As far as personal income taxation in Puerto Rico is concerned, it is contingent on the residential status of the given individual.
In the case of residents, it can be seen that worldwide income is used in order to calculate the tax liability. It is not contingent on the place as to where it is sourced. On the other hand, as far as non-residents are concerned, they are taxed on the income that has been sourced within Puerto Rico only. As far as services are concerned, it can be seen that they are sourced on Puerto Rico on the basis of where exactly these services are performed. This implies that in the case where the services are partially performed in Puerto Rico, they are likely to be prorated in accordance with the number of workdays spent.
Personal Income Tax Rates in Puerto Rico
The following personal income tax rates are levied in Puerto Rico:
- For an income not over USD 9000: A tax rate of 0% is applicable.
- For a taxable income between USD 9000 and USD 25000: A tax rate of 7% in excess of USD 9000 is applicable.
- For a taxable income between USD 25000 and USD 41,500: A tax of USD 1120, plus a tax rate of 7% in excess of USD 25000 is levied.
- For a taxable income between USD 41,500 and USD 61,500: A tax of USD 3430, plus a tax rate of 25% in excess of USD 41,500 is levied.
- For a taxable income higher than USD 61,500: A tax of USD 8430, plus a tax rate of 33% in excess of USD 61,500 is levied.
Other Personal Taxes in Puerto Rico
In addition to the tax rates mentioned above, there are certain other taxes too that are levied. They are as follows:
- Gradual Adjustment Tax: In the case where the net taxable income is higher than USD 500,000, an additional tax need to be paid. This additional tax is levied at a rate of 5% and it is applied on the excess amount over and above USD 500,000. However, this is also limited to 33% of the personal tax, as well as dependent’s exemption (in addition to USD 8895).
- Alternate Basic Tax: In exception to the personal income tax that individuals have to pay, individuals are also supposed to pay alternate basic tax, in accordance to the set rates. The tax rates for alternate basic tax are given below:
- For an income between 25,000 USD and 50,000 USD: A tax rate of 1% is levied.
- For an income between 50,000 USD and 75,000 USD: A tax rate of 3% is levied.
- For an income between 75,000 USD and 150,000 USD: A tax rate of 5% is levied.
- For an income between 150,000 USD and 250,000 USD: A tax rate of 10% is levied.
- For an income over and above 250,000 USD: A tax rate of 24% is levied.
It must also be noted that Alternate Basic Tax is only supposed to be paid by individuals that are self-employed. This implies that ABT is not supposed to be filed by individuals that have salaries as their source of income. Additionally, there is also an optional tax for self-employed individuals that sell services. For these individuals, the following tax rates are levied:
- For an income less than USD 100,000: A tax rate of 6% is levied.
- For an income between USD 100,000 and USD 200,000: A tax rate of 10% is levied.
- For an income between USD 200,000 and USD 300,000: A tax rate of 13% is levied.
- For an income between USD 300,000 and USD 400,000: A tax rate of 15% is levied.
- For an income between USD 400,000 and USD 500,000: A tax rate of 17% is levied.
- For an income greater than USD 500,000: A tax rate of 20% is levied.
However, these rates are only applicable in cases where the source of income is from rendering services.
Corporate Income Taxation in Puerto Rico
For corporations that are considered to be resident corporations (or, domestically incorporated establishments), worldwide income is used in order to calculate tax base. On the other hand, any foreign (or non-resident) companies in Puerto Rico are taxed on the income that results from their business or operations in Puerto Rico. If the entity is classified as a non-resident corporation, they are also subject to a 29% Withholding (WHT) Tax that is levied on the Puerto Rico source of income.
As far as the Corporate Income Tax Rate is concerned, the applicable effective rate is set at 18.5% in the form of normal tax, as well as a graduated surtax.
The surtax income can be defined as the net taxable income that is subject to regular taxes, minus surtax deductions that is equivalent to an amount of USD 25,000. The graduated surtax is applied at the following rates:
- For an income up to USD 75,000: A surtax of 5% is levied.
- For an income between USD 75,001 and USD 125,000: A tax of USD 3750, plus a 15% surtax is imposed.
- For an income between USD 125,001 and USD 175,000: A tax of USD 11,250, plus a 17% surtax is imposed.
- For an income between USD 175,001 and USD 225,000: A tax of USD 19,250, plus a 17% surtax is imposed.
- For an income between USD 225,001 and USD 275,000: A tax of USD 27,750, plus an 18% surtax is imposed.
- For an income higher than USD 275,000: A tax of USD 36,750, plus a 19% surtax is imposed (in lieu of a nominal tax rate amounting to 37.5%)
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) includes various different AMT adjustments that are used in order to calculate the minimum tax liability. In this regard, the minimum tax is levied at a rate of 18.5% (at a flat rate), or 23% (in the case where taxpayers are further required to submit their financial statements).
Tax on Dividends
There is also a 10% levy on the amount that is declared as deemed dividends for a given financial year.