Corporations and Limited Liability Companies
Federal Employer Identification Number
Entities in Puerto Rico are identified through a taxpayer ID known as the Employer Identification Number (EIN), which is issued by the US Internal Revenue Service (IRS). Unlike other jurisdictions, the local Treasury does not issue a separate identification number. The EIN may be obtained by applying online through the IRS website or by mailing in or faxing Form SS-4 to the IRS. If requested online, the unique number is assigned immediately upon request.
In October 2016, the Puerto Rico Treasury Department implemented an integrated online platform to facilitate matters related to the collection and payment of sales and use tax, excise taxes, and income tax, compliance and information reporting and withholding, among others. Registration with the SURI platform is mandatory for entities that are operating in Puerto Rico. Once the EIN is assigned, entities operating in Puerto Rico are required to register with SURI. Registration requires uploading a copy of the EIN confirmation letter.
Classification Election for Tax Treatment
Unlike other entities, LLCs may elect to be classified as corporations or partnerships under Puerto Rico tax laws. This election is accomplished through the filing of Form SC 6045, with the Puerto Rico Treasury Department on or before the due date, including extensions, of the Puerto Rico income tax return for the taxable year with respect to which the election is to become effective. Although a Puerto Rico LLC is automatically treated as a foreign corporation for US federal income tax purposes, it may elect to be treated as a partnership or disregarded entity for US federal income tax purposes, as applicable. This election is accomplished through the filing of Form 8832 with the IRS.
Virtual Collection Center
The Virtual Collection Center is an online platform established by the Puerto Rico Treasury Department which allows for the payment of service charges imposed by the Puerto Rico Treasury Department on taxpayers seeking administrative determinations (e.g., private letter rulings) and similar transactions. Registration with the Virtual Collection Office is not mandatory and the Virtual Collection Center is expected to be fully phased out by the SURI platform in the coming years.
Merchant's Registry Certificate
A business that intends to operate in Puerto Rico will be considered a "merchant" (subject to certain exceptions) and will be required to register with the Puerto Rico Treasury Department as a merchant through the SURI platform. Upon registration of a sales and use tax account, the Puerto Rico Treasury Department will issue a Merchant's Registry Certificate which will designate the merchant as one required to withhold sales and use tax, or one exempt from making such withholding. The Merchant's Registry Certificate may also designate the business as an exhibitor, or temporary business, as applicable. When opening bank accounts and in the ordinary course of business, the Merchant's Registry Certificate will often be required. In fact, it should be visibly displayed at the premises in Puerto Rico and failure to do so could result in fines.
Sales and Use Tax
The sale of taxable items and services in Puerto Rico is subject to an 11.5 percent sales and use tax (SUT). In addition, since October 2015, most transactions between merchants (business-to-business transactions) ceased to be tax exempt and became subject to a 4 percent SUT. Moreover, there is a 10.5 percent use tax upon importation of taxable items in Puerto Rico, payable by the importer of record. Effective August 1, 2017, merchants that import tangible property into Puerto Rico are required to report and remit the 1 percent municipal SUT to the Puerto Rico Treasury Department. No additional import declaration will be required for purposes of the municipal SUT.
There are certain transactions which continue to be exempt from sales and use tax, the most common being sales to Puerto Rico government entities. However, all exempt transactions must be documented by a Certificate of Exempt Purchases, which is a form filled out by the seller and the purchaser of the taxable items, identifying the applicable exemption.
Waiver Certificate for Entities Rendering Services
Generally, payments made in the conduct of a trade or business or for the production of income in excess of USD 500 to another person (natural or judicial) for services performed within Puerto Rico are subject to a 10 percent withholding tax payable to the Puerto Rico Treasury Department, unless the service provider potentially subject to the withholding has a waiver in place. As a general rule, legal entities that have been in operation for less than 3 years may obtain a waiver from this withholding. The waiver is obtained through SURI and is generally issued immediately.
Municipal License Tax
Each of the 78 municipalities in Puerto Rico is entitled to levy and collect up to a 0.5 percent tax on the gross receipts of a company carrying business within the municipality. Financial businesses are instead subject up to a 1.5 percent tax on gross receipts. The tax is known as the municipal license tax (or patente municipal in Spanish). As a result, companies are required to register when commencing operations within the applicable municipality. Registration with the municipality usually requires occupying physical space and obtaining the Single Use Permit (described below), but this requirement can be waived in certain circumstances. As technology advances and allows companies to conduct business remotely, municipalities are still enforcing registration in order to collect the municipal license tax. There are various tax incentives which eliminate or significantly reduce the impact of the municipal license tax.
Single Use Permit
Businesses that will occupy physical space are required to obtain a Single Use Permit (Permiso Único in Spanish) with the Government Permits Office (OGPE) authorizing the occupancy of the premises. The Single Use Permit consolidates environmental, health and fire department authorizations, among others, depending on the nature of the business. The Single Use Permit requires inspection of the premises by an authorized government inspector.
Real and Personal Property Taxes
Both real and personal property in Puerto Rico are subject to taxation, unless there is an exception or special amnesty in place. Although registration with the Municipal Revenue Collection Center (CRIM, for its Spanish acronym) is not mandatory in order to commence operations, it will often be required when registering with the municipality in order to demonstrate that the company does not owe any personal or real property taxes.