Property-Related Taxes in Puerto Rico
Tax Rate on Rental Income |
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| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 29% | 29% | 29% |
Nonresident foreign individuals are generally subject to Puerto Rico income tax only on Puerto Rico-source income. For a foreign investor owning Puerto Rican real estate, rental income and gains arising from the property are therefore potentially taxable in Puerto Rico.
Income Tax
The tax treatment of a nonresident foreign individual depends principally on whether the income is effectively connected with a trade or business in Puerto Rico.
Income Not Effectively Connected with a Puerto Rico Trade or Business
For a nonresident foreign individual who is not engaged in a trade or business in Puerto Rico, Puerto Rico-source investment income, including rental income, is generally subject to a flat 29% tax on gross income.
Because this treatment applies to gross income, ordinary property expenses are generally not deducted when calculating the 29% tax.
Income Effectively Connected with a Puerto Rico Trade or Business
Where the investor is engaged in a Puerto Rico trade or business and the rental activity is effectively connected with that business, taxation can instead apply on net taxable income, allowing qualifying business expenses to be taken into account.
Income Tax Rates
| Taxable Income (US$) | 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 |
An additional gradual-adjustment tax can apply where net taxable income exceeds $500,000.
The previous statement that a nonresident is required to file only when gross income exceeds $3,300 should be removed. Current filing requirements are more nuanced and depend on factors including gross income, exemptions, withholding and alternate basic tax.
Capital Gains
Long-term treatment generally applies to capital assets held for more than one year. The general Puerto Rico preferential rate on long-term capital gains is 15%, while short-term gains are subject to the ordinary graduated income-tax rates.
Special withholding rules apply to nonresident sellers. A nonresident foreign individual is generally subject to 25% withholding in connection with long-term capital gains, while a nonresident U.S. citizen is generally subject to a 15% withholding rate.
The withholding should not simply be described as the investor's final capital-gains tax. It is important to distinguish withholding collected in connection with the transaction from the ultimate tax liability. Puerto Rico's Treasury also provides procedures under which a nonresident property seller may obtain a refund or release of amounts withheld where the statutory conditions are satisfied.
Corporate Taxation
A foreign corporation engaged in a Puerto Rico trade or business is generally taxed at the regular Puerto Rico corporate rates on effectively connected Puerto Rico-source income. A foreign corporation that is not engaged in a Puerto Rico trade or business is generally subject to 29% withholding on Puerto Rico-source gross income that is not effectively connected with a Puerto Rico business.
For an ordinary corporation, the corporate income tax consists of an 18.5% normal tax plus a graduated surtax. The surtax is calculated after a $25,000 surtax deduction and ranges from 5% to 19%, producing a maximum nominal combined corporate income-tax rate of approximately 37.5%.
Long-term corporate capital gains are subject to separate capital-gain rules; the current headline corporate capital-gains rate is 20%, rather than the 15% stated in the original text.
Property Buying and Selling Costs
| Cost Item | Rate or Amount | Who Pays? |
| Property Transfer Tax | 2.00% | Buyer |
| Agent Fee | 4.00% - 6.00% | Seller |
| Legal | 0.50% - 1.00% | Buyer |
| Notary | 0.50% - 1.00% | Buyer |
| Costs Paid By Buyer | 3.00% - 4.00% | |
| Costs Paid By Seller | 4.00% - 6.00% | |
| Roundtrip Cost | 7.00% - 10.00% | |
| Source: Global Property Guide, Deloitte, PWC | ||
Property Taxation
Real property in Puerto Rico is subject to an annual property tax administered by the Municipal Revenue Collection Center (CRIM). The tax is based on the property's taxable assessed value, rather than directly on its current market value.
Puerto Rico's system is unusual because assessed values are generally determined using a statutory valuation framework based on 1957 property values. Consequently, the taxable assessed value can be substantially lower than the property's current market value.
The applicable property-tax rate varies by municipality and consists of several components, including the basic property-tax rate and applicable municipal rates. Combined rates are commonly around 8% to 12% of the CRIM assessed value, depending on the municipality and property classification.
These percentages should not be interpreted as 8%–12% of the property's current market value. Because the CRIM assessed value is generally much lower than modern market value, the effective property-tax burden as a percentage of current property value is usually considerably lower.
