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.
Shipping – The Differences and Similarities of Mail and Express Shipping Services in Puerto Rico vs. the U.S.
Shipping to Puerto Rico has its challenges. You can expect some delays, and there are some online stores that don’t ship to PR – it’s always good to check this up front on a new online shopping site.
The USPS mail service is used in Puerto Rico and standard mail rates apply in Puerto Rico as they would in the US. USPS is often the fastest and least expensive option! It’s very reasonably priced compared to FedEx, UPS, and any other Express mail services. Packages sent via USPS generally arrive very quickly, sometime faster than interstate mail.
There are post offices all over the island and like their U.S. counterparts, they also complete U.S. Passport services. For Expedited and/or special passport services you should locate the nearest Federal office in Puerto Rico. https://travel.state.gov/content/travel/en/passports.html
For those shopping on Amazon, Prime shipping does apply in Puerto Rico although standard Prime items tend to take an average of 5+ days to arrive. However, some sub-vendors under Amazon don’t ship to Puerto Rico, so be sure to go all the way through to the shipping section at checkout, to check on whether your selected items can reach you in Puerto Rico. In some cases it is not until check-out that you may find an item cannot be shipped to Puerto Rico.
The FedEx/UPS and other express mail services in Puerto Rico treat Puerto Rico as an “international” location and all shipping rates are international rates. As a result, shipping things via these express services from Puerto Rico tend to be considerably more expensive than these same mail services on the mainland U.S.
Two good local shipping locations to visit for services are:
The Corner Office Business Center in Condado, San Juan, 1357 Ashford Ave. San Juan, PR (787)724-8678
We Can Help
Our company helps people like you take advantage of Puerto Rico’s excellent tax incentives! We can help you determine which tax incentives are right for you, help you plan your residency and relocation strategy, and simplify the entire process for you.
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!
