Foreign Non-Puerto Rico parent Companies with local Subsidiaries

When a parent company that is not engaged in trade or business in Puerto Rico (but does own a subsidiary doing business solely in Puerto Rico), the parent company will be allowed to deduct the expenses directly allocatable to the Puerto Rico business. In addition, an allocation of expenses that does not tie directly to any item of income is allowed as a deduction.  Note: any non-direct allocation expense deduction is subject to a high level of scrutiny. Dividends are have a 10% withholding tax.  In Puerto Rico there is a maximum effective tax burden of 37%  for this configuration of businesses.  The maximum effective tax burden would represent the summing of the withholding tax and the regular tax. As always there are more rules and this post contains simplicications.  Additionally, as always a professional should be consulted and be presented with specific information.




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Disclaimer
The information on this website is general information and is for educational use and has not been verified for accuracy nor completeness.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for professional advice derived from specific details from your structure and financial position.

Information on Domestic, Puerto Rico Corporations

In Puerto Rico, corporations (and in many circumstances LLC's) that are formed under the Laws of the Commonwealth of Puerto Rico are considered domestic Corporations for tax purposes.  Forming as a domestic corporation is advantageous for foreign businesses (i.e. US businesses).  This is because domestic Puerto Rico business obligations on US tax comes after certain activities including but not limited to distribution of profits.  A notable complication to the above statement is that if dividends are distributed by a domestic Puerto Rico corporation to nonresidents/foreign corporate entities/partnerships that are not engaged in a Puerto Rico activities the they are subject to a 10% withholding tax.  As always there are rules - and this post definitely contains many simplifications.  Additionally, as always a professional should be consulted and be presented with specific information.












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Disclaimer
The information on this website is general information and is for educational use and has not been verified for accuracy nor completeness.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for professional advice derived from specific details from your structure and financial position.

Information on Corporation of Individuals

In Puerto Rico, Corporations of Individuals and its shareholders have income tax obligations similar to S-corps in the US.  Like S-corps these entities are not subject to corporate income tax because they are pass-through entities.  As such, the obligations from activities flow down to its shareholders.  Each shareholder is responsible for, and must determine their own income tax liability.  As always, there are eligibility rules, and a professional should be consulted and be presented with specific information .




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Disclaimer
The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for professional advice derived from specific details from your structure and financial position.

Law 117

I am in the process of researching Act 117 regarding act 40 and the sales and used tax implications to condominium associations.

Puerto Rico's Unemployment Tax

In Puerto Rico, every employer must pay the unemployment tax on the first $7,000 of wages paid, with certain conditions based on the experience of the employer. Beyond that, employers must pay a special tax of 1% of all taxable wages. This tax is assessed on the employer an must be paid quarterly to Secretary of the Treasury of Puerto Rico.  This applies to employer with at least one employee within Puerto Rico.   The information herein is general information, a summary and not necessarily updated or complete -- as such you should seek out the appropriate department in Puerto Rico, or consult CPA professional for specific advice.



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Disclaimer
The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for for professional advice derived from specific details from your financial position.

Annual Informative Returns - Puerto Rico

In Puerto Rico, informative returns must be filed for payment including but not limited to paid dividends in excess of $500 to individuals.  This applies to salaries, wages, interest, rents, and other items compensation or gain not otherwise reported.  Likewise if you are a person makes payments to/credits of of $500 or more to individual then you are also obligated to withhold the tax and must make the appropriate filings.  These filings/returns must be filed by February 28. Beyond this there are other informative returns including but not limited to shareholders activity,  partners activity as well as IRA activity. As always the information herein is general information, and you should consult your tax professional detailed and specific advice.


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Disclaimer
The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for for professional advice derived from specific details from your financial position.

Non-resident Witholding in Puerto Rico

In Puerto Rico, if you are a non-resident, you are required to withhold a portion for income tax purposes of salaries, wages, rent, income from interest, partnership profits, commissions, annuities, dividends, and other types of gains,  profits and income.  This applies to gross income from sources within Puerto Rico. 

