If you are a foreign executive looking to enter the Puerto Rican market, it’s important to understand and comply with corporate compliance obligations in the country. By following local legislation, you can smoothly expand your business in Puerto Rico. Learn all about corporate compliance in Puerto Rico, including how to form a new company and the different types of companies available.
Foreign executives must decide on the type of company incorporation that best fits their needs when entering the Puerto Rican market. They must gather all the required documents and meet the necessary requirements to register their company with the Department of State of Puerto Rico. The most common types of companies in Puerto Rico are Limited Liability Company (LLC) and Corporation.
LLC is the most common type of company and can have one or more people involved in its setup. On the other hand, a Corporation allows the capital stock to be divided into shares that can be transferred. In this type of company, partners are not personally liable for corporate debts. Corporations can be classified as domestic or foreign, and for-profit or non-profit.
Domestic corporations are created under the General Corporations Act of Puerto Rico and are considered corporations of Puerto Rico. Foreign corporations are entities created in another jurisdiction. Foreign corporations must obtain authorization from the Department of State of Puerto Rico by submitting necessary documents, such as a certificate of existence from their jurisdiction of origin, information about the corporation’s assets and liabilities, and names and business addresses of current directors.
For-profit corporations generate economic benefits for owners based on their operation, while non-profit corporations use their proceeds, if any, to promote social benefits. There are also social benefit corporations, which have a social benefit aspect to their business and can distribute net profits to owners if generated.
Partnerships are also an option, where the main company regulates the rules and assumes responsibilities before third parties. Once a company is registered, entrepreneurs must fulfill corporate compliance requirements established in Puerto Rico, such as obtaining an employer identification number, registering with the Department of the Treasury, obtaining a Merchant’s Registry, and opening a corporate bank account.
Corporate compliance in Puerto Rico requires every corporation doing business on the island to have a physical office and at least one resident agent. The resident agent can be an individual or a legal person residing or authorized to do business in Puerto Rico. They are responsible for representing the company and handling official communications. A legal address in Puerto Rico must also be registered for the company to operate, undergo inspections, and receive official notifications.
All corporations must file an annual report with the Department of State by April 15th of each year, containing information such as the name and registration number of incorporation, office addresses, information about officers, and a statement of the corporation’s economic condition. If the business volume exceeds $3 million USD, the report must be audited by a Certified Public Accountant licensed in Puerto Rico.
LLCs, however, do not have to file an annual report. They only need to pay annual fees of $150 USD before April 15th of each year.
Companies operating in Puerto Rico must also fulfill tax obligations, including obtaining a Merchant Registration Number with the Department of Treasury and declaring all financial transactions to determine taxes to be paid. The main taxes that entities must declare and pay are Income Tax, Personal Property Tax, Municipal Patent, and IVU. Labor compliance regulations must also be followed, including paying the national minimum wage, providing paid vacation and sick days, and registering employees with relevant government departments.
Some common questions regarding legal compliance in Puerto Rico include the need for a registered office address for a legal entity, which is required for the receipt of legal correspondence and governmental visits.
If you need assistance with corporate compliance in Puerto Rico, Biz Latin Hub offers comprehensive company formation advice and guidance. Their team of legal and accounting specialists can help you navigate the process and ensure the success of your business operations in Puerto Rico.
