Puerto Rico is an attractive offshore jurisdiction to form a company on the island. Companies that are formed by nonresidents are seen as a foreign corporation or offshore companies. Corporations are governed by the General Corporations Act of 2009, under which there are several benefits and incentives for making use of a Puerto Rico corporation for nonresidents.
Puerto Rico is a protected territory of the United States and is located in the Northeast Caribbean Sea, only 1000 miles Southeast of Florida. Its status as a US territory also comes with unique benefits, such as special tax deductions and protections under in specialized industries. Puerto Rico offers tax incentives corporations who qualify under Act 20 (originally the Export Services Act) are subject to extremely low corporate taxes of only 4% (or even less in certain cases), enjoy high levels of privacy, and security attracting a lot of attention from foreign investors and US persons over the last few years.
Puerto Rico has a well-developed offshore banking industry that is connected to the US Federal Reserve and Central Banks. However, it retains a special status in that it is not a signatory of the Common Reporting Standard (CRS) and so does not have any Automatic Exchange Agreements in place. This has created a huge incentive for foreign investors especially, US capital which has found its way into one of the nine major banks on the island.
The government has sought to attract foreign capital since the devastation of the hurricane and has done so by reducing tariffs and giving incentives to international investors and businesses in order to stimulate local industries.
Go here for more information about Puerto Rico Tax Haven.
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Corporations can be established by individuals and/or legal entities by filing a certificate of incorporation at the Puerto Rico State Department. The corporation gains legal existence as soon as the certificate of incorporation is filed. The filing fee is USD 150.
The following charter documents are generally required for the corporation: articles of incorporation, corporation bylaws, organizational board resolutions, stock certificates and ledger.
Puerto Rico Corporations that qualify for the Act 20 tax exemptions incur a corporate tax rate of only 4%. This rate may be lowered even further to 0 - 3% for corporations which qualify for the “Pioneer Industries” program (those deemed to be important pioneer investment projects for the nation or who export services which are deemed to be strategic for Puerto Rico).
Puerto Rico’s Controlled Foreign Corporation (CFC) structure has other tax benefits. The Income generated from selling products to the United States are exempt from US taxes. Furthermore, products imported from the US are exempt from duty taxes. It is possible for the first year of operations to be completely tax-free, because corporations qualify for 100% tax deductions on real estate during the first year. In addition, under act 20, corporations can obtain a 100% tax exemption on shareholder distributions from profits and a 0% dividend tax. Puerto Rico also offers several tax breaks for crypto investors which has led to a boom in the crypto industry the last several years.
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Anonymity, Confidentiality and Disclosure
Puerto Rico corporations offer a high degree of confidentiality. They are not required to disclose the identities of shareholders and/or directors in public documents. At the time of incorporation, corporations must disclose their registered officers. Nominee shareholders and directors can be appointed for even greater privacy.
Corporations may issue both par value and non-par value shares. Par value shares usually have a face value of USD 0.01.
There are no minimum capital requirements or authorized share capital requirements.
A corporation can amend its certificate of incorporation so as to increase its authorized share capital at any time.
Directors and Shareholders
A minimum of one director and one shareholder is required for Puerto Rico corporations. The director and shareholder can be the same person. Foreign shareholders/directors are allowed.
The corporation’s bylaws should state the number of shareholders and directors on its board.
Principal Corporate Legislation
Puerto Rico corporations are governed by the Puerto Rico General Corporations Act of 2009. Regulations from the Internal Revenue Code of 2011 are also applicable to corporations.
Type of Law
Puerto Rico was originally a Spanish Colony for over 400 years, which meant its legal system was historically based on Spanish Civil Law. After becoming a US territory, Puerto Rico adopted the Common Law system. Its legal system still sees historical influences from both of these types of laws, which has created a mixed legal system.
Powers of the Corporation
A Puerto Rico corporation is regarded as a separate legal entity from its shareholders and directors. It has all the same powers and rights as a natural person. It therefore has the power to enter into legal contracts, hold property and assets, and engage in lawsuits in its own name.
Shareholders are exposed to no personal liability, which means their liability is limited to their investment in the company.
Corporations are required to hold an annual general meeting.
Corporations are required to maintain a local office address in Puerto Rico and must appoint a local registered agent.
There is no requirement to open a local bank account.
Corporation Officers and Secretary
The board must appoint registered officers, which includes a secretary. Officers are responsible for managing the day-to-day operations. The officers are outlined in the corporation’s bylaws, and generally include a president, vice-president, secretary, and treasurer. The president and secretary are the only two mandatory officers.
The corporation’s secretary is in charge of maintaining the corporate records of the corporation, as well as maintaining minutes of board and shareholder meetings.
Language of legislation and Corporate Documents
Since English is an official language and Puerto Rico is part of US territory, all legislation and corporate documents are available in English.
The two official languages are English and Spanish. Spanish is the native language, but English is also an official language because Puerto Rico is a US territory. English is widely spoken.
Audit and Annual Reporting Requirements
Corporations are required to maintain annual filings which include financial and accounting records. They are required to use Generally Accepted Accounting Principles to calculate net and taxable income. The General Corporation Act of 2009 stipulates that all Puerto Rico corporations must maintain financial records and documents.
Corporations with a business volume of USD 3 million or more must file financial statements which are required to be audited and approved by a Puerto Rico Certified Public Accountant (CPA).
Time required for incorporation
The entire incorporation process is usually completed in 4 to 6 weeks, granted all requirements have been fulfilled, documents have been correctly filed, and the corporation’s name is approved.
Shelf Corporations available
Shelf corporations are available which enable a faster incorporation process.
Corporation Name Requirements and Restrictions
The name of the corporation must be unique. It must include one of the following words or abbreviations: Corporation, Corp., CRL, SRL, Incorporated, Inc. It is also acceptable to include a word of similar meaning to the ones above in another language.
Access to Double Tax Treaties
Puerto Rico does not have any double tax treaties in place.
Annual Government Fee
There is a filing fee for incorporation of USD 150 for for-profit corporations and USD 5 for non-profit corporations. The annual renewal fee is also USD 150.
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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.
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