The tax rate in Puerto Rico depends on what’s being taxed and who’s paying. Individual income is taxed on a progressive scale that starts at 0% on the first $9,000 and tops out at 33% above $61,500. Corporations face a combined top rate of 37.5% once the 18.5% normal tax is stacked on the maximum 19% surtax. Sales and use tax (IVU) runs 11.5% on most retail purchases. Real property tax rates look high on paper but apply to assessed values frozen at 1957 levels, so