Puerto Rico: Taxes and Costs

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Last Updated: Nov 25, 2007

Taxes are high

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	4.2%	8.1%	9.0%
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Source: Disclaimer

Income Tax

A non-resident 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

The nonresident individual 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 non-residents are required to file an income tax return if their gross income is larger than US$3,300.

The income tax rates below apply to separately-filed tax declarations, as non-resident aliens cannot file jointly:

INCOME TAX
TAXABLE INCOME US$	MARGINAL 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

Property Tax

In Puerto Rico real property is subject on an annual real property tax levied on the property’s market value. The Commonwealth imposes a flat rate of 1.03% with an additional 1% for personal property (effective rate of 2.03% for personal property) and 3% for real property or land (effective rate of 4.03% for real property or land).

The rates, ranging from 6.33% to 8.58%, of which vary depending on the municipality where the property is located. For example the rate in San Juan is 8.05%.

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 Tax

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.

Long-term capital gains are gains earned for properties held for more than 6 months. Individuals can opt for their net long-term capital gains to be taxed at a flat rate of 20%.

Puerto Rico - more data and information

Guide to buying houses and registering property sales in Puerto Rico