There are different rates for which the payor must withhold and deduct a tax depending on the source of  gain, profit, or income as well as for the classification of the nonresident person or entity.  Withholding amounts generally range from 20-30%.  For more information contact Isla CPA Puerto Rico or your tax professional.


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Disclaimer
The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for for professional advice derived from specific details from your financial position.

Resident Recipients Withholdings Exemptions

Regarding the prior resident recipients withholdings blog post, here are some from the 7% withholding requirement.  Exemptions include but ore not limited to:

Payments made to hospitals, clinics, hospice or nursing homes (Many times you will have to withhold 7% on laboratory work.)
   
Payments for religious-related services rendered by priests, rabbis etc.

Payments made to organizations that are exempt pursuant to the provisions of Section 1101.01 of the 2011 Internal Revenue Code of Puerto Rico (Code).
   
Commission to direct salespersons for consumer goods.
   
Payments made to certain qualified farmers.

Certain payment to qualified air or maritime carriers

Payments made to contractors or subcontractors for construction (not included in this exemption is services for architecture, engineering, design, etc).
   
Payments made to the Government of Puerto Rico.
   
   
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Disclaimer
The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for for professional advice derived from specific details from your financial position.

Resident Recipients Withholdings

In Puerto Rico payments for services rendered made by the Government of Puerto Rico or any person in excess of $1,500 to another person for services performed within Puerto Rico are subject to a seven percent withholding. This withholding should sent to the Puerto Rico Treasury Department on or before the tenth of the month. Remember that in-kind payment such as when a person a person that transfers property in exchange for services is considered a payment for these purposes.

In calculating the amount to be withheld, consider that things like travel expenses, machinery and parts are not services and should be separated. Separated out items should also include insurance contracts, leasing of personal or real property, printing, publications etc. Once items are separated a correct withholding amount can be determined.

As always there are certain circumstances when the withholding is not 7% -- an example is when as when payments for services to corporations that are current in their tax responsibilities with the Puerto Rico Treasury Department and have me other requirements.

The amounts withheld or deposited is creditable against the income tax liability, and an annual reconciliation filing is required.

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Disclaimer
The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for for professional advice derived from specific details from your financial position.

Tax Provisions Expiring in 2013 (“Tax Extenders”)

We have been inquiring a lot about the odds of about a dozens of temporary United States tax provisions are scheduled to expire at the end of 2013.  Many of the provisions set to expire in 2013 are a part of the usual suspects of extenders as they have been part of past many temporary tax extension legislation. This year however many temporary tax provisions were extended as part of the American Taxpayer Relief Act (ATRA; P.L. 112-240) - AKA the Sequester. Collectively, temporary tax provisions that are regularly extended by Congress—often for one to two years—rather than being allowed to expire as scheduled are often referred to as “tax extenders.”  Caught in the middle of this is the Renewable Energy Investment Tax Credit and Production Tax Credit.  We will keep our fingers crossed that this inventive is extended because this tax credits fave benefited Puerto Rico and brought in a lot of US based investment  to the island.

2010 Puerto Rico Green Energy Incentives Act (GEI, Act No. 83)

I've been spending a lot of time researching the 2010 Puerto Rico Green Energy Incentives Act (GEI, Act No. 83).  It provides financial incentives through a special fund called Green Energy Fund. As a result, as of June 30, 2010 eligible "green energy" businesses will have to choose between the new incentives provided by the GEI or those provided via the EIA as described above. Businesses are not permitted to both.

Disclaimer

The information on this website is general information and is for educational use.  You, the reader, should further research your specific individual situation.  In addition you should contact your accounting professional for for professional advice derived from specific details from your financial position.

Isla CPA Puerto Rico

Welcome to our blog.  Isla CPA de Puerto Rico is an accounting and business advisory consultancy based in San Juan Puerto Rico that provides Accounting,Tax, Audit, Bookeeping services.  It is located near Miramar, Condado, Santuce, Hato Rey, and Old San Juan.  Its clients for private personal accountant services includes entrepreneurs, expats, and professional services firms.  We will be launching our new website and look soon.  So please keep checking back at www.islacpa.com and blog.islacpa.com.