Nonprofit Exemption Request
Form a Puerto Rico tax-exempt organization
An exempt entity formed under the laws of Commonwealth of Puerto Rico must obtain an EIN and a merchant registry. Depending on the nature of activities and business volume, an entity may be exempt from filing Form 990. You can find information on tax filing requirements for nonprofit entities under the Federal tax filing section. The organization is subject to Puerto Rico income taxes if it does not obtain the certificate of exemption from the Puerto Rico Treasury Department.
Initiate the nonprofit exemption request
As noted, an exempt entity must formally request a tax exemption with the Puerto Rico Department of Treasury to be exempt from income tax. For a nonprofit exemption request, the application costs are based on historical and projected business volume (gross receipts) and due upon filing. An entity may request an expedited response from the Puerto Rico Department of Treasury by following the procedures set forth in Circular Letter 18-08 (CC 18-08). These procedures are only published in Spanish.
In summary, the CC 18-08 requires a Certified Public Accountant to submit schedules under an Agreed Upon Procedures engagement (“AUP”) to certify compliance with local regulations prior to a request for exemption. If an AUP is submitted, the government awards the income tax exemption within 60 days even if no response is received by the Puerto Rico government. Alternatively, the process may take up to nine months. The government will require any entity to comply with registration requirements prior to accepting the request for exemption.
The nonprofit exemption request process includes the submittal of the AUP. The entity must be duly registered to request an income tax exemption. Generally, the Service categories must include: social, legal and advocacy of rights, educational and investigation, health, art and culture, recreational and sports, housing, environmental, economic, social and community development, donations, international activities, religious, institutional, or other services.
Bookkeeping and Tax Compliance
In the case of nonprofit organizations, the quorum for making agreements and decisions may not be lower than 1/3 of the members of the governing body.
A nonprofit organization must also file an annual corporation report in the same manner as a regular corporation, but in addition balance sheet and survey, it must report any change with respect to the principal category of its services or purposes, or to the particular type of corporation. The nonprofit organization must also keep books and other documents in Puerto Rico as a regular corporation.
