Share with your friends

Puerto Rico

Puerto Rico

Thinking beyond borders


Related content

Harbor at the coast of ocean

A person's liability for Puerto Rican tax is determined by residence status for taxation purposes and the source of income derived by the individual. Income tax is levied at progressive rates on an individual's taxable income for the year, which is calculated by subtracting allowable deductions from the total assessable income.

Key message

Extended business travelers are likely to be taxed on employment income relating to their Puerto Rican workdays.

Income tax

Liability for income tax

A person’s liability for Puerto Rican tax is determined by residence status. A person can be a resident or a non-resident for Puerto Rican tax purposes. An individual is presumed to be a resident of Puerto Rico if the individual spends more than 183 days in a calendar year in Puerto Rico. However, domicile will have a greater role in determining whether the taxpayer will be considered a resident or non-resident for Puerto Rican income tax purposes.

The general rule is that a person who is a resident of Puerto Rico is taxed on the individual’s worldwide income. Non-residents are generally taxed on income derived directly or indirectly from sources within Puerto Rico. Although Puerto Rican nationals are US citizens, bona fide residents of Puerto Rico are exempt from US federal income tax on income derived from sources within Puerto Rico.

Extended business travelers are likely to be considered non-residents of Puerto Rico, for income tax purposes.

Definition of source

Employment income is generally treated as Puerto Rican – sourced compensation when the individual performs the services while physically located in Puerto Rico. It is not where the wages are paid from that determines the source, but rather where the services are performed.

Tax rates

Net taxable income is taxed at graduated rates. The tax rates range from 7 percent up to 33 percent. Non-residents are subject to the same graduated tax rates on compensation income. In most cases, the highest tax bracket is reached once taxable income reaches 61,500 US dollars (USD), which is 33 percent.

For taxable year2019, the highest tax bracket will be reached once the taxable income reached USD61,500.

Social security

Liability for social security

Puerto Rico is covered under the US federal social security rules.

Social security tax (established by the Federal Insurance Contributions Act (FICA)) is imposed on both the employer and employee. FICA is assessed on wages paid for services performed as an employee within the US or Puerto Rico, regardless of the citizenship or residence of either the employee or employer. The employee portion of the tax may not be deducted in computing US income tax.

FICA consists of the old age, survivors, and disability insurance tax (OASDI) and Medicare tax (hospital insurance part). The OASDI rate is 6.2 percent on all wages up to USD137,700 (for the year2019). This cap is adjusted annually. The Medicare tax rate is 1.45 percent, imposed on all wages without a cap. In addition, employees must pay an additional Medicare Tax at the rate of 0.9 percent on wages in excess of a threshold determined by their filing status. The thresholds are: USD250,000 for married taxpayers filing jointly, USD125,000 for married taxpayers filing separately, and USD200,000 for single taxpayers and heads of households.

Foreign national employees may be exempt from FICA pursuant to a totalization agreement between the US and the employee’s home country/jurisdiction.

Totalization agreements eliminate dual coverage and contributions for foreign nationals working in the US for limited time periods. In addition, some non-resident visa holders (specifically, F, J, Q, and M visas) may qualify for exemption from FICA.

The contribution rates are summarized as follows:.

Paid By

Type of insurance




Social security








Total percent




*Note: 0.9% of Additional Medicare Tax may be imposed.

Source: KPMG in Puerto Rico, 2019

Compliance obligations

Employee compliance obligations

 Generally, tax returns are due by 15 April of the following year, assuming the taxpayer is on a calendar basis. Foreign taxpayers will generally not be required to file a tax return if their entire tax liability was fully satisfied by Puerto Rican withholding.

Employer reporting and withholding requirements

Withholdings from employment income are covered under the Pay-As-You-Go (PAYG) system. If an individual is taxable on employment income, the employer has a PAYG withholding requirement.


Work permit/visa requirements

 Generally, Puerto Rico follows the same immigration laws as the US. A visa must be applied for before the individual enters Puerto Rico. The type of visa required will depend on the purpose of the individual’s entry into Puerto Rico.

