CORPORATE FILING REQUIREMENTS FOR ACT 60 (FORMERLY ACTS 20) EXPORT SERVICES BUSINESSES - Relocate to Puerto Rico with Act 20 & Act 22

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Puerto Rico’s generous tax incentives can save you a lot of money, but unfortunately, they also entail a lot of bureaucracy. There are numerous corporate filings you must file regularly to remain in good standing with the Puerto Rican government. Here is a rundown of the reports you will be expected to file.

LLC Annual Report Filed with the Department of State

All LLC companies are required to submit an annual report to the Puerto Rican government, along with a $150 fee, to maintain good standing. Both the report and the fee are due each year by April 15. A two-month extension for a fee of $30 is possible, but the $150 fee must still be paid by April 15. Failure to pay on time will result in a $500 fee and a 1.5% monthly interest rate.

Since Act 20/22/60 decree holders have a number of forms and reports to file, the schedule can become chaotic. PRelocate offers a service to file the annual report for Act 22 or Act 60 Individual Resident Investor businesses, lightening their load and freeing up more time for them to spend growing their business. You just provide some information about your business to us, and we will take care of the rest. For Act 20 or Act 60 Export Services companies, we can provide you with templates and information to dramatically facilitate the filing process. For more information about our filing service or to access our templates, email us at info@relocatepuertorico.com.

Annual Report Filed with the Department of Economic Development and Commerce

Businesses that enjoy Puerto Rican tax incentives, such as Act 20 and Act 60 decree holders, are required to file an annual report along with the required filing fee for exempt businesses to the Office of Industrial Tax Exemption by the deadline established by law. Filing this report is crucial to maintaining your status as an Act 20/22/60 decree holder, and failing to submit this report and the accompanying fee can result in the revocation of your decree. The filing process can be time-consuming and tiresome, but PRelocate is happy to offer our assistance.

For Act 22 and Act 60 Individual Resident Investor decree holders, there’s also an additional step: proof of a $10,000 annual donation. More precisely, decree holders must make two separate donations of $5,000 in qualifying nonprofit organizations before December 31 of the relevant tax year.

Corporate Requirements

Act 20 & Act 60 business owners must also comply with numerous corporate requirements that all Puerto Rican businesses are subject to. We have provided a brief overview for you to familiarize yourself with. The list is non-exhaustive and should not be construed as legal or tax advice. We strongly recommend that all business owners work with a CPA to properly manage and file the below documents and any other business filings that may be required.

It’s also worth noting that 2020 is a unique year due to the COVID-19 pandemic, which has pushed back the deadlines for most of these filings. The dates specified below apply to most years but not 2020.

Annual

There are various forms businesses may have to file in relation to Puerto Rico’s withholding tax requirements. Companies are required to submit forms for each individual who provided services worth more than $500 during the calendar year. The forms are due on February 28 each year.

Companies and are required to file an annual income tax return every year by April 15. Businesses may apply for a three-month extension to file the return, but if they owe any Puerto Rican tax, they still must pay it by the April 15 deadline. If they fail to make the payment by the deadline, they will incur interest and penalties.

The typical corporate tax rate in Puerto Rico is 39%, but Act 20 and Act 60 Export Services businesses can enjoy a 4% tax rate.

Businesses in Puerto Rico must obtain a municipal license to establish a business in a given municipality, and they are subject to annual municipal license taxes to maintain compliance. The rate varies depending on the municipality, but generally, it ranges between 0.2% and 0.5% of the overall gross revenue of the business. The municipal volume of business declaration must be filed by the fifth business day following April 15 of the given year, and the tax itself is to be paid in two installments on January 15 and July 15. Filing and paying the tax is not the same as renewing your business license—companies must renew their municipal license before the expiry date specified on it.

Any entity that does business in Puerto Rico and who owns personal property used in said business on January 1 of each given year must pay personal property tax on that property. The rate varies from municipality to municipality but will not exceed 9.83% of the net book value of the property. Note, though, that Act 20 and Act 60 Export Services businesses are exempt from much of the property tax.

The return must be filed by May 15, although a three-month extension is possible. However, any personal property tax owed is due by May 15 of each year, regardless of extensions, unless the amount owed exceeds $1,000, in which case it is paid in installments on August 15, November 15, February 15, and May 15. If the amount is paid in installments, the business may enjoy a 5% discount.

Businesses who deposit the owed amount late incur late fees: 5% for payments later than 30 days, 10% for payments later than 60 days, and 15% for payments later than 90 days. Filing the return late will also result in a 5% monthly fee up to a maximum of 25%.

