Establishing Business Operations in Puerto Rico

Transcription

1 Puerto Rico 2012 Landa Umpierre PSC Ͳ ͲͰ ǡ ǡ Ͳ T:ͳʹ ͳǥͳͳͱǥͱͳͱͱe:

2 Puerto Rico 1 CONTENTS Executive Summary 2 New Legal Entity in Puerto Rico 3 Key Points 3 Registration at the PR Governmental Tax Agencies 4 Provisional License Permit 4 Sales & Use Tax Registration 4 Tax Filing Requirements 5 PR Corporate Income Tax Return 5 PR Corporation Personal Property Tax Return 5 PR Municipal License Tax/Volume of Business Declaration 5 Corporate Annual Report 5 Monthly Sales & Use Tax Returns 5 Audited Financial Statements Requirements 5 Tax Exemptions 6 Income Tax Abatements - 6 Other Tax Abatements 6 Payroll Tax Requirements 7 Withholding of Income Tax at Source on Wages: 7 Workmen s Compensation Insurance: 7 PR Unemployment and Disability Contribution Report: 7 Chauffeur s Social Security: 7 About Us 8 Landa Umpierre PSC 8 How We Can Help 8 Global Reach 8

3 Puerto Rico 2 Executive Summary The following information have been prepared by our Tax Department to give investors a quick overview of the financial opportunities of doing business in Puerto Rico. Every effort has been made to offer current, correct and clearly information. It should be used as a research tool only, and not in lieu of the tax professional s own research with respect to client matters. In this issue we present the four basic Key Points when considering to open a business in Puerto Rico (PR). These Key Points are: - Registration at the PR governmental agencies; - Tax filings requirements; - Tax exemptions, and; - Payroll tax requirements. The Tax Exemption is the principal attractive key point to be considered. In the last part of this issue we present a summary information of our Firm and how we can help. Puerto Rico boasts one of the most attractive business environments in the world. For centuries the island's privileged location and culture have made it a gateway between North and South America; a great asset for doing business. We offer one of the largest harbors in the Western Hemisphere, the region's leading international airport and highly developed logistics capabilities. You will also find a highly skilled and educated bilingual workforce at one of the most attractive price points in the United States.

4 Puerto Rico 3 New Legal Entity in Puerto Rico Many investors establishing business operations in Puerto Rico (PR) set up a new entity created under the laws of the Commonwealth of PR. The local government does not provide for consolidation rules. That is, business operating in PR needs to comply with the different tax filing requirements as a stand-alone entity. Business owners have the flexibility to decide which business model makes sense for them. There is a wide array of options that optimize insurance coverage, liability shields, and tax treatment. The types of models are: Sole Proprietorship Partnership Corporations Limited Liability Company Business Trusts Joint Ventures Cooperatives International Banking Entities Insurance Companies Real Estate Investment Trusts Registered Investment Company Public Private Partnerships Key Points The following are the four basic Key Point that any investor should be aware of. Registration at PR Gov. agencies Tax Filing Requirements Application for Tax Exemptions Payroll Taxes Requirements

5 Puerto Rico 4 Registration at the PR Governmental Tax Agencies In general, a new or an existing legal entity (new business) will be required to be registered with the following PR Governmental tax agencies: PR Department of State, PR Treasury Department, Municipal Revenue Collection Center, Municipality, State Insurance Fund, and PR Department of Labor & Human Resources. Provisional License Permit A Provisional License must be obtained In the Municipality where the new business entity will operate (or maintains inventory) within 30 days after commencement of operations. An exemption from the payment of the municipal license tax may be granted by the municipality if the Provisional License is timely obtained. Further to the above mentioned Provisional License Permit (which covers the first semester of operations), the new entity could be required to pay volume of business taxes to the corresponding Municipality covering the tax liability attributable to the following fiscal year unless it obtains a tax exemption which may allow to defer the payment of this tax (see tax exemption discussion). Sales & Use Tax Registration A Merchant Registration Certificate is required for each commercial establishment (both at the Central Government and the Municipality level). The Certificate must be requested before the Company commences operations in PR.

6 Puerto Rico 5 Tax Filing Requirements PR Corporate Income Tax Return The income tax return is due the 15th day of the fourth month after the close of the taxable year. A 3-months extension is available. Four quarterly estimated tax payments must be made during the year (i.e., on the 15th day of the fourth, sixth, ninth and twelfth month of the taxable year of the corporation). PR Corporation Personal Property Tax Return The return is due on or before May 15th of each year. A 90-day extension is available. The assessment date is January 1st of each year. PR Municipal License Tax/Volume of Business Declaration This tax is essentially a gross receipts tax. The tax rate depends upon the rate that is applicable in the Municipality where the business is conducted. The tax is a prospective tax and is based upon the Government's fiscal year of July 1st through June 30th. The return must be filed within five (5) business days after April 15th of each year. Please refer to comments above regarding Provisional License Permit. Corporate Annual Report Every corporation operating in PR must file with the PR Department of State a Corporation Annual Report. The Report is due on or before April 15th of each year. A 90-day extension is available. Monthly Sales & Use Tax Returns Merchants that have a Registration Certificate as Manufacturers are exempt from sales & use taxes neither are required to file Monthly Sales & Use Tax Returns. However, other businesses are subject to Sales & Use Tax monthly filings. The return is due on or before the 10 th day of the following month. Audited Financial Statements Requirements Generally, an audit of the PR operations must be performed by a Certified Public Accountant with a license to practice public accounting in Puerto Rico if the PR gross receipts are more than $3 Million (based on US GAAP). The audited financial statements should accompany the above-mentioned returns. Also, consolidated/combined audited financial statements may be applicable for certain groups of affiliated entities doing business in Puerto Rico.

