Starting a Business in PR
The biggest question business owners and seasoned entrepreneurs are faced with is how to start a business in PR, and the necessary steps involved. Whether you are here to take advantage of Act 20 and Act 22 tax benefits or not, people have the common misconception that starting a business in Puerto Rico is completely different than in the U.S., which is true only to a certain extent. The rules and processes are relatively similar to those in Miami or Tennessee. And if you feel that Puerto Rico has a slow permitting process, the island ranks 10% out of 189 countries in OECD (Organization for Economic Co-operation and Development) reports, ahead of India and even China.
You can always outsource the entire permitting process through a concierge service, but as a business owner it is a good idea to be educated on the different steps, rules and processes. So without further ado, here are the steps on starting a business in PR.
- Check Uniqueness of Company – First things first. You will have to obtain a business certificate from the PR Department of State. This can be done online along with checking the uniqueness of the company name.
- Getting an EIN (Employee Identification Number) – if you’re a sole proprietor, you don’t have to worry about this one. But apart from that, any business or trade initiated in PR requires an EIN, which can be obtained from the IRS (United States Internal Revenue Service). You can download the form here, and after duly filling it out submit it to the PR Treasury Department using form 4809 along with copy of the certificate of incorporation. Each employee in your business must complete for Puerto Rico tax withholding Form 499-R-4 and submit it as well.
- Merchant Registration Certificate – you will have to apply for this certificate if you wish to start a business or trade in PR, and at least 30 days before your business goes live. This form can be downloaded here, and must also be submitted to the PR Department of Treasury. The certificate once approved and received by you must be clearly displayed at your business in a way that it is visible to the general public. It is important to note that this Merchant Certificate cannot be transferred without prior consent from the Secretary of Treasury.
If you’re going to be dealing with a manufacturing plant or taxable resale items, you can avoid sales and use tax by filling out a Certificate of Exemption. This document is valid for three years and equipped with it will make you exempt from sales tax for those items listed in the certificate.
- Mandatory Business Registration – By July 15 each year, all businesses operating in PR must register with the Compulsory Business Registry. To complete this, you will have to fill out specific statistical information that can be found online.
- Municipal License Taxes – you must obtain a provisional license for the quarter in which you operate by providing a written application to the Director of Finance. However, you do not have to pay tax between the first term of operation between January 1st to June 30th and July 1st to December 31th. The rate of taxes is based on the volume of business, which is a maximum of 5 percent of gross sales.
- Bidders Registry – if you’re going to be doing business with any PR government organization, you will have to enroll with the Bidders Registry. This entails an annual fee and evidence of state and municipal tax payment, which is all managed by the General Services Administration.
- PR Unemployment and Disability account numbers – the Commonwealth of Puerto Rico Department of Labor and Human Resources governs the Unemployment Insurance Tax in PR. You can obtain temporary disability insurance privately and proof of it can be filed with the Department of Labor or you can get it from the Negociado de Seguro de Incapacidad No Ocupacional de los Trabajadores.
- Workmen’s Insurance Policy – the State Insurance Fund Corporation offers Worker’s Compensation Insurance, where insurance activity will differ depending on business activity. This statutory insurance protection is offered to your employees during the duration of their employment in your company. The Puerto Rico State Insurance Fund Corporation dubbed Corporación del Fondo del Seguro del Estado(CFSE) in Spanish governs worker’s compensation in PR as private insurance companies are not allowed to do so.
Accounting and Financial Records
Now that you’ve successfully registered your business in Puerto Rico and are officially a taxpayer, you will have to maintain the respective records for computation purposes. These records must comply with the General Accepted Accounting Principles, which simply state that you as a business owner in PR will have to clearly indicate your investments in the island such as property owned by the corporation and maintain tangible records of gross income, deductions and other details related to your business in the Commonwealth of Puerto Rico.
With regards to audits of financial documentation, businesses in PR that bring in an excess of $300,000 in financial gains must commission a licensed CPA (Chartered Public Accountant) in PR to file their financial statements, business returns, property and income tax. Along with this, eligible businesses must also with the help of their CPA file an annual corporation report and a balance sheet.
Additional Licenses and Permits – if you’re going to be dealing with certain goods such as cement, jewelry, vehicles, duty-free stores, gasoline, cigarettes, etc, you will have to seek additional licenses from the Puerto Rico Treasury Department. With regards to permits, if you’re looking to modify an existing structure or build a whole new one, you must seek prior permission from a certified architect or engineer in the form of blueprints and submit them to the relevant department.
As you can see starting a business is pretty straightforward with streamlined regulations in place. The only challenge you may face is the time it takes to get each one approved. But with PR leveraging the power of the internet rather rapidly, most of the forms and permits can be applied online.