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.
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.