Published on and written by Cyril Jarnias
Moving abroad and starting a business is an ambitious project. In Puerto Rico, this project takes on a unique dimension: a U.S. territory, its own tax system, massive incentives for entrepreneurs, and a bilingual market oriented toward the United States and Latin America. For an expatriate, it’s a rare combination of “made in USA” legal security and tax benefits worthy of an offshore jurisdiction.
This guide details the legal, tax, administrative, and practical framework for expatriates looking to create and develop a business in Puerto Rico, focusing on the opportunities offered by the Incentives Code (Act 60).
Why Puerto Rico Attracts Expat Entrepreneurs
Setting up your company in Puerto Rico is first and foremost about choosing a hybrid territory: legally American, fiscally distinct, and geographically at the crossroads of the Americas.
The island is a Commonwealth of the United States, with a local government but subject to U.S. federal law in key areas such as currency, banking, intellectual property, and labor law. Transactions are conducted in dollars, banks are supervised by the New York Fed, and deposits are insured by the FDIC. This environment offers expatriates the U.S. economic ecosystem, combined with a specific tax regime and attractive incentives for capital and talent.
From an economic standpoint, Puerto Rico is gradually emerging from a long recession, with a return to growth, rising wages, and a very dynamic real estate market. The economy is driven by heavy manufacturing (especially pharmaceuticals), a developing services sector, and tourism worth several billion dollars annually. The workforce is bilingual (Spanish/English), relatively skilled, and competitive compared to the U.S. mainland.
Puerto Rico benefits from excellent air connectivity with major U.S. cities, modern telecom infrastructure including 5G and high-speed internet, and a dense network of coworking spaces, particularly in the San Juan area. These advantages explain the island’s growing appeal for digital nomads and remote-working entrepreneurs who choose to set up their lives and sometimes their businesses there.
For expatriates, the decisive argument remains taxation: Act 60 concentrates a series of preferential regimes for service export businesses, individual investors, innovative projects, and certain industrial activities. When used effectively, these provisions allow you to align your effective tax rate with extremely low levels, all while remaining under the U.S. legal umbrella.
Understanding the Legal Framework: Who Registers What, and Where?
Before tackling the tax structure, you need to master the legal foundation of starting a business in Puerto Rico.
The core of the system is the Department of State, which administers the Registry of Legal Entities. This electronic registry, operational since June 2022, centralizes information on all legal entities—local or foreign—that conduct business on the island.
In summary, two main categories of entities must be registered there:
In Puerto Rico, two types of companies are distinguished: domestic companies, created under Puerto Rican law (such as corporations, LLCs, or partnerships), and foreign companies, created under another jurisdiction (e.g., in Delaware or France) but conducting business on Puerto Rican territory.
The legal basis rests notably on: current statutes, regulations, case law, international conventions, administrative acts, and general principles of law.
| Legal Reference | Main Content |
|---|---|
| Act No. 55‑2020 | New Civil Code, including general rules on legal persons |
| Act No. 164‑2009 | General Corporations Act, inspired by Delaware corporate law |
| Regulation 8688 | Electronic rules for registering corporations and entities |
Entities created after June 2, 2022 must be registered. Those formed before this date are “strongly encouraged” to do so, but it is not a condition for the company’s validity.
For capital companies (corporations, LLCs), registration in the registry has no constitutive effect: the creation of the legal entity is governed by specific laws (General Corporations Act, etc.). The registry primarily ensures publicity and transparency. Failure to register results in penalties, particularly on the ability to act, such as the inability to file a lawsuit if the business operates without authorization.
Finally, the Puerto Rican Constitution imposes a specific rule for professional corporations: if the main purpose of the company is to provide a service related to a regulated profession (lawyer, doctor, engineer, etc.), you must comply with the specific regime for professional corporations.
Choosing the Right Structure: Corporation, LLC, Sole Proprietorship…
For an expatriate, choosing the legal form is strategic, as it determines asset protection, management flexibility, taxation, and access to Act 60 incentives.
