Puerto Rico
Puerto Rico offers a comfortable lifestyle with all the modern comforts of major international locations. Puerto Rico boasts a standard of living that is comparatively more affordable than most comparable locations across the US. Though the cost of living in San Juan parallels that of other major metropolitan areas, housing is abundant in Puerto Rico and property taxes are low. Although no formal or official documentation has been released, major tax reforms are expected during 2015. These reforms are expected to focus on income tax and sales and use tax.
Holding company Corporate taxation
Puerto Rico corporations and non-Puerto Rico corporations engaged in trade or business in Puerto Rico face a corporate tax rate, which is composed of: • a normal tax fixed at 20% • a surtax The first component is calculated by multiplying normal net taxable income with the 20% normal tax rate. The normal taxable net income is regular net taxable income less 85% (or 100%) of the dividend income received from Puerto Rico corporations. The net income subject to a surtax is normal taxable net income minus USD 25,000. This amount is multiplied by the applicable surtax rate to determine the surtax owed. The graduated surtax rate ranges from 5% to 19% depending upon the income bracket. The maximum surtax rate is applied for income levels exceeding USD 275,000. The first USD 25,000 is not subject to a surtax. In determining the surtax rate applicable to corporations within a control group or in the case of related entities group, the combined net income of all the entities in Puerto Rico will be taken in consideration. If the corporation is a member of a controlled group of corporations, this USD 25,000 deduction to the normal taxable net income must be distributed among the members of the controlled group. AMT: The Puerto Rico AMT equals the excess of the amount of the tentative minimum tax over the amount of the normal corporate tax plus surtax. For taxable years commenced after 31 December 2012 and before 1 January 2014, the computation of the tentative minimum tax is as follows: • the AMT rate increases from 20% to 30% • a progressive additional tax on gross income (Patente Nacional). Any corporation engaged in a trade of business in Puerto Rico will be subject to this tax. • an adjustment of 20% of the expenses incurred or paid to related parties and/or the expenses allocated form home office to a branch located in Puerto Rico, if such payments
were not subject to tax in Puerto Rico during the year • an adjustment of up to 2% of the purchases of tangible personal property from a related person or home office. For years commencing after 31 December 2013, the tax on gross income is no longer part of the AMT computation, but in addition to the regular tax. If paid on or before the due date of the corresponding year’s tax return, it will be deductible for income tax purposes. The additional tax on gross income is applicable to entities engaged in a trade or business in Puerto Rico and generally in the range of 0.20% to 0.85% for taxable years commenced before 1 January 2014 and from 0.35% to 1.0% for taxable years commencing after 31 December 2013. A foreign corporation (incorporated under the laws of a country other than Puerto Rico) may engage in trade or business in Puerto Rico as a division or branch of that foreign corporation or as a separate corporation or subsidiary. Resident foreign corporations are taxed in Puerto Rico on their Puerto Rico source income and on any effectively connected income at the same graduated tax rates as any domestic corporation. In addition to normal income taxes, resident companies doing business in Puerto Rico are subject to a dividend tax at a final rate of 10% or 15% depending on the type of shareholder when profits are repatriated. If the entity operates as a branch, a branch profit tax of 10% applies to transfers of earnings and profits to home office. Long-term capital gains for investment and other business assets held over six months (for transactions occurred on or before 30 June 2014) are taxed at a maximum rate of 15%. For sales after 30 June 2014, the holding period is over one year and the rate is a maximum of 20%. Short term capital gains are included in general taxable income. Stamp taxes and other capital duties
Municipalities may impose, by means of municipal ordinances, a property tax of up to 10.03% per annum on the appraised value of all taxable personal property in the municipality and up to 12.03% per annum on the appraised value of all taxable real property in the municipality. Transfer of real property is subject to a stamp tax depending upon the value of property transferred. A real property tax is imposed on the value of the property as assessed by the Municipal Revenue Collection Centre. The assessed value is the valuation of property for property tax purposes, which is estimated to be close to the fair market value of the corresponding real property in the year 1958.
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