Workers’ compensation insurance is a mandatory insurance that provides indemnification for accidents that happen on the job or as a result of employment. Every single employee in a business, including the executive team, must be covered by this insurance.

The amount is paid by the employer only and varies depending on the type of business and the work performed. The annual report must be filed by July 20 each year, but the amount owing is paid in two installments, the dates for which are determined by the agency. In the report, the employer must indicate the number of employees at the business, the type of occupation of each, and the wages paid to each from the previous July 1 to June 30.

More information (in Spanish) can be found on fondopr.com.

All companies in Puerto Rico must pay Christmas bonuses to any employee who has worked more than 1,350 hours during the period from October 1 to September 30 of the current year. The bonus must be paid by December 15.

The amount the employer must pay differs depending on the employee, the date they were hired, and how many hours they worked during the relevant period. If the bonus is $600 or less, the employer does not withhold taxes from it. If, however, the amount is between $601 and $1,500, the employer is required to withhold 7% in taxes.

Businesses may request an extension for the payment if the total payment would exceed 15% of the business’s total net income for the relevant period. They must request the extension by September 30. If the business fails to pay the bonuses by the deadline, employees are entitled to an additional 50% or 100%, depending on how late it is paid.

Monthly

Employers in Puerto Rico are subject to withholding a percentage of the wages they pay—typically 10% for Puerto Rican residents, although the percentage is higher for non-residents. Employers whose quarterly withholdings are between $500 and $50,000 are required to make monthly deposits by the 15th of the following month through the SURI portal. Employers whose quarterly withholdings are below $500 need only make quarterly deposits. The payment frequency an employer is subject to is determined by their payment history in the previous 12 months.

Like employers, businesses with independent contractors are also required to withhold 10% of wages paid for services rendered by independent contractors who are Puerto Rican residents. The amount increases to 29% for non-residents, although if the non-resident is a U.S. citizen, the amount is reduced to 20%. It is also worth noting that the first $500 paid to a given service provider in a calendar year is exempt. The associated form to file is Form 480.

The amount is to be deposited no later than the 10th day of the following month. The penalty for filing late or not at all is $500.

There are several exceptions to this withholding requirement, including services rendered outside of Puerto Rico or payments to Puerto Rican government agencies. A form for exempt or excluded income must be filed by February 28 of the following year.

Most merchants in Puerto Rico are required to charge an 11.5% sales and use tax on items or services they sell. Most of this amount goes to the Commonwealth of Puerto Rico, with the small remainder going to the municipality. Monthly sales and use tax returns are due by the 20th of the following month electronically via the SURI portal. Additionally, all imports are also subject to the sales and use tax, and businesses that import items must file a monthly import return by the 10th of the following month.

Additionally, merchants must file a municipal sales & use tax monthly return. The tax rate varies from municipality to municipality, and Export Services businesses enjoy a 50% discount on municipal taxes.

Late filings that are less than 30 days late incur a 5% increase, with an additional 10% for each additional 30-day period until a maximum penalty amount of 25%.

Quarterly – Corporate Requirements

Employers are required to pay 6% in Federal Unemployment Tax Act (FUTA) tax on the first $7,000 in wages paid to each employee per calendar year. Only employers are liable for this tax, so it must not be deducted from the employees’ wages. The purpose of this tax is to provide unemployment compensation to workers who have lost their jobs.

Payments of this tax are due quarterly: April 30, July 31, October 31, and January 31. Failure to pay on time may result in late fees and interest.

Each January, employers are required to file Form 940 to report the total amount of unemployment taxes they paid in the previous year.

To protect employees’ income in the event that they are unable to work due to illness or a non-work-related injury, employers are required to pay a disability insurance tax on the first $9,000 paid to each employee in the calendar year. The amount to pay is 0.6%, and it is split evenly between the employer and the employee, with each paying 0.3%. Any additional compensation paid to the employee that exceeds the first $9,000 is not subject to this tax.

Payments of this tax are due quarterly: April 30, July 31, October 31, and January 31. Failure to pay on time may result in late fees and interest.

Employers in Puerto Rico must submit Social Security and Medicare payments for each employee. The total amount due for each employee is 15.3%, with the payment split evenly between the employer and employee at 7.65% each. The employer withholds 7.65% and contributes an additional 7.65% from the gross salary. Of this money, 12.4% goes to OASDI, and 2.9% goes to Medicare.

Payments of this tax are due quarterly: April 30, July 31, October 31, and January 31. However, employers that owe more than $2,500 quarterly must make monthly payments by no later than the 15th of the next month. Failure to pay on time may result in late fees and interest.

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