Business Permits & Incorporation for Foreigners in San Juan

Structure

Puerto Rico's corporate income tax is a two-tier system: an 18.5% flat 'normal tax' plus a graduated surtax computed on 'surtax net income' (net taxable income less a $25,000 surtax special deduction), producing a maximum nominal combined rate of roughly 37.5% once surtax net income exceeds about $275,000.

Alternative Minimum Tax

An alternative minimum tax applies at a flat 18.5% rate (23% for taxpayers with gross proceeds of $10 million or more), with restricted deductions unless audited financial statements are filed with the return.

Worldwide Vs Source Taxation

A Puerto Rico domestic (locally formed) corporation is taxed on its worldwide income, while a foreign (non-PR-formed) corporation is generally taxed only on its Puerto Rico-source / effectively connected income.

Dividend Withholding To Foreign Owners

A 10% withholding tax generally applies to dividends a domestic corporation pays to nonresident individuals or foreign corporations not engaged in a Puerto Rico trade or business, and a separate 10% tax can apply to deemed-dividend amounts attributable to a 'foreign owner' (a non-resident owning 50%+ of certain corporations).

Foreign Corp Engaged In PR Trade Or Business

A foreign corporation that is engaged in a trade or business in Puerto Rico is taxed at the same regular corporate rates as a domestic corporation, but only on its Puerto Rico-source income that is effectively connected to that trade or business.

Foreign Corp Not Engaged In PR Trade Or Business

A non-resident foreign corporation not engaged in a Puerto Rico trade or business instead faces a flat 29% withholding tax on its Puerto Rico-source gross income.

Small Business Note

Businesses whose surtax net income stays under the $25,000 deduction threshold effectively pay just the 18.5% normal tax with no surtax; the surtax brackets phase in progressively above that.

Registration And Filing Steps

• Reserve a business name and file formation documents (Articles of Incorporation for a corporation, or Certificate of Formation for an LLC) with the PR Department of State's Registry of Corporations and Entities, which now supports online submission and tracking.
• Appoint a Puerto Rico-based registered agent with a physical PR address — mandatory for every entity type.
• Register with the Puerto Rico Treasury Department (Departamento de Hacienda) and obtain a Puerto Rico tax identification number, generally via Form SS-4PR, submitting corporate documents such as articles of incorporation/organization, bylaws or operating agreement, and a federal EIN.
• Obtain a municipal business license ('patente municipal') from the relevant municipality and, if selling taxable goods or services, register as a merchant to collect and remit the Sales and Use Tax (IVU).
• File the applicable corporate income tax return with Hacienda annually and make quarterly estimated tax payments; corporations additionally file an Annual Report with the Department of State (audited if turnover exceeds $3 million), while LLCs instead pay a flat annual fee by April 15.

Caution

Scrutiny of Act 60 claims by U.S. federal tax authorities has increased; getting the income-sourcing or bona-fide-residency analysis wrong risks decree revocation and federal audit exposure.

What It Is

Chapter 3 of Act 60-2019 (the Puerto Rico Incentives Code, which folded in the former Act 20) offers a 4% corporate tax rate to qualifying 'export services' businesses that provide eligible services from Puerto Rico to clients located outside Puerto Rico.

How To Get It

This is not automatic — a business must apply for and be granted a formal Tax Exemption Decree, structured as a contract with the PR government, typically running 15 years and renewable for an additional 15.

Dividend Treatment

Dividends distributed from the exempt operation are generally 100% exempt from PR income tax only when paid to a bona fide Puerto Rico resident shareholder; different, less favorable rules apply if the shareholder is not a bona fide resident.

Who It Actually Suits

Only genuinely eligible export-service income qualifies — ordinary local retail or e-commerce selling to Puerto Rico customers generally does not, and where the work is actually performed matters more than where the entity is incorporated.

Employment Requirement

If annual business volume exceeds $3 million, at least one full-time Puerto Rico resident employee is required (the owner-operator can count as that employee); at $3 million or below, there is no employment requirement.

US Federal Interaction

Even with a decree, Puerto Rico corporations are treated as foreign corporations for U.S. federal tax purposes, and any U.S.-source income flowing through the entity can still create U.S. federal tax exposure.