7 Puerto Rico 6 Tax Exemptions Eligible business for tax exemptions under the Tax Incentives Act for the Puerto Rico Economic Development ("Incentives Act ) includes industrial units manufacturing products on a commercial scale, among others. Further, an exempted business having a tax grant issued under the Incentives Act may subcontract the production in PR of one or several products. Other business industries are also eligible for tax exemption. Income Tax Abatements - 4% fixed income tax rate on the net income derived from the eligible activity (known as Industrial Development Income or IDI ). Dividends distributions (including distributions upon liquidation) made from IDI will be not be subject to withholding tax. Capital gains from the sale or exchange of stocks or interests or substantially all the assets of the exempt business while the tax grant is in effective is eligible for a reduced capital gain tax rate of 4% if the transaction is otherwise subject to PR income tax. Royalties and license payments, if any, made by the exempt business to foreign entities (not engaged in a PR trade or business) for the use of the intangibles in PR will be subject to a withholding tax at source of 12%. Other Tax Abatements The Incentives Act grants a 60% exempt on municipal taxes. o As mentioned earlier, every person has to file an annual volume of business declaration with each of the municipalities in which the taxpayer establishes or conducts business operations during the year. The declaration must indicate the actual volume of business (i.e., net sales, gross income from any service rendered, and other gross receipts) transacted within each municipality. The maximum municipal license tax rate is.50%. Additionally, the Act also provides for the first three (3) semesters to be free of municipal license tax. The Incentives Act grants a 90% exempt on personal property taxes. o The personal property tax varies from a minimum of 5.83% to a maximum of 8.83% depending on the tax imposed by each municipality. The basis to determine the tax is typically net book value in accordance with US GAAP, except finished goods inventory that is assessed based on the average of the monthly balances for the calendar year. Foreign Trade Zones o Additionally, the new business can examine the possibility of adding value to the operation by taking advantage of the benefits offered by the Foreign Trade Zones on the island. Under the Economic Incentives Act, if the entity establish an operation in Puerto Rico for export and establish it in a foreign trade zone, it can take advantage of the Economic Incentives Act and the benefits provided by the Foreign Trade Zones.

8 Puerto Rico 7 Payroll Tax Requirements In PR, the applicable payroll taxes are comprised of: PR Income Tax, US Social Security Taxes (OASDI), PR Unemployment Insurance, PR Disability Insurance, PR Chauffer Insurance, and PR Workmen s Accident Compensation Insurance. PR does not have its own Social Security System. As a Commonwealth of the US, we follow the US Social Security System. Withholding of Income Tax at Source on Wages: The PR Internal Revenue Code (the PR Code) provides that every employer making payments of wages shall deduct and withhold income tax upon such wages according to the withholding tables. Workmen s Compensation Insurance: The WC provides indemnification for accidents incidental to or as a consequence of employment. All the employees of the corporation, including executive officers are covered. PR Unemployment and Disability Contribution Report: Each employer must pay the tax (6.2%) on the first $7,000 of annual wages based on experience. Disability insurance provides indemnification to workers for loss of salaries. The rate is.006 on first $9,000 half by employee, half by employer. Chauffeur s Social Security: Only applicable when the employee drives vehicle motors as a result of their functions. The above information contains only general information and shall not be used to solve specific problems. You may contact us if you need any further help. Copyright

9 Puerto Rico 8 About Us Landa Umpierre PSC LUPSC is a certified public accounting firm with over forty years of experience in the fields of auditing, accounting, taxes, employee benefit plans audit, litigation support and business valuation, among others. Our Firm holds a prestigious position among the public accounting firms operating in Puerto Rico and has a wide variety of clients, which cover practically all industries, from small to big size enterprises. Delivering seamless, value-added client service is the cornerstone of our service philosophy. For additional information of our Firm, please visit us at How We Can Help We can help you with the registration of the entity with the different PR governmental agencies and the tax filing requirements. Also, we can help you to identify the best possible tax exemption scenario for your business and prepare all filing requirements to obtain it. If required, we can perform the audit of the financial statements of the entity to comply with local laws. Global Reach Today, more than ever, you need professional advice that goes beyond traditional accounting and tax services and your local market. That s why we are a member of CPA Associates International. Our coalition of high-quality, independent accounting and consulting firms are located in major economic hubs throughout the United States and around the world. Through our many contacts, we can draw on the valuable services of our Association as well as the individual or combined talents and expertise of member firms to help you with any aspect of your operation. Whether you need assistance with financial, tax, management or technology issues, or guidance specific to your industry, we have the resources to help you. Our Association supplies all the capabilities of the largest accounting firms, yet without costly overhead and unwelcome controls. Simply put, our membership in CPAAI provides you with one-stop shopping for building your business. Contact us Landa Umpierre PSC PO Box San Juan, Puerto Rico T: F: Xavier A. Curet Managing Partner T: Ext. 238 Sary Iglesias Principal - Taxes T: Ext. 247