Taxes in Puerto Rico run on a system separate from the U.S. federal code, with individual income tax rates from 0% to 33%, a combined sales and use tax of 11.5%, corporate tax that can reach about 37.5% before incentives, and property taxes that are modest by mainland standards. Bona fide residents can exclude Puerto Rico-source income from their federal return under Section 933, and businesses or investors with an Act 60 decree can bring their effective rate down to 4% or, for certain investment income, zero.
Individual Income Tax Rates
Puerto Rico taxes residents on their worldwide income using a progressive structure. Rates begin at 0% below the filing threshold and move through 7%, 10%, 15%, and 28% before reaching a top rate of 33% on net taxable income above roughly $61,500 for most filers.1Institute on Taxation and Economic Policy. How Much Are the Tax Rates in Puerto Rico? Married couples filing separately hit the top bracket sooner.
There is no standard deduction. Instead, you claim a personal exemption of $3,500 (or $7,000 if married filing jointly) plus $2,500 for each dependent, with an extra $1,500 for veterans. Common itemized deductions include contributions to a Puerto Rico IRA up to $5,000 per person, medical expenses above 6% of adjusted gross income, and mortgage interest on a primary home, capped at $35,000 or 30% of AGI, whichever is lower.2PwC. Puerto Rico – Individual – Deductions Charitable contributions, student loan interest, and casualty losses on a primary home are also deductible.
The Alternative Basic Tax
On top of the regular income tax, Puerto Rico applies an Alternative Basic Tax (ABT) that functions as a floor for higher earners. The ABT adds back certain items that are exempt under the regular tax and then applies its own graduated rates, from 1% on ABT income between $25,000 and $50,000 up to 24% on ABT income above $250,000.3PwC. Puerto Rico – Individual – Taxes on Personal Income If your only income is wages reported on a withholding statement, the ABT does not apply. It matters most for people with significant investment or tax-exempt income.
Sales and Use Tax
Puerto Rico charges a combined 11.5% sales and use tax, known locally as IVU. Of that, 10.5% goes to the Puerto Rico government and 1% to the municipality.4GOVERNMENT OF PUERTO RICO TREASURY DEPARTMENT. Regulation to Amend Articles on Sales and Use Tax That rate is among the highest in any U.S. jurisdiction.
Prescription medications, including insulin, prostheses, oxygen, and medical devices reimbursable by insurance or government health programs, are fully exempt.5Justia Law. Puerto Rico Code Title 13 – Exemption on Prescription Medications Certain basic food items and sales for resale are also exempt. Professional and business-to-business services carry a reduced rate of 4% rather than the full 11.5%, and service providers with annual revenue under $50,000 are exempt entirely.4GOVERNMENT OF PUERTO RICO TREASURY DEPARTMENT. Regulation to Amend Articles on Sales and Use Tax If you buy something outside Puerto Rico and bring it in for personal or business use, the use-tax component applies at the same 11.5% rate.
Property Taxes
Real property taxes in Puerto Rico are low by U.S. standards, in part because the Municipal Revenue Collection Center (CRIM) still bases assessments on a 1957 valuation methodology rather than current market values.6Financial Oversight and Management Board for Puerto Rico. The CRIM Fiscal Plan – A Road Map to a Fair Property Tax System Millage rates vary by municipality, generally between 8.03 and 11.83 mills (0.803% to 1.183%) of assessed value. San Juan sits near the top of that range; smaller municipalities such as Culebra fall closer to the bottom.
Businesses also owe a separate personal property tax on assets used in their operations as of January 1 each year. It applies to the net book value of business equipment, inventory, and similar assets, with municipal rates reaching about 9.83%. Puerto Rico additionally imposes excise taxes on tobacco, alcohol, and gasoline, with rates that vary by product.
