How to Start a Business in Puerto Rico
Want to start a business in Puerto Rico? Great idea. Businesses in Puerto Rico don’t have to pay any federal taxes on money made in Puerto Rico, and there’s no capital gains tax or income tax on dividends or interest for US residents who start businesses in Puerto Rico. To start a business in Puerto Rico, you technically just have to start selling something. But that alone isn’t going to get you very far. To make money and protect your assets, you’ll need to do more. In this detailed guide, we’ll show you how to set your business up for success.
Ready to Start a Business in Puerto Rico?Let's Get You Started
Pick a Business Structure
Name Your Business
File Formation Paperwork
Draft Internal Records
Get Puerto Rico Business Licenses
Organize Your Money
Get Business Insurance
File a Puerto Rico Annual Report
Understand Your Tax Burden
Build Your Business Website
Apply for Trademarks
1. Pick a Business Structure
If you don’t register with the Department of State and simply start selling a product or service—such as homemade jam or tap-dancing lessons—then congratulations, you own a sole proprietorship. If you let a friend or two join in, then you have a general partnership. This is all well and good, but if your business gets sued, a sole proprietorship or general partnership has no liability protection. This means that when someone sues your business, they’re suing you personally. And you risk losing personal assets, like your life savings, car, or house.
If you want to protect yourself from personal liability, you need to make your business its own entity. An entity is just something that has its own separate existence. A business entity is considered legally separate from the people who own it, which means it has separate liability. The most common business entity types with limited liability are LLCs and corporations.
Puerto Rico Limited Liability Company (LLC)
LLCs are a popular entity type among small business owners because of their flexibility. They have multiple options for how they can be managed, structured, and taxed. They also have strong liability protection. To start a Puerto Rico LLC, you’ll need to file a Certificate of Formation with the Department of State.
Puerto Rico Corporation
Corporations have been around longer than LLCs and have a more rigid structure. Shareholders appoint the board of directors, and directors elect officers who run the corporation. Because of their longer history and stricter rules, investors are often more likely to trust their money with corporations than LLCs. To form a Puerto Rico corporation, you’ll file a Certificate of Incorporation with the Puerto Rico Department of State.
Can an LLC be just one person?
Totally! An LLC owned by just one person is called a single-member LLC. Single-member LLCs function pretty much the same as multi-member LLCs, but there are some slight differences in how they are taxed.
Read all about Single-Member LLCs.
What about a Puerto Rico nonprofit?
You can start a Puerto Rico nonprofit corporation if the purpose of your organization is to promote a social purpose and not to create profit. Puerto Rico also allows for social benefit corporations, which are also created for a social purpose but are allowed to distribute profits to the owners.
Want to learn more? Check out our Nonprofit Guide.
2. Name Your Business
Easy, right? Not exactly. There are some rules you’ll need to consider before you choose your business name. First of all, if you’re a sole proprietor, by law, your legal name is your business name. Sole proprietors and general partnerships that want to give their business a creative name need to file a “doing business as” name (DBA).
If you’re starting an LLC or corporation, consult Puerto Rico’s naming laws before forming your business. Basically, your business name must:
- Contain a word or abbreviation that identifies the business entity type, such as “LLC” for limited liability companies or “corp.” or “inc.” for corporations.
- Be distinct from any other Puerto Rico business name.
Find out if your desired name is available in Puerto Rico using the Puerto Rico DOS Corporations Search.
Can I reserve a business name in Puerto Rico?
Yes. In Puerto Rico, you can reserve a business name for 120 days by filing a form with the Department of State:
- For LLCs—Request Form for Reserve of Name (LLCs) Filing Fee—$75.
- For corporations—Request Form for Reserve of Name (Corporations) Filing Fee—$10.
Don’t ask us why it’s so much more expensive to reserve an LLC name than a corporation name. We don’t know either.
What is a DBA?
A DBA is a name your business uses that isn’t its legal name.
If you own an LLC or corporation, your business’s legal name is the one written on your formation paperwork. If you’re a sole proprietor, your business’s legal name is your first and last name. Either way, if you want to do business under a name other than your legal business name, you’re required by Puerto Rico law to file a DBA. In Puerto Rico, a DBA is called a trade name.
To register a DBA in Puerto Rico, submit a Trade Name Application to the Puerto Rico Department of State, along with the $150 filing fee.
What about trademarked names?
Before you register your business name, it’s a good idea to search the US Patent and Trademark Office database to make sure the name you want hasn’t already been trademarked. If you use a business name that someone else has trademarked, you could be sued for infringement.
3. File Formation Paperwork
Sole proprietors and general partnerships don’t need to file formation documents with the Department of State.
However, LLCs and corporations need to file paperwork with the state in order to be legally recognized as distinct business entities.
- To start a Puerto Rico LLC, file the Puerto Rico Certificate of Formation.
