INDIVIDUAL TAXATION

Nonresident foreigners are taxed on only on their income from sources in Puerto Rico. Nonresident foreign married couples are taxed separately.

INCOME TAX

Income earned by nonresident foreigners may be assessed and taxed in two ways: (1) not effectively connected with trade or business and (2) effectively connected with trade or business.

Income Tax Not Effectively Connected with Trade or Business
A nonresident alien not engaged in a trade or business in Puerto Rico is generally taxed at a flat rate of 29% (withheld) on Puerto Rican-sourced profits and income including investment income, rental income and capital gains.

Income Tax Effectively Connected with Trade or Business
Nonresidents may choose to operate as a trade or business. Rental income and capital gains is then directly connected with the conduct of a trade or business, thereby allowing the deduction of related expenses, interest payment and depreciation. Note that nonresidents are required to file an income tax return if their gross income is larger than US$3,300.

INCOME TAX
TAXABLE INCOME US$	TAX RATE
Up to US$1,000	7%
US$1,000 - US$8,500	10% on band over US$1,000
US$8,500 - US$15,000	15% on band over US$8,500
US$15,000 - US$25,000	28% on band over US$15,000
Over US$25,000	33% on all income over US$25,000
Source: Global Property Guide

Municipal Licence Tax (patentes municipales)

Puerto Rican municipalities are authorized to impose municipal licence tax on businesses within their jurisdiction. The annual tax is based on a business´ gross receipts or sale. The applicable range is from 0.27% to 0.05%.

CAPITAL GAINS
Earnings of nonresident individuals from the sale of a property are subject to a withholding tax of 25%, which is levied on the gross selling price. This withholding tax can be credited to the nonresident´s final tax liability.

The capital gains are considered ordinary income and taxed at a flat rate of 29%. The taxable gain is computed by deducting the acquisition costs from the gross selling price.

PROPERTY TAXATION

Property Tax

Real property is subject on an annual real property tax levied on the property´s market value. The tax rates range from 9.83% for personal property.

CORPORATE TAXATION

Income earned by nonresident companies may be assessed and taxed in two ways: (1) not effectively connected with trade or business and (2) effectively connected with trade or business.

Income Tax Not Effectively Connected with Trade or Business
A nonresident company not engaged in a trade or business in Puerto Rico is generally taxed at a flat rate of 29% (withheld) on Puerto Rican-sourced profits and income including investment income, rental income and capital gains.

Income Tax Effectively Connected with Trade or Business
A nonresident company engaged in a trade or business sin Puerto Rico is taxed as a local company.

INCOME TAX

Income earned by companies is taxed on a graduated tax rate structure. A flat tax of 20% is levied on the "normal-tax net income". A surtax on "normal-tax net income" less credit is levied at progressive rates, from 25% on the first US$750,000 and up to 30% on surtax income over US$2,500,000.

CAPITAL GAINS TAX

Capital gains earned by companies are taxed at a flat rate of 15%. Capital losses may be carried forward for five years.

  

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