Foreign nationals generally must obtain visas at American embassies and consulates to enter the US. A waiver of the visa requirement is available to nationals of most developed countries/jurisdictions if a trip is brief and for tourism or non-employment business purposes.

Individuals coming to the US or Puerto Rico for the purpose of engaging in employment must generally obtain a visa that authorizes such employment. Information on visa and other travel/work document requirements can be obtained from the US embassy or consulate in your jurisdiction or by visiting the US Department of State web site at

Temporary or non-immigrant visas are granted to provide the opportunity of employment in the US or Puerto Rico. Assignees may also be eligible for permanent residence (green card status), which may be based upon the sponsorship by a relative who is a citizen or a green card holder. Additionally, green cards may be issued in connection with permanent employment in the US, in which case, sponsorship by the employer is not unusual.

Most assignees initially work in the US with non-immigrant visas. Certain non-immigrant visas provide work authorization for employment in the US, as well as for the assignee’s spouse and dependents. If, however, a particular visa does not provide for work authorization for the assignee’s spouse or dependents in the US, they would need to obtain their own employment visas to be eligible to work in the US. Because there are many different visa categories, which are applicable to different employment relationships, we recommend obtaining professional assistance from an experienced law firm if the company does not have qualified professionals on staff.

The following lists examples of non-immigrants, by alien classification, who are authorized to work in the US and Puerto Rico without specific authorization from the US Citizenship and Immigration Services (USCIS). This listing is abbreviated and, therefore, not all-inclusive. The alien’s I-94 will not have the USCIS employment authorization stamp, and the alien will not have an Employment Authorization Document (EAD).

For the L-2 classification, the spouse is also authorized to work without specific Department of Homeland Security (DHS) authorization. The L-2 spouse is not required to apply to DHS for an EAD card as documentary evidence of work authorization but may choose to do so.

Class of admission



Academic student visa – for on-campus employment and designated school official (DSO) authorized curricular practical training


Visa for foreign professionals sponsored by a US employer to work in specialty occupation


Visa for individuals participating in work and study based on approved exchange visitor programs


Temporary work visa for intra-company transferee


Temporary work visa for the spouse of an Intra-company transferee

Source: KPMG in Puerto Rico, 2018

Other Issues

Double taxation treaties

 Income taxes paid or accrued to the US and its possessions or to foreign countries/jurisdictions during the taxable year may be credited against the Puerto Rican income tax in order to avoid double taxation. As a general rule, only residents are in a position to claim the foreign tax credit against their Puerto Rican tax because, in principle, only they are subject to Puerto Rico taxes on their worldwide gross income. The foreign tax credit is subject to two limitations, a per-countryjurisdiction limitation and an overall limitation.

Permanent establishment implications

There is the possibility that a permanent establishment could be created as a result of extended business travel, but this would depend on the type of services performed and the level of authority the employee has.

Indirect taxes

Puerto Rico assesses a combined 11.5 percent sales and use tax. Taxpayers must register at the local level.

Local data privacy requirements

Puerto Rico follows similar data privacy rules as the US. The data privacy scheme in the US is a collection of federal, state, and industry case law, rules, and practices as a result.

For example (these are not comprehensive examples):

  • The Office of Management and Budget plays a limited role in setting policy for federal agencies under the Privacy Act of 1974.
  • The American Institute of Certified Public Accountants and the Canadian Institute of Chartered Accountants have developed a Generally Accepted Privacy Principles framework that companies can follow.
  • The Federal Trade Commission has oversight over some privacy areas.
  • The USA PATRIOT Act, renewed in 2006, addresses some privacy issues.

Exchange control

Puerto Rico does not restrict the flow of currency into or out of the country/jurisdiction.

Non-deductible costs for assignees

Non-deductible costs for assignees include contributions by an employer to non-US pension funds.

All information contained in this publication is summarized by KPMG PR LLC, a US member firm, based on the PR Internal Revenue Code of 2011, as amended, and it’s regulations and the US Internal Revenue Code.

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today