- To create a Puerto Rico corporation, file the Puerto Rico Articles of Incorporation.
On these forms, you’ll need to name a Puerto Rico registered agent to accept legal mail on your business’s behalf. You can submit these forms to the Puerto Rico Department of State online, by mail, or in person.
Note: The information you put on these forms will become part of a public business database. That means that if you share your name and address here, anyone will be able to access that information online.
How can I keep my information off the public record?
If you don’t want to share your personal information publicly, your best bet is to hire a registered agent who will allow you to use their name and business address on your formation documents instead of yours wherever possible—like us.
What is a registered agent?
A registered agent is a person or entity appointed by a business to accept important legal notices on its behalf. Your registered agent must have a physical address on the island where they can be reached during business hours year-round. You can be your own registered agent, as long as you live in Puerto Rico, but many businesses hire a professional registered agent service. Not only does this help protect your privacy, but you won’t have to worry about missing a legal summons if you leave work early to hit the beach.
4. Draft Internal Records
Your internal documents will be kept on record at your business and do not need to be submitted to the Puerto Rico Department of State, but they are just as important as the paperwork you file with the government. Even though these records are internal, you will probably need to share them with third parties, such as your bank, potential investors, and—if you ever face a lawsuit—a court.
Here are the most important internal documents that LLCs and corporations need:
Puerto Rico LLC Operating Agreement
For LLCs, your operating agreement is the document that lays out the rules and procedures your business will follow. Your operating agreement should cover everything from when you’ll hold meetings, how voting works, what percentage of ownership each member has, and even how you’ll handle things if the business dissolves.
Puerto Rico Corporate Bylaws
Corporate bylaws are the internal policies of a corporation. They should specify how directors and officers will be appointed, how shares will be distributed, and how you’ll handle conflicts of interest, among other things. Unlike most US jurisdictions, Puerto Rico law doesn’t specifically require corporations to have bylaws, but adopting bylaws is standard practice for corporations.
Operating agreements and bylaws are dense legal documents that need to hold up to scrutiny, so you should make sure to get yours right. You can use our Puerto Rico operating agreement or Puerto Rico corporate bylaws templates as a starting point. These templates were drafted by our attorney specifically for Puerto Rico businesses.
Starting a nonprofit? Learn all about Puerto Rico nonprofit bylaws.
5. Get Puerto Rico Business Licenses
According to the PR Department of Economic Development and Commerce, anyone doing business in Puerto Rico—including sole proprietors—must obtain a Merchant’s Registry Certificate from the PR Treasury Department. There are other licenses and permits many Puerto Rico businesses also need.
Merchant’s Registry Certificate
This certificate is similar to a state business license. If you have a storefront or office that is open to customers, you must display this certificate publicly so that the public knows that you’re legally compliant. To get this certificate, you must submit an Application for Merchant’s Registration Certification to the Puerto Rico Treasury Department at least 30 days before you start doing business. There is no fee to submit this application.
Permiso Unico (Single Use Permit)
The Single Use Permit combines multiple business permits into a single permit: Use Permit, Fire Prevention Certificate, Sanitary License, and the Categorical Exclusion. You will need a Single Use Permit before you can apply for the patente municipal.
Patente Municipal (Municipal tax license)
Puerto Rico businesses need to apply for a municipal tax license within thirty days of starting business operations in Puerto Rico. This license allows the municipality to tax your business.
Internal Revenue License
Businesses that plan to sell certain regulated products, such as cigarettes, gasoline, vehicles, and firearms, need to obtain an Internal Revenue License from the Puerto Rico Treasury Department before they begin operations.
Professional Business Licenses
Certain professions—such as medicine, law, and engineering—require a specialized license before they can start doing business. You need to apply for your professional license from the board that oversees your industry in Puerto Rico.
Learn more about How to Get a Business License.
How much does it cost to get a Puerto Rico municipal tax license?
The amount you have to pay will depend on where you’re doing business and the gross receipts of your business. The maximum tax rate is 0.5% of the gross receipts of the business, or 1.5% of gross receipts for financial businesses.
How do I get a Puerto Rico municipal tax license?
You must apply for this license at the finance office (Oficina de Finanzas) in the municipality where your business is located. There is no fee to apply for a municipal tax license. Here are some things you should bring with you:
- Certificate of Formation (if an LLC)
- Certificate of Incorporation (if a corporation)
- EIN, if you have one
- Statement from the Municipal Revenue Collection Center, called CRIM (the Spanish acronym) proving you are up to date on your taxes
- Merchant’s Registry Certificate
- Single Use Permit
- Criminal Record Certificate
- Certificate of Debt from the Department of the Treasury
- SURI registration number
- Property deed
- Tax returns of the business owner
At the finance office, you’ll be given an application to fill out, and the office will contact you when your patente municipal is ready to pick up.
