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Setting Up A Sole Proprietorship In Puerto Rico

Puerto Rico is an unincorporated island territory of the United States of America, yet it has its republican form of government. Economically, the US territory is a hotbed for business innovations, with the largest economy by GDP in the Caribbean. 

The Commonwealth of Puerto Rico inherits nearly 6+ decades of excellence in bioscience and offers investment opportunities in various sectors, from technology, financial & professional services to entrepreneurship.

Any resident or non-resident individual seeking legal recognition for their self-employed activities or is willing to engage in local commercial activities without much legal hassle can set up a sole proprietorship in Puerto Rico. 

Incorporating a sole proprietorship in Puerto Rico requires you to file a DBA (doing business as), and register trading names with the Registry of Businesses at the Puerto Rico Treasury Department. You also need to obtain the U.S. Employer Identification Number for tax reporting and payroll obligations. 

Read on to learn about registering a sole proprietorship in Puerto Rico and explore alternate global solutions for business expansion. 

Do you Have to Register Your Sole Proprietorship in Puerto Rico? 

Puerto Rican law assumes self-employed residents are sole proprietors if they don’t form a legal business entity. You can register a sole proprietorship in Puerto Rico to do business under a trading name, hire employees, and manage their payroll obligations legally. 

Entrepreneurs, contractors, or even freelancers who wish to register self-employed activities in the form of a company with a legal personality may set up sole proprietorships

The following sections elaborate more on the benefits & procedure to set up sole proprietorships in Puerto Rico.  

Benefits of Sole Proprietorship in Puerto Rico

The sole proprietorship Puerto Rican law does not distinguish between you and your business in Puerto Rico. The proprietor bears all risk liabilities like losses, legal & other compliance.  

While it may be a caveat for further business expansion, setting up a sole proprietorship in Puerto Rico ensures the following benefits for global companies and entrepreneurs: 

Inexpensive to maintain

  • A sole proprietorship in Puerto Rico costs nearly zero, with minimum to nil document filing and legal obligations.
  • Sole proprietorships need not observe legal formalities such as voting and meetings associated with other business structures. Business owners can combine personal assets without formal explanation, thus simplifying business financing.   

Minimum accounting and tax reporting

  • Sole proprietorships are not obliged to record bookkeeping, thereby lowering maintenance costs. 
  • Sole proprietorship taxes in Puerto Rico are the same as that of personal income tax obligations. 

Operate under a different trade name

  • Sole proprietorships in Puerto Rico allow entrepreneurs or freelancers to conduct business under assumed names other than their own. 
  • Registering a sole proprietorship in Puerto Rico can safeguard your intellectual property, otherwise usually associated with advanced forms of business entities. 

U.S. jurisdiction 

  • Business expansion in Puerto Rico offers the same operational security, stability, and protections available in the United States.
  • These include banking credibility and protections by the Federal Deposit Insurance Corporation (FDIC), intellectual property, patent protection, etc. 
  • Sole proprietors in Puerto Rico enjoy better market reach to the United States, Latin America, and Europe and also benefit from the digitally fluent workforce, with more than 60% of university graduates in the STEM fields. 

Further, Puerto Rican government offers tax incentives to business investments in energy efficiency, research and development, and acquisition of machinery and equipment.

Documents Required for Registering Your Business in Puerto Rico

The General Corporations Act of 2009 governs the setting up of legal business entities, including sole proprietorships in Puerto Rico. 

The law is modeled after the General Corporations Law of the State of Delaware and includes corporate organization, capitalization, and governance requirements to register a business entity. 

The following documents are required for setting up a sole proprietorship in Puerto Rico: 

Company documents

  • A locally notarized company agreement & articles of incorporation
  • Marks and Trade Names certificate from the Registry of Businesses at the Puerto Rico Treasury Department
  • A municipal business license in the corresponding municipality within 30 days of commencing business

Tax identification number

  • Federal employer identification number issued by the U.S. Internal Revenue Service and subsequently notified to the Puerto Rico Department of Treasury (PRDT)
  • The tax identification number is mandatory for opening a corporate bank account, payment invoicing, filing tax returns as separate entities, tax payments, and managing payroll.  

Identification documents 

  • Latest certified copies of the company owner’s financial statements 
  • Foreigners eligible to migrate under the U.S. Immigration and Nationality Act can also start a sole proprietorship in Puerto Rico.
  • Identity documents like a passport and photographs are usually required, along with proof of financial stability and a police verification certificate from the home country.

