Puerto Rico is a Commonwealth of the United States. Puerto Ricans get the best of both worlds: gorgeous Caribbean beaches and the benefits of having an American citizenship.
Rental Income: Generally, gross rental income of non-residents is taxed at a flat rate of 29%, withheld by the tenant. Howver, as previously discussed, until December 31, 2020, under Act 132-2010 lessors may claim a 100% exemption from the Puerto Rico income tax on the rental income.
A non-resident alien not engaged in a trade or business in Puerto Rico is generally taxed at a flat rate of 29% (withheld) on Puerto Rican-sourced profits and income including investment income, rental income (discussed above) and capital gains.
Puerto Rico uses the US Dollar (USD)
In Puerto Rico real property is subject on an annual real property tax. Real property taxes are computed based on property values that date back to the fiscal year 1957-1958 (which was the last time that a general appraisal was conducted by the Government of Puerto Rico). The assessment is made as of January 1 of each year by the Municipal Revenue Collection Center (“CRIM”, for its Spanish acronym) by discounting the current fair market value (“FMV”) of the property to the 1957-1958 values. The rates, ranging from 8.03% to 11.83 %, of which vary depending on the municipality where the property is located. For example the rate in Rio Grande for year 2013-2014 is 8.83%. Under Act 216 a 5-year 100% real property tax exemption would be available for residential property acquired on or before August 31, 2015.
Capital gains tax
Earnings of nonresident individuals from the sale of a property are subject to a withholding tax of 25% (10% in the case of US citizens), which is levied on the gross selling price minus the cost of the property and certain selling costs incurred by the seller. This withholding tax can be credited to the nonresident’s final tax liability. The final tax liability is based on the actual capital gain (which includes as a deduction the improvements realized to the property, said improvement costs are not considered for withholding purposes). In the case of US citizens the applicable tax will be 10% on the actual net capital gain and in the case of other non-residents the applicable tax will be 29% on the actual net capital gain, assuming the property has been held for a period in excess of six months.
It is mandatory that a notary prepares the sale and purchase deed. Maximum allowable notary fee is 1% of the property value for the first US $500,000 plus 0.5% of the amount in excess of $500,000.
Registration and filing fees
Several fees must be paid to different offices such as the Municipal Revenues Collection Center (CRIM), Treasury Department and Registry of Property. These fees are minimal and are not expected to exceed 0.75% of property and mortgage value.
Internal revenue stamps
Internal Revenue Stamps are purchased to be canceled on the original of deed of purchase and sale and first certified copy of deed to be filed in the Registry of Property. The notary keeps the original while the certified copy is filed at the Registry. Before applying for registration, filing vouchers for the Registry of Property must be bought first. Internal revenue stamps and vouchers are acquired electronically by lawyers/notaries.
Although not mandatory, it is highly advisable for foreign buyers to hire an attorney or lawyer. Attorney’s fees may vary depending on location and the complexity of the transaction. Most lawyers charge a percentage of the selling price, about 0.5% to 1%, for the real estate transaction and charge a fixed fee or on an hourly basis for consultations and engagements. Each party pays for their own lawyer.