Tax system in Puerto Rico
Puerto Rico is a U.S. territory with its own independent income-tax system. Hacienda administers local income tax, corporate tax, IVU sales and use tax, excise taxes and transfer taxes.
Bona fide residents generally report worldwide income to Puerto Rico. For U.S. federal income tax, Section 933 generally excludes Puerto Rico-source income for a bona fide resident, but U.S.-source income, U.S. government pay and filing-status changes can still create a federal return.
The headline rate is not the full cost. Payroll taxes, IVU, municipal property tax, municipal business-license tax and the alternative basic tax can materially change the result.
Tax rates at a glance
- Individual income tax
- 0% - 33%Progressive
- Corporate income tax
- Up to 37.5%
- Long-term capital gains
- 20%
- Eligible dividends
- 15% generally
- Wealth tax
- 0%
- IVU sales and use tax
- 11.5%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
EmployeesU.S. citizens planning a moveInvestorsExport-service foundersBusinesses with Puerto Rico substance
Watch out for
- Puerto Rico is not a sovereign country. Residency, citizenship, federal filing, estate tax and treaty analysis can involve both Puerto Rico and the United States.
- Act 60 incentives are decree-based and activity-specific. A move to Puerto Rico does not automatically produce a 4% business rate or a capital-gains exemption.
- Bona fide residence requires more than renting an apartment. Presence, tax home and closer-connection tests matter, especially in the year of arrival or departure.
- The local tax bill can include FICA payroll taxes, IVU, CRIM property tax and municipal business taxes even where an income-tax incentive applies.
Frequently asked questions
Is Puerto Rico a separate tax jurisdiction?
Yes. Puerto Rico has its own tax code and Treasury Department, but it remains inside the U.S. constitutional and federal tax framework.
Do Puerto Rico residents pay U.S. federal income tax?
Bona fide residents generally exclude Puerto Rico-source income under Section 933. U.S.-source income and special categories can still require a U.S. federal return.
Is Puerto Rico tax-free?
No. Puerto Rico has individual, corporate, capital-gains, dividend, sales, property, payroll and transfer taxes. Incentives apply only when their conditions are met.