Corporate and Business Taxes
Corporations face a two-layer income tax: an 18.5% normal tax plus a graduated surtax on net income. The surtax begins at 5% on the first $75,000 and climbs to 19% on amounts above $275,000, bringing the maximum combined rate to roughly 37.5%. Corporations with gross proceeds of $10 million or more also owe an alternative minimum tax of 18.5%, or 23% for the largest entities.7PwC. Puerto Rico – Corporate – Taxes on Corporate Income
Every business also pays a municipal license tax, known as the patente municipal, to each municipality where it operates. The tax is based on the prior year’s gross receipts. Rates run from 0.2% to 0.5% for most businesses and from 1% to 1.5% for financial businesses, depending on the municipality, and are paid in two equal installments due July 15 and January 15.8PWC | Tax Summaries. Puerto Rico – Corporate – Other Taxes
Federal Tax if You Live in Puerto Rico
Bona fide residents of Puerto Rico exclude Puerto Rico-source income from their U.S. federal return under Section 933 of the Internal Revenue Code.9eCFR. 26 CFR 1.933-1 – Exclusion of Certain Income From Sources Within Puerto Rico If all of your income comes from Puerto Rico sources, you are not required to file a federal return at all.10Internal Revenue Service. Publication 570 – Tax Guide for Individuals With Income From U.S. Territories
A few things don’t change. Income from sources outside Puerto Rico remains fully federally taxable. Wages paid by the U.S. government or any federal agency for work in Puerto Rico are also federally taxable, though a foreign tax credit prevents double taxation.11Internal Revenue Service. Bona Fide Residents of the Commonwealth of Puerto Rico – Tax Credits All Puerto Rico residents and their employers continue to pay Social Security and Medicare (FICA) taxes under the same rules that apply on the mainland.12Internal Revenue Service. Persons Employed in a U.S. Possession – FICA
Who Counts as a Bona Fide Resident
The exclusion is available only if you meet three IRS tests: a presence test, a tax-home test, and a closer-connection test.10Internal Revenue Service. Publication 570 – Tax Guide for Individuals With Income From U.S. Territories You must be in Puerto Rico at least 183 days during the tax year, your main place of business or employment must be on the island, and your most significant personal and economic ties must be to Puerto Rico rather than the mainland or any foreign country.
The closer-connection test looks at where you bank, vote, hold a driver’s license, keep personal belongings, and maintain social and professional ties. People who keep a foot in both worlds sometimes fail this test even while clearing the 183-day threshold, particularly when they maintain a mainland home, keep mainland bank accounts as their primary accounts, or stay active in mainland civic organizations. Fail any of the three tests and your Puerto Rico-source income becomes federally taxable.
Act 60 Incentives
Act 60, enacted in 2019, consolidated earlier incentive laws (most notably the former Act 20 for export services and Act 22 for individual investors) into a single framework. The incentives are the main reason many people and businesses relocate to the island.
Export-Service Businesses
A qualifying business that exports services from Puerto Rico can lock in a 4% fixed income tax rate on eligible income, against the standard combined rate of up to 37.5%. Decree holders also receive a 75% exemption on property taxes and a 50% exemption on municipal license taxes, and dividends paid out of export-service profits are 100% exempt from Puerto Rico income tax.13InvestPR. Tax Benefits and Policy Eligible activities span manufacturing, technology services, finance, creative industries, agriculture, and other sectors where the end customer is outside Puerto Rico.
Individual Investors
Individuals who become bona fide residents and hold a decree under Chapter 2 of Act 60 can exempt 100% of their Puerto Rico-source interest, dividends, and certain capital gains from local income tax. Capital gains on securities and digital assets acquired after establishing residency may also escape federal tax, because they become Puerto Rico-source income under the Section 933 exclusion. Different rules apply to assets acquired before the move and to non-marketable assets.
The requirements are firm. Individual decree holders must buy a home in Puerto Rico within two years of receiving the decree, spend at least 183 days per year on the island, donate at least $10,000 annually to qualifying Puerto Rico nonprofits (split evenly between a government-approved poverty-focused organization and any local nonprofit), and file an annual compliance report with a $5,000 filing fee. Losing a decree for noncompliance triggers retroactive exposure to standard rates.
Filing Deadlines
Individual returns are due April 15 of the following year, with a six-month automatic extension available through the SURI electronic filing system that moves the deadline to October 15. Corporate returns for calendar-year filers follow the same April 15 and October 15 schedule, and corporations make quarterly estimated payments on April 15, June 15, September 15, and December 15.
Puerto Rico’s tax calendar runs alongside the federal calendar, but the two are separate systems with separate returns. A bona fide resident whose income is exclusively Puerto Rico-source files only with Hacienda, the Puerto Rico Treasury. Someone with income from both Puerto Rico and outside sources files with both Hacienda and the IRS, claiming the Section 933 exclusion on the federal side for Puerto Rico-source amounts.