Other Criteria for Registering a Sole Proprietorship in Puerto Rico

Any foreign corporation looking to set up a local business entity including a sole proprietorship in Puerto Rico needs prior authorization from the Department of State.

Certain business activities require additional permits, authorizations, and licenses per other federal or local laws and regulations about environmental protection, land use, health and safety, and infrastructure. For instance, a construction permit from the Office of Permits Management or the Municipal Permits Office may be required to construct or expand existing structures to accommodate a business in Puerto Rico.

How to Register a Sole Proprietorship Firm in Puerto Rico?

In the absence of specific provisions for registering a sole proprietorship in Puerto Rico, we recommend the following steps: 

Step 1: Do your research

  • The easiest option to legally recognize self-employed activities per Puerto Rican law is to start a sole proprietorship.  
  • This is the right time to search for a trading name, business name, and physical location. 
  • Spanish is the first official language here. You may appoint a representative for smooth coordination with the local authorities while setting up a sole proprietorship in Puerto Rico. 

Step 2: Obtain employer identification number 

  • Being an unincorporated territory of the USA, new employers must apply for an Employer Identification Number (EIN). 
  • The U.S. Internal Revenue Service (IRS) issues EIN for federal and local tax purposes, including sole proprietorship Puerto Rican taxes.
  • The EIN must notify the Puerto Rico Department of Treasury (PRDT) and copies of the incorporation certificate within 30 days of commencing operations. 

Step 3: Open a corporate bank account

  • A sole proprietorship in Puerto Rico must open a corporate bank account to manage finances and tax filings efficiently. 
  • Documents required to open a sole proprietorship bank account may vary between internal bank policies. However, EIN is a universal requirement for opening a new corporate bank account. 
  • Choose a bank based on international transaction fees, interest rates on financing, and convenience of access. 

Step 4: Apply to the Puerto Rican Trademark Office

  • You must fill out the application for marks and trade names with the Puerto Rican Ministry before starting operations of your sole proprietorship in Puerto Rico. 
  • This document safeguards your intellectual property. 

Step 5: Plan for hiring & managing employees

  • Employers must account for a social security tax of 12.4%. Employer contribution to social security tax is 6.2% of employee wages.
  • Companies usually develop an in-house HR team of experts or follow standard templates to draft employment contracts, manage payroll, conduct background checks, and ensure compliance with the labor code in Puerto Rico. 

Fortunately, an alternative solution allows you to skip registration for sole proprietorships altogether yet is permitted to conduct business activities legally in Puerto Rico. 

How can Multiplier Help You Carry Out Business in Puerto Rico? 

A sole proprietorship offers the simplest legal solution to engage in various commercial activities in Puerto Rico. 

However, sole proprietorship taxes in Puerto Rico and business risk liabilities are directly linked to the owners. Further, hiring employees, payroll management, and understanding the labor code requirements will require significant investment in time and effort. 

Here is why we propose the use of Multiplier.  

Multiplier is an innovative Employer of Record (EOR) solution for new-age entrepreneurs and global businesses looking beyond just setting up a sole proprietorship. 

Multiplier is a global employment solution designed exclusively for sole proprietors looking to expand globally. It offers reliable EOR solutions to manage recruits, onboard employees, and undertake HR responsibilities in Puerto Rico. 

The highlight among EOR services is that one-click payroll processing can make seamless payments to your international employees and freelancers. 

You can manage any legal entity with 100% compliance with the Puerto Rican business rules and regulations with Multiplier!  

Frequently Asked Questions

There are no restrictions on foreign investment in Puerto Rico. However, all US federal government sanctions on doing business with certain countries apply. Further, industry-specific regulations may apply to foreign investment in Puerto Rico.

Puerto Rico does not have a central bank and relies on the Fed (the US central bank) for regulation. The economy is pegged to the US dollar and is relatively stable. Interestingly, the three largest lenders in Puerto Rico will likely maintain profitability in the next few years, in the likelihood of rising global inflation levels and U.S. recession. The three largest listed Puerto Rican banks are Popular Inc., First BanCorp., and OFG Bancorp.

Despite getting easier credit to run a business in Puerto Rico, the island territory of the US ranks poorly in areas like dealing with permits and paying taxes in the latest World Bank’s doing business index. Furthermore, all businesses in Puerto Rico are now subject to the same federal minimum wage laws as mainland America making local hiring costlier.

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