Puerto Rico

Ease of Doing Business Rank: 65

Overview

 

Geographic location

The Commonwealth of Puerto Rico is a group of Caribbean islands. The country lies east of the Dominican Republic, west of the Virgin Islands and north of Venezuela.

Spoken language

The official languages of Puerto Rico are English and Spanish. Spanish is the dominant language spoken by over 95% of the population.

Non-indigenous languages include French, German, Italian, Chinese, Haitian-Creole and Hindi.

Population

The 2019 population estimate is 3.68 million.

According to 2010 data, San Juan is the largest city (395,326), followed by Bayamón (208,116) and Carolina (176,762).

Popular industries

The top industries in Puerto Rico are pharmaceuticals, electronics, textiles, petrochemicals, processed foods, clothing, textiles, finance, insurance, real estate and tourism.

Education

Puerto Rico’s educational system closely resembles the U.S. system, but classes are taught in Spanish.

The Times Higher Education World Rankings includes the University of Puerto Rico among the top 1,000 in the world.

Popular entity types

The most common type of business entities in Puerto Rico are Sole Proprietorship, Limited Liability Company, Corporation, Partnership and Limited Liability Partnership.

The overwhelming majority of businesses are in the form of a Limited Liability Company.

Puerto Rico incentives for business

Puerto Rico offers a reduced CIT rate under two scenarios to qualifying companies. The general scenario provides a 4% corporate income tax rate and a 12% withholding tax on royalty payments. The withholding tax can be credited against corporate income tax due.

Alternatively, companies can elect to pay 8% corporate income tax and a 2% withholding tax. The withholding tax is creditable against corporate tax.

The country offers additional options such as a 4% fixed income tax rate on Incentive Development Income, a 1% corporate tax rate for pioneering industries and a corporate tax exemption on investments in Puerto Rican intangible property.

Qualifying businesses operating in a ‘low or intermediate development zone’ may reduce their CIT by 5%. Specific areas offer exemption from all income taxes during the first ten years of operations and 2% CIT thereafter.

Puerto Rico also provides qualifying companies with either 4% CIT on export services income or 3% CIT when they generate more than 90% of their gross income from strategic export services.

The country also offers special deductions for capital investment in buildings, structure, machinery and equipment, particularly for the creation of energy, strategic projects such as dams and the revitalization of failing businesses.

Companies creating employment in Puerto Rico may also qualify for a credit of up to $5,000 US per employee. Eligible investments in R&D may qualify for a 50% credit.

Puerto Rico also provides a 90% property tax exemption on personal and real property owned by qualifying taxpayers. Eligible services may also qualify for a 100% exemption on property taxes for the first five years of operation and 90% thereafter.

The country also give companies the option to claim either a foreign tax credit or a deduction on taxes paid to any foreign country or a U.S. state. Credits cannot be carried forward.

History & Features

 

Main cities for business

San Juan is the capital city and financial center of the country.

Popular historical & tourist attractions

Puerto Rico is a tropical Caribbean destination with sandy beaches and warm waters. However, it also has many notable cultural sites including the UNESO San Juan National Historic Site.

The Old Town in the capital city includes hundreds of restored 16th– and 17th-century Spanish colonial buildings as well as La Fortaleza, the oldest executive mansion in continuous use on the American continent.

Puerto Rico also has many areas of outstanding natural beauty. El Yunque National Forest includes La Coca Falls which cascades 85-feet onto impressive boulder formations below.

Just eight miles offshore you’ll find one of Puerto Rico’s small islands, Vieques. Boutique hotels, restaurants, shops and galleries along the 8-mile sandy beach are a favorite destination for tourists and Puerto Ricans. However, the area has managed to retain a small-island feel since it is free of high rises and large hotels. The island’s highlight is Bioluminescent Bay where visitors can view huge concentrations of phosphorescent single-celled aquatic organisms illuminating the water.

Rincón is an English-dominated area of Puerto Rico known for great surfing, swimming and sandy beaches. It is also a popular humpback whale watching area between mid-January and March.

The Rio Camuy Cave Park is a huge cave system spanning 268 acres. In includes Cueva Clara, a 200-foot deep chamber with a massive expanse of stalagmites, stalactites and a river rushing along its base.

History

Puerto Rico’s earliest native population was the Taíno. In 1493, Christopher Columbus carried Taíno natives back to their region and claimed the island for Spain. By 1508, Ponce de León had founded a settlement on the island’s northern coast called Caparra.

In 1521, the settlement was renamed Puerto Rico (rich port). Eventually, people referred to the entire island as Puerto Rico and the port city became San Juan.

The Spanish imported many African slaves during the 16th century to produce sugar cane, ginger, tobacco and coffee. They also fortified San Juan, built a palace for the governor and two additional forts.

Under Spanish colonial rule, Puerto Rican autonomy varied over the centuries. However, by the mid-19th century Puerto Rico joined other South American colonies during a wave of independence movements. An uprising ensued; however, the Spanish quashed the rebellion.

Puerto Rico was an important stepping-stone during the passage from Europe to Central and South America. However, Spain’s power weakened and Puerto Rico and Cuba were their last remaining colonies.

Spain wanted to regain control of the lands lost to their rivals on the American continents. They offered free land to Europeans, providing residents swore allegiance to the Spanish Crown.

However, the United States occupied Puerto Rico during the Spanish-American War of 1898. The war ended and Spain ceded Puerto Rico and other territories to the United States.

Civil government began in 1900. By 1917, Puerto Ricans became U.S citizens. In 1948, Puerto Ricans elected their own governor and in 1952 the country became a U.S. commonwealth, free to self-govern.

U.S. and Puerto Rican governments jointly launched ambitious industrialization efforts which led to growth in manufacturing and tourism. However, agricultural activities declined and between 1950 and 1970 a quarter of the island’s population migrated to the United States.

Today, Puerto Rico remains a territory of the United States with commonwealth status. The country experienced a severe economic crisis in 2015, compounded by the devastation of powerful hurricane Maria in 2017. Puerto is currently rebuilding its infrastructure and economy.

Other relevant facts

According to 2010 data from Pew Research Center, most Puerto Ricans identify as Roman Catholic (69.7%), followed by Protestant (25.1%), other Christian (1.9%) and other religions or irreligious.

The CIA World Factbook reports most Puerto Ricans identify as White (75.8%), followed by Black/African (12.4%) and other ethnicities (8.5%).

Additional Information for Business

A report by the Center for Economic Renewal, Growth and Excellence scored Puerto Rico 61/100 in capability to generate economic activity. They found the small private sector, high government and pension deficits and energy costs and declining population restrict Puerto Rico’s economy.

World Bank’s “Doing Business” rankings rate Puerto Rico 65th for ease of doing business in the world.

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