Setting up a Business in Puerto Rico

Starting a business in Puerto Rico is not difficult, but it involves more than one agency and the order matters. Companies that get it wrong usually find out when a bank, a landlord or a government counterparty asks for a document they cannot produce.

Step one: choose the structure

The three common forms are the corporation, the limited liability company and the partnership. All three can shield owners from the business’s debts, but they differ in how they are taxed, how decisions are made, how ownership is transferred and what happens when an owner leaves or dies.

This is the decision with the longest consequences and the one most often made quickly. It is worth taking advice before filing, because restructuring later costs considerably more than choosing correctly at the start.

Step two: register the entity

Entities are created through the Department of State’s electronic registry of corporations and entities. The filing itself is done online. A foreign company coming into Puerto Rico registers for authorization to do business here rather than incorporating afresh.

You will need a resident agent with a physical address in Puerto Rico, and the organizational documents that follow the certificate: bylaws or an operating agreement, and the first resolutions. Banks and counterparties ask for these later even though no agency requires them at filing.

Step three: tax registrations

Once the entity exists it needs a federal employer identification number from the IRS. With that number the entity is activated as a taxpayer with the Puerto Rico Department of the Treasury.

Businesses selling goods or services then register in the Merchant’s Registry through SURI, the Treasury’s online platform, which is what produces the Merchant’s Registration Certificate and brings the business into the sales and use tax system. Resellers and manufacturers may qualify for separate exemption certificates.

Step four: municipal and employer obligations

Most businesses are subject to the municipal license tax, the patente, in each municipality where they operate, and must register with that municipality. Exemptions exist but should be confirmed rather than assumed.

If the business will have employees, further registrations follow, including with the Department of Labor and Human Resources for unemployment and disability insurance, and a workers’ compensation policy from the State Insurance Fund. Employers also take on withholding and quarterly reporting obligations.

Step five: premises and permits

If the business occupies premises, the use of that location has to be authorized, and construction or remodeling brings its own approvals, along with fire, health and environmental requirements depending on the activity. This layer takes longer than the formation work and is best started early.

Staying in good standing

Registration is not a one-off. Entities owe a recurring annual fee to the Department of State, and failure to keep it current carries penalties and can ultimately lead to the entity being canceled. A certificate of good standing is routinely demanded before a government agency will contract with a business, so a lapse is not merely administrative.

We keep the calendar for clients who would rather not track it themselves.

Tax incentives

Puerto Rico offers incentives for certain activities and certain businesses, consolidated under the Incentives Code. Whether a business qualifies, and whether the obligations attached are worth the benefit, is a question to settle with advice before structuring around it rather than after. We can advise on where a business sits and coordinate with your tax advisers.

Common questions