Llano Morales CPAS

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Doing Business in Puerto Rico

Opportunities, Challenges, and Strategic Entity Planning

Puerto Rico offers unique business advantages due to its political relationship with the United States and its attractive tax incentive programs under Act 60 (formerly Act 20/22). However, navigating the island’s regulatory, tax, and operational environment requires careful planning and local expertise.

At Llano Morales CPAs PSC (LMCPAS), we guide entrepreneurs, investors, and companies through every stage of doing business in Puerto Rico—from entity selection and tax structuring to compliance and strategic consulting.

Common Challenges

While Puerto Rico offers appealing incentives, businesses often face:

  • Complex regulatory environment involving both U.S. federal and Puerto Rico laws.
  • Language barriers, especially for non-Spanish speakers dealing with government filings.
  • Delays in permitting and approvals, particularly for tax incentives, due to incomplete applications or misunderstanding of requirements.
  • Cash flow and compliance risks arising from mismanaged payroll, tax, and accounting systems.

With the right guidance and setup, these challenges can be minimized or avoided.

Ways to Organize a Business in Puerto Rico

Puerto Rico recognizes multiple business structures similar to those available in the mainland U.S., but with distinct tax and filing obligations. The most common are:

  • Corporation (Corp. or Inc.)


    ● Separate legal entity from its owners (shareholders).
    ● Subject to Puerto Rico corporate income tax (18.5% base + graduated surtax up to 38.5%).
    ● Must file an Annual Corporation Report with the Department of State.
    ● Must designate a resident agent.
    ● Required to file financial statements, sometimes with CPA certification.
    ● Eligible for Act 60 tax decrees when applicable.

  • Limited Liability Company (LLC)


    ● Flexible structure that combines liability protection with pass-through taxation (if elected).
    ● Can elect to be taxed as a corporation or partnership.
    ● LLCs must also file an Annual Report, though not required to submit financial statements.
    ● Popular for startups and Act 60 service businesses.

  • Sole Proprietorship or Self-Employed Individual


    ● Simpler structure, but lacks legal separation from the owner.
    ● Suitable for freelancers or small professionals but carries full personal liability.
    ● Must register with the Puerto Rico Treasury and comply with tax and licensing rules.

  • Foreign Corporation or LLC (Branch)


    ● A U.S. or foreign company may register to do business in Puerto Rico as a branch.
    ● Treated as an extension of the parent company.
    ● Subject to Branch Profits Tax of 10% on earnings repatriated outside Puerto Rico.
    ● Must file income tax returns and meet all local compliance requirements.

Key Tax Responsibilities

Businesses operating in Puerto Rico are subject to a dual-layered tax regime that includes Puerto Rico tax laws and certain U.S. federal rules (especially for U.S.-owned entities).

Puerto Rico Corporate Taxes:

U.S. Federal Considerations:

  • GILTI Tax (Global Intangible Low-Taxed Income):

    U.S. shareholders of controlled Puerto Rico corporations may be subject to U.S. tax on deemed income (GILTI) if the effective local tax rate is below 13.125%.

  • Branch Profits Tax:

    Imposed by the U.S. at a 10% rate for foreign corporations repatriating profits from Puerto Rico branches.

Our Role at LMCPAS

At Llano Morales CPAs PSC, we assist clients in:

  • Selecting the best entity type based on liability, tax exposure, and business goals.
  • Navigating tax compliance and registration with the Treasury, State, and municipalities.
  • Advising on international tax implications such as GILTI and branch profits tax.
  • Applying for Act 60 incentives and maintaining compliance with decree requirements.
  • Structuring operations to minimize risk and maximize incentives.

Start Smart, Stay Compliant

Whether you are launching a startup, expanding your operations, or investing in Puerto Rico, LMCPAS is your trusted partner. We provide the clarity, structure, and local expertise needed to succeed in this vibrant but complex jurisdiction.

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