The Most Common Forms
The most frequent structures in Puerto Rico are:
– Corporation (C‑corp by default)
– Limited Liability Company (LLC)
– Sole Proprietorship
– Partnerships (general, limited, LLP)
The general logic is comparable to that of the U.S. mainland.
Corporation
A corporation is a legal entity separate from its shareholders, with a board of directors and, in principle, perpetual existence. It offers strong asset separation and allows an unlimited number of shareholders. Several subtypes exist:
Overview of the different corporate structures available in Florida, each suited to specific goals and constraints.
Basic structure defined by its primary purpose: generating profits for shareholders or serving a mission without seeking profits.
A ‘domestic’ corporation is formed in Florida, while a ‘foreign’ one is formed in another state or country but operates in Florida.
A closed corporation, limited to a maximum of 75 shareholders, often used for family businesses or small teams.
Reserved for members of regulated professions (doctors, lawyers, etc.) to practice their activity as a corporation.
A type of company where pursuing a public or social interest goal takes precedence over maximizing profits for shareholders.
This form is often preferred for projects requiring investors, successive funding rounds, or structured governance.
LLC
The LLC is a hybrid structure that combines the limited liability of a corporation with the contractual flexibility of a partnership. It can be formed by one or more persons, with no member limit.
Under Puerto Rican tax law, an LLC is taxed as a corporation by default, but can opt for pass-through taxation by making a classification election with the IRS and the local Treasury. An expatriate looking to optimize their personal taxation can thus choose between:
– taxation at the company level (local corporate rate + possibly Act 60), or
– direct taxation on their personal return (if advantageous).
Sole Proprietorship and Partnerships
A sole proprietorship requires no formation formalities: you simply operate under your own name. But there is no legal separation between the entrepreneur and their activity, exposing all personal assets to business risks. This status is more suitable for modest or temporary activities.
Partnerships (general, limited, LLP) are created by a contract between at least two persons. Tax-wise, they are pass-through entities: profits are taxed directly in the hands of the partners. Some forms, like limited liability partnerships (LLPs), offer limited liability protection for partners but are subject to specific registration formalities.
Comparative Summary for an Expatriate
| Form | Liability | Default Taxation | Who is it for? |
|---|---|---|---|
| Corporation | Limited to contributions | Corporate rate (18.5% + surtax, or 4% with eligible Act 60) | Ambitious projects, fundraising, “US-style” structure |
| LLC | Limited to contributions | Corporate rate, pass-through option available | Entrepreneurs seeking flexibility and tax optimization |
| Sole Proprietorship | Unlimited | Personal income tax | Small freelancers, market testing, low-risk activity |
| Partnership / LLP | Varies by type | Pass-through taxation | Partners wanting to share risks and profits |
To fully benefit from Act 60, LLCs and corporations are by far the most relevant vehicles.
The Creation Process: From Company Name to First Permits
Once the structure is chosen, creation follows a path guided by the Department of State and the Treasury.
1. Choose and Reserve the Business Name
The company name must be distinct from any entity already registered in Puerto Rico. A public tool, the Puerto Rico DOS Corporations Search, allows you to check name availability.
Each form requires specific suffixes:
– A corporation must include “Corporation,” “Incorporated,” “Corp.,” “Inc.,” etc.
– An LLC must include “LLC” or an equivalent abbreviation.
Number of days a name can be reserved by filing an online request with the Department of State.
| Type of Structure | Name Reservation Fee |
|---|---|
| LLC | $75 |
| Corporation | $10 |
Additionally, it is highly recommended to check the USPTO trademark database to avoid conflicting with a preexisting federal trademark.
2. Register the Entity with the Department of State
The entire formation process is completed online via the official portal:
Disclaimer: The information provided on this website is for informational purposes only and does not constitute financial, legal, or professional advice. We encourage you to consult qualified experts before making any investment, real estate, or expatriation decisions. Although we strive to maintain up-to-date and accurate information, we do not guarantee the completeness, accuracy, or timeliness of the proposed content. As investment and expatriation involve risks, we disclaim any liability for potential losses or damages arising from the use of this site. Your use of this site confirms your acceptance of these terms and your understanding of the associated risks.
Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
