Property-Related Taxes in Puerto Rico
Tax Rate on Rental Income |
|||
| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 29% | 29% | 29% |
Nonresident foreigners are taxed 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 are 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$3,300.
Income Tax Rates
| Taxable Income (US$) | Tax Rate |
| Up to US$9,000 | 0% |
| US$9,000 - US$25,000 | 7% on band over US$9,000 |
| US$25,000 - US$41,500 | US$1,120 plus 14% on band over US$25,000 |
| US$41,500 - US$61,500 | US$3,430 plus 25% on band over US$41,500 |
| Over US$61,500 | US$8,430 plus 33% on all income over US$61,500 |
Municipal License Tax (Patentes Municipales)
Puerto Rican municipalities are authorized to impose a municipal license tax on businesses within their jurisdiction. The annual tax is based on a business' gross receipts or sales. 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% (if the nonresident is a US citizen, the rate is 15%). These rates apply if the property is held for more than 1 year.
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 in Puerto Rico is taxed as a local company.
Income Tax Rates
The current corporate income tax (CIT) rate consists of a standard tax of 18.5% plus a graduated surtax applied to the so-called surtax net income.
The surtax net income is calculated as the net taxable income subject to the regular 18.5% tax, reduced by a special surtax deduction of USD 25,000. The graduated surtax rates are structured as follows:
-
5% on surtax net income up to USD 75,000.
-
USD 3,750 plus 15% on surtax net income from USD 75,001 to USD 125,000.
-
USD 11,250 plus 16% on surtax net income from USD 125,001 to USD 175,000.
-
USD 19,250 plus 17% on surtax net income from USD 175,001 to USD 225,000.
-
USD 27,750 plus 18% on surtax net income from USD 225,001 to USD 275,000.
-
USD 36,750 plus 19% on surtax net income exceeding USD 275,000, yielding a maximum nominal CIT rate of approximately 37.5%.
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.
Property Buying and Selling Costs
| Cost Item | Rate or Amount |
| Property Transfer Tax | 0.00% |
| Agent Fee Buyer | - |
| Agent Fee Seller | 4.00% - 6.00% |
| Legal | 0.50% - 1.00% |
| Notary | 1.00% - 2.00% |
| Costs Paid By Buyer | 1.50% - 3.00% |
| Costs Paid By Seller | 4.00% - 6.00% |
| Roundtrip Cost | 5.50% - 9.00% |
| Source: Global Property Guide, Deloitte, PWC | |
Property Taxation
Property Tax
Real property in Puerto Rico is subject to an annual property tax based on its assessed value. The property tax rate typically ranges from 8.03 to 11.83 mills (not percent), which translates to 0.803% to 1.183% of the property's assessed value. The assessed value is determined by the municipal government and usually represents a fraction of the market value of the property. These rates can vary depending on the municipality.
