Did you realize that the Puerto Rico labor laws are different in many key ways than in the mainland US? They are substantially more labor-friendly than you might expect. If you own or are starting a Puerto Rico business and have employees in PR, it’s very important to understand these key differences.
Additionally, there have been changes to these laws. Some have favored the employer, but some more recent changes, just passed in June of 2022, are more beneficial to employees.
Some key points
Puerto Rico labor laws are based on “right to work” rather than the “at will” employment in the mainland.
Employees in PR must be paid a Christmas bonus.
Paid vacations, sick leave, and government holidays are dictated by law.
Employment can begin under a probationary period of up to 3 months (which can be extended for up to another 3 months if you get permission from the PR Department of Labor).
Should you need to terminate an employee for cause, it’s important to show a history backing this up.
New Webinar
We had scheduled a webinar on this topic which incorporated the PR labor law changes enacted last year, but a new change is causing us to delay this webinar. A court connected to PROMESA recently declared the new laws void, and the results of this are still being worked out. We will reschedule the webinar once more details become available.
Establishing legal, “bona-fide” residency is the first step in a successful strategy to take advantage of Puerto Rico’s tax incentives. Maintaining it ongoing is also critical! Should you be audited and found to not be in compliance with the Puerto Rico residency requirements, you could be subject to significant back taxes and penalties.
Even if you have already moved to Puerto Rico, you may be at risk of not be fully compliant with the Puerto Rico residency requirements. The IRS is staffing up to focus more on audits of Puerto Rico residents. It is more important than ever to ensure your strategy is sound and that you’re sticking to it.
It is fairly easy to comply with the rules for Puerto Rico residency. Invest a little time in educating yourself, and then check now and then to ensure you are maintaining this all-important part of your tax reduction strategy.
Questions – How to Become a Bona Fide Resident of Puerto Rico
We recently co-hosted a free webinar with an experienced CPA firm, to explain in more detail how to stay compliant with the residency rules so that your PR tax breaks can continue. If you missed it, you can click here to download the PDF and we do intend to schedule a replay in the future.
The webinar discussed topics such as:
What is the minimum you need to do to first establish Puerto Rico residency?
Are there exceptions to the 183-day rule?
Can I keep a house outside of Puerto Rico and still be a legal PR resident?
What happens if the IRS audits you and finds you not to be a bona fide resident of Puerto Rico?
Is there a way to “game the system”? Why is this risky?
What are the benefits of moving to PR?
Does moving to PR automatically mean I will pay lower taxes?
PR Advantage is pleased to offer a free webinar series on transfer pricing!
What is transfer pricing?
Some entrepreneurs who relocate to Puerto Rico have existing businesses that continue after their move, which gives them the opportunity to use a PR Export Services company to provide management and other services from PR. Once they have relocated to PR, formed a new business here, and applied for the Act 60 Export Services tax incentive, their new PR company becomes a service provider to the pre-existing business.
Such business owners may have controlling interest in both companies, which means the relationship of the two businesses is not “arm’s length”, from a tax perspective. If this describes your strategy, you may need to consider transfer pricing. It doesn’t affect everyone who moves to Puerto Rico, but for some business owners, it can be an important consideration. This page provides a bit more detail.
Free Webinar Schedule
Because many of our clients have had questions about transfer pricing, PR Advantage has partnered with an experienced firm to offer a free, educational webinar series about transfer pricing. Come and get your questions answered by an expert who has helped many other Act 60 applicants. We are offering the following timeslots:
Session date
Registration link
Tuesday, February 14, 2023
4-4:30pm PR time (12-12:30pm Pacific time)
Wednesday, February 15, 2023
1-1:30am PR time (12-12:30pm Eastern time)
FAQ
Here are some common questions about this issue, as a preview for what we will discuss on the webinar. We encourage you to send additional questions in advance of the session, to ensure the best chance that we can accommodate them.
Q: What is transfer pricing?
A: Fees paid by a company you own or control to another company you own or control.
Q: Why does it matter?
A: This type of vendor relationship is not “arm’s length”, because you control both sides of the transaction.
Q: When would this affect you?
A: In an audit, transactions that are not “arm’s length” could result in fees, penalties, and back taxes owed.
Q: What can you do about this?
A: Obtain a Transfer Pricing Study from a qualified 3rd party vendor to set the prices one of your companies charges the other company.
Puerto Rico is a land of economic opportunity, endless beaches, a rich culture, and friendly people. The weather is amazing year-round, and Puerto Rico offers many beautiful and safe places to live. Let us help you discover the many benefits and joys that life in Puerto Rico has to offer!