How do I get Single Use Permit?
You can apply for this Single Use Permit through the Puerto Rico Permits & Endorsements Management Office, also known as the OGPE (the Spanish acronym). Apply online via the Single Business Portal.
How do I get a professional license in Puerto Rico?
You can apply for a professional business license with the board that regulates your industry in Puerto Rico. For example, dentists in Puerto Rico obtain their license from the Puerto Rico Board of Dental Examiners.
6. Organize Your Money
The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.
Open a Business Bank Account
To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.
Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.
How do you set up a business bank account?
Do I need a business bank account to accept credit card payments?
Probably. Payment processors require you to provide them with a bank account. This is where they’ll deposit funds from transactions. Most of the time, this needs to be a business bank account.
Some payment processors may let you get away with listing a personal bank account, but it’s not a great idea. Mixing your business finances with your personal finances erodes the separation between you and your business, weakening your liability protection. It also turns tax season into a nightmare.
Learn more about Payment Processing.
Set up Payroll
If you want to hire employees or independent contractors, you’ll neet to set up payroll. Here’s how:
- get an EIN
- register for a Puerto Rico Employer Account Number
- find your Employer Unemployment Insurance (UI) Contribution Rate
- determine whether you’re hiring employees or independent contractors
- prepare the forms your employees will fill out
- choose a payroll service or software
- decide on a payroll schedule
Setting up payroll yourself can be a headache, so you might consider using a payroll service or software that will automatically withhold payroll taxes, pay your employees, and file tax returns on your business’s behalf.
What forms do my employees need to fill out?
Your new employees will need to fill out a W-4 to determine how much you’ll withhold and an I-9 to verify that the employee is eligible to work in a US territory.
What’s the difference between an independent contractor and an employee?
It’s important to understand the difference between an independent contractor and an employee. That’s because for employees, you’ll need to withhold and pay income, social security, and Medicare taxes. Independent contractors pay these taxes on their own.
An independent contractor is self-employed—how they complete their work is not directly controlled by an employer. An independent contractor may perform the same kind of work for other businesses, and can do the work when and how they choose.
An employee, on the other hand, performs their work how and when their employer chooses.
If you’re unsure, you can file Form SS-8 with the IRS and let them decide.
Learn everything you need to know about hiring independent contractors.
How do I get a Puerto Rico Employer Account Number?
You can apply for an Employer Account Number on the Puerto Rico Department of Labor and Human Resources website. After you register, you’ll receive your Employer Unemployment Insurance (UI) Contribution rate, which you’ll need to set up payroll.
7. Get Business Insurance
Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is on the hook to pay. Business insurance can help cover the costs.
What kinds of insurance does your business need? It depends on the type of business you own and the risks you’re willing to take. Certain types of insurance are required by Puerto Rico law, whereas others are optional.
Workers’ Compensation Insurance
This insurance is required in Puerto Rico for businesses with employees. Workers’ compensation insurance covers medical costs and lost wages for employees who are injured or become ill on the job. Unlike in some US states, Puerto Rico businesses aren’t allowed to buy workers’ compensation insurance through a private company. Instead, they’re required to buy into Puerto Rico’s government-sponsored workers’ compensation fund, unless they are self-insured—meaning they have set aside their own money to cover future accidents that may occur.
This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.
Do business owners need workers' compensation insurance in Puerto Rico?
Business owners aren’t required to cover themselves on the insurance plan. However, if you’re a business owner and you get injured on the job, your personal health insurance plan might deny your claim, so it’s not a bad idea to include yourself on the workers’ compensation plan.
Do I need business insurance for my home-based business?
Probably. That’s because you can’t count on your homeowners’ or renters’ insurance policy to cover damages related to your business. Most insurance companies offer a home-based business insurance plan.
8. File a Puerto Rico Annual Report/Annual Statement
Corporations in Puerto Rico are required to file an annual report, which serves to update the Department of State on your business contact information. This report also includes a Financial Statement, which shows the fiscal condition of your company from the past year. If your revenue was less than $3 million, you can have your Financial Statement prepared by someone with general accounting knowledge. However, if your revenue was over $3 million, you must have the statement prepared by a certified public accountant licensed in Puerto Rico.
Puerto Rico LLCs do not file an annual report but do need to pay an Annual Statement fee. The Annual Statement also updates the state on your business contact information but isn’t as detailed as the Annual Report.
Both the Annual Report and the Annual Statement have a filing fee of $150 and are due by April 15th each year.
Read more about How to File the Puerto Rico Annual Report.
What if I don’t file the Puerto Rico Annual Report?
Corporations that don’t file the annual report can be charged hefty late fees ranging from $750 to $2,000. If you fail to file the report for multiple years, Puerto Rico could administratively dissolve your corporation.
