Tax laws Puerto Rico (US)
Puerto Rico's taxation system is unique due to its status as an unincorporated U.S. territory. Residents and businesses are subject to both federal taxes and local taxes administered by the Puerto Rico Department of Treasury (Departamento de Hacienda).
Federal Taxes:
Puerto Ricans are required to pay various federal taxes, including customs duties, federal commodity taxes, and payroll taxes such as Social Security, Medicare, and unemployment taxes. However, many residents are exempt from paying federal income taxes unless they:
- Are federal government employees in Puerto Rico.
- Serve in the U.S. military.
- Have income sourced outside Puerto Rico.
- Engage in business with the federal government.
- Are Puerto Rico-based corporations intending to remit funds to the U.S.
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Local Taxes:
The Commonwealth of Puerto Rico imposes its own tax system, primarily outlined in the Internal Revenue Code of Puerto Rico. Key components include:
- Sales and Use Tax (SUT): Established in 2006, the SUT rate has undergone changes:
- 2006: State tax of 5.5% with an optional 1.5% municipal tax.
- 2007: Mandatory 6% state tax and 1% municipal tax.
- 2015: Increased to a combined rate of 11.5%.
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Recent Developments:
- Act 60 – Incentives Code: Enacted to attract investors and high-net-worth individuals, Act 60 offers:
- Fixed Income Tax Rate: A 4% rate for eligible businesses.
- Property Tax Benefits: Significant reductions for qualifying property owners.
These incentives have led to increased interest from wealthy mainlanders, contributing to a thriving luxury real estate market. For instance, a six-bedroom mansion in Dorado sold for $20 million, marking the most expensive property sale in Puerto Rico in 2024.
While these tax incentives stimulate economic activity, they have also sparked local concerns about potential tax evasion and the displacement of local communities. It's essential for individuals and businesses to consult with tax professionals to navigate both federal and local tax obligations effectively.
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