreciable 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.
Generally, Puerto Rican corporations and partnerships may deduct 85% of dividends or partnership profits received from other Puerto Rican corporations or partnerships.
Qualifying charitable contributions made by corporations and partnerships may be deducted in an amount not in excess of 5% of the net taxable income as computed without considering the charitable contributions.
Net 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 INCOME
Expenses attributable to exempt income are not allowed.
Premiums on insurance policies against any risks that are paid to an insurer not authorised to contract insurance in Puerto Rico are not deductible.
LIFE INSURANCE PREMIUMS
Premiums paid on any life insurance policy covering the life of any officer or employee is not deductible when the corporation or partnership is a beneficiary under the policy.
MEALS AND ENTERTAINMENT
The deduction for meals and entertainment is limited to 50%.
Puerto Rico provides tax incentives by means of special tax exemptions and deductions in 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 the industrial development income there is a single flat income tax rate that is generally 7%. For the hospital facilities there is a tax credit of up to 15% tied to the hospital facility's payroll expense.
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 export or local sale consumption. The credit is 10% of the value of qualifying purchases 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 and may not reduce the income tax for any particular taxable year by more than 25%.
FOREIGN TAX RELIEF
Puerto Rico corporations and partnerships may claim a tax credit (with certain limitations) for taxes paid to a foreign jurisdiction on income taxed in Puerto Rico. Non-Puerto Rican 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.
There is no provision for consolidated tax returns.
RELATED PARTY TRANSACTIONS
Related corporations and partnerships are not allowed to file consolidated tax returns. Each corporation or partnership having 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.
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 Rican 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, the withholding rate is 29%, except that the withholding rate is 20% for non-residents who are citizens of the United States. The rate is 10% on dividends. Interest is not subject to withholding 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 withholding rate of 7% unless the recipient secures a waiver from the Secretary of the Treasury granting partial exemption from the withholding.
Puerto Rico has s Sales and Use Tax imposed at a rate of 5.5% at the state level and 1.5% at the municipality level, resulting in a combined rate of 7%.
The new sales and use tax (in effect since 15 November 2006) generally applies to all retail sales, including mail orders, sale of tangible personal property or services, admissions 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, replaces the general 6.6% excise tax applicable to most articles imported to Puerto Rico. The existing specific-item excise tax is retained for cement, cigarettes, gasoline and other fuels, vehicles and horse racing winnings. The general 6.6% excise tax is retained for plastics.
Registration – A taxpayer must register as a merchant with the Treasury Department of the Commonwealth of Puerto Rico.
Filing and payment – Monthly filings are required for sales and use tax purposes.
Income Tax Rate
Corporate Tax Rate
Sales and Use Tax
Last Update: Nov 2010
ANTIGUA & BARBUDA
BOSNIA & HERZEGOVINA
BRITISH VIRGIN ISLANDS
CENTRAL AFRICAN REP.
CONGO, DEM. REPUBLIC
CONGO, REPUBLIC OF
ISLE OF MAN
PAPUA NEW GUINEA
TURKS AND CAICOS
UNITED ARAB EMIRATES
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