9. Understand Your Tax Burden
In terms of tax benefits, Puerto Rico is a sunny place for US residents to start a business, especially if they plan to export products out of Puerto Rico to the rest of the world. The Puerto Rico government offers tax incentives to attract US business owners to emigrate to Puerto Rico. But your tax burden isn’t determined by Puerto Rico alone—you’ll also have federal and local taxes to consider.
- LLCs. Puerto Rico is different from the other US states and territories in that Puerto Rico LLCs are taxed as corporations by default. If you instead want your LLC to be taxed as a pass-through entity (meaning the business itself is not taxed and the profits pass through to the owners as self-employment income) you will need to file a Classification Election with the Puerto Rico Department of the Treasury and a Federal Classification Election with the IRS.
- Corporations. Corporations are taxed as C-corps by default. This means that corporations pay the 21% federal corporate tax rate and the applicable Puerto Rico corporate tax rate.
One huge benefit of owning a business in Puerto Rico is that, as long as you are a full-time Puerto Rico resident and your business is based in Puerto Rico, you do not have to pay federal taxes on income from Puerto Rican sources. You will still need to pay federal taxes if you have income from outside Puerto Rico or if your company does business with the federal government.
To pay your taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.
Do I need an EIN if I’m self-employed?
If you’re operating a sole proprietorship or single-member LLC that doesn’t employ anyone else and you don’t need to file excise or pension plan returns, you don’t legally need an EIN.
However, you can still get one—and you probably should. Otherwise, you’ll have to use your own social security number to do business. Plus, you’ll likely need an EIN to open a business bank account.
How do I get an EIN?
To get an EIN, you can either apply online or file form SS-4 by mail with the IRS. Getting an EIN is free.
Check out our guide to applying for an EIN.
What is an S-Corp?
An S-Corporation is a federal tax election. Registered business entities like LLCs and corporations start out with a default tax status but can file paperwork with the IRS to be taxed as an S-Corp. Like LLCs, S-Corps are taxed as pass-through entities. Like corporations, S-Corps can make distributions that aren’t subject to the 15.3% self-employment tax.
Learn more about the S-Corp tax election.
What is a C-corp?
A C-corporation is the default federal tax election for corporations and LLCs in Puerto Rico. (In other US jurisdictions, LLCs are taxed as pass-through entities by default.) C-corps file federal corporate income taxes and state corporate income taxes (in Puerto Rico, the corporate tax rate is 18.5%, plus a graduated surtax based on corporate income). C-corps can pay their shareholders in distributions, and the shareholders report those profits on their personal tax returns.
Learn more about the C-corp tax election.
Puerto Rico Business Taxes
Don’t forget you also need to pay the patente municipal (municipal tax), which you file with your municipal government. This tax will vary depending on your municipality, but the maximum is 0.5% of your gross receipts, or 1.5% for financial businesses.
In 2012, Puerto Rico passed legislation to attract US residents to start businesses there. This legislation created appealing tax incentives for US residents who move to Puerto Rico and start businesses, including:
- No income tax on dividends and interest
- No capital gains tax
- Fixed income tax rate of 4 percent on income gained from export services
- No property tax for the first five years (Only 10% of the usual property tax rate afterwards)
- 60% reduction of the municipal tax rate
The only catch is that the business must actually be located in Puerto Rico and must employ at least five full-time Puerto Rico residents. Also, only certain industries qualify for these tax benefits.
Learn more about Puerto Rico Business Tax Advantages.
10. Build Your Business Website
If you want puertorriqueños to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an influencer to establish a robust online presence. You’ll just need the following:
- Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
- Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“[email protected]”).
- SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
- Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built-in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.
11. Apply for Trademarks
A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.
You can apply to register your trademark with the territory of Puerto Rico or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Puerto Rico is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Puerto Rico.
You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.
Our attorneys can review your application, offer advice, and prepare and submit the application for you—Check out our Trademark Service.
How do I register for a trademark in Puerto Rico?
You can register a trademark in Puerto Rico by submitting an Application for Registration of Trademark to the Department of State and paying the $150 fee. You will need to specify the date you first used the mark and attach an example to prove that you’ve established a connection between the mark and the products you’re selling. You must use the mark before you’re able to register it as a trademark.
Once your trademark has been approved, you must publish it in the Official Gazette of the Trademark Registry. If you filed your trademark online, you will be able to publish it online through the Puerto Rico Online System of Trademarks and Commercial Names, and the online system will generate your proof of publication. There is a $75 fee.
Can I register a trademark before I use it?
No. But you can file an application with the USPTO under Intent-to-Use status. This gets your application in line before you’ve actually used the mark, which could be helpful if you’re worried someone else might register your mark before you’ve had a chance to use it.
For your trademark to become official, you’ll eventually need to show proof that you’re using it. An Intent-to-Use application buys you some time to do that.
Learn more about filing an Intent-to-Use Trademark.