An Overview of Main Corporate Taxes in Selected Jurisdictions - Puerto Rico

Author:Mr Fernando Goyco-Covas
Profession:Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C.
 
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Treaty Taxation

Puerto Rico is a territory of the United States that is not empowered to enter into tax treaties with other countries. The tax treaties of the United States generally do not include Puerto Rico taxes

Income Tax

1.1.1.Income Tax Rate.

The corporate income tax is the higher of a regular tax ranging between 20% and 39% of net income and an alternative minimum tax of 22 % of "alternative minimum net income". For taxable years ending prior to January 1, 2012 the 39% rate is increased to 40.95%.

1.1.2.Net Income and Alternative Minimum Net Income.

In general, net income is the excess of "gross income" over the sum of "deductions" and a credit for dividends received ranging between 85% and 100% of the dividend. "Gross income" embraces all revenues, other than those specifically excluded by-law, and "deductions" are basically all ordinary and necessary expenses incurred to generate the gross income.

Alternative minimum net income is the net income, as defined above, adjusted to reflect essentially the economic net income of the corporation or partnership.

1.1.3.Depreciation.

A reasonable amount may be deducted from gross income for exhaustion, wear and tear and normal obsolescence of property used in the corporation's or partnership's trade or business or held for the production of income. Generally, depreciation is allowable only for tangible or intangible property that has a limited useful life of more than one year. However, the cost of acquiring goodwill may be depreciated during a 15 year period.

The straight line method (i.e., cost or other basis of property less estimated salvage value divided by estimated useful life) or any other recognized trade practice, may be used to compute the depreciation deduction.

Generally, assets may also be depreciated under the accelerated cost recovery method. Under this method assets may be depreciated during period ranging from 5 to 35 years. Assets that qualify as 5 year or 10 year property may be depreciated using a 200% declining balance method, and assets that qualify as 15, 20, 30 or 35 year property may be depreciated using a 150% declining balance method.

1.1.4.Transfer Pricing.

Puerto Rico transfer pricing rules are based on the rules of section 4 82 of the United States Internal Revenue Code of 1986, as amended (the "US-Code"). In general, the Puerto Rico Treasury Department may adjust the transfer price for goods or services among related parties (i.e, parties that, directly or indirectly, control, are controlled by or are under common control with the other pay by way of stock ownership, contractual provisions or otherwise), if it is not fixed on an arm's length basis (e.g., the price that an unrelated party would charge in similar circumstances).

1.1.5 Tax Losses Carryforward /Carryback.

Net operating losses may be carried forward until exhausted to the succeeding seven (7) taxable years. No carryback of net operating losses is allowed.

Generally, the net operating loss may only be used by the corporation or partnership that incurred the loss. A corporation that acquires all or substantially all of the assets of the corporation or partnership that incurred the losses in certain corporate...

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