Starting a New Business in Puerto Rico
A newly organized or registered business in Puerto Rico must comply with the requirements of different government agencies.
Registration and Authorization
Before conducting business locally, all corporations or limited liability companies must register at the Puerto Rico State Department.
Requesting and Registering an Employer Identification Number
Every entity engaged in business in Puerto Rico must obtain a federal Employer Identification Number (EIN) from the U.S. Internal Revenue Service (IRS) by filing Form SS-4. Upon obtaining an EIN, the entity must file a copy of the certificate of incorporation and a copy of Form SS-4 at the P.R. Department of Treasury.
Sale and Use Taxes
Every business (Merchant) in Puerto Rico must request a Merchant’s Registration with the Puerto Rico Treasury Department (PRTD). The application must be presented thirty (30) days before initiating business. Failure of timely registration may result in a $10,000 fine.
Municipal License Tax
When a new business is established, the semester in which it commences operations is generally exempt, provided that the business informs the Municipal Treasurer (within the first 30 days of operations) that it has established a business in the municipality. A tax return must be filed for the following semester annualizing the volume of business obtained during the first semester of operations. Semesters run from July 1 through December 31, and from January 1 through June 30.
Income Tax Withheld on Salaries and Wages
An employer is required to withhold income tax at source on the salaries and wages paid to employees performing services in Puerto Rico. The employer is required to register its Employer Identification Number with the Puerto Rico Treasury Department within 30 days of initiating his employer’s status. Failure to comply will result in penalties. In addition, the salaries and wages will not be deductible for tax purposes, and the employer will be liable for the amount not withheld.
Withholding exemption certificate
Employers must complete and retain Form 499-R-4 for each employee. The information provided is the support and authorization for income tax withholding on payroll payments.
Workmen’s Accident Compensation Insurance
Workmen’s Compensation is compulsory insurance that provides compensation for accidents incidental to or as a consequence of employment. The Puerto Rico State Insurance Fund Corporation provides this insurance. All employers are required to obtain it within 30 days of initiating operations.
Puerto Rico Unemployment, Disability Benefits, and Chauffeur’s Social Security Tax
Employers in Puerto Rico must register as an employer at the Department of Labor and Human Resources and at the Bureau of Chauffeurs Social Security of Puerto Rico within 30 days of initiating operations.
Books and records
An entity engaged in business in Puerto Rico must keep and maintain accounting records and supporting documents. Such documents will clearly show the financial condition and results of operations in Puerto Rico
Audited financial statements
A full set of audited financial statements (balance sheet, income statement, and cash flow) must accompany all the statutory reports if the gross volume of business is three million dollars or more. On the other hand, the Annual Corporate Report will only be accompanied by an audited balance sheet, certified by a Puerto Rico licensed Certified Public Accountant (CPA).
