Income Tax
Corporations
Income earned by Foreign Corporations are assessed as either (1) not effectively connected with trade or business such as investment income, rental income, and capital gains; or (2) effectively connected with trade or business.
Any Domestic or Foreign Corporation (including branches) engaged in trade or business in Puerto Rico or with effectively connected income is required to file a Corporation income tax return by the 15th day of the 4th month following the taxable year-end.
The maximum marginal tax rate applicable to corporations engaged in a trade or business in Puerto Rico is 37.5%. The tax rate applicable to Corporations with passive source income may vary. An alternative minimum tax of 18.5% or 23% may apply in lieu of income tax.
A six-month extension is available upon application. Generally, any unpaid taxes must be paid upon filing the extension to avoid interests, penalties, and surcharges.
Pass-Through Entities
Any Partnership or Corporation taxed as a pass-through entity is required to file the Pass-Through income tax return on or before the 15th day of the 3rd month following the taxable year-end.
Members of Pass-Through entities will receive an informative return 480.EC by the last day of the 2nd month following the taxable year-end.
The distributable portion of partnership income is subject to 30% withholding at source to payments made to an individual non-resident U.S. citizen, Corporation, Estate, or Trust.
Estimated Payments and Special Provisions
An entity engaged in business in Puerto Rico may be required to make estimated tax payments on or before the 15th day of the 4th, 6th, 9th and 12th month of the tax year. Penalties are imposed for underpayment of the estimated taxes.
If gross revenues are at least $10 million, then the income tax return must include audited financial statements in accordance with Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS) in the United States.
Starting in 2020, if gross revenues are at least $3 million but below $10 million then the income tax return may include either audited financial statements or Agreed Upon Procedures (“AUP”) subject to the provisions issued by the Puerto Rico Department of Treasury. The AUP requires specific sampling procedures over most expense accounts. Balances with exceptions are subject to disallowance for tax purposes.
All Entities
Any person doing business in Puerto Rico must file annually the Personal Property tax return, and Business Volume tax return, in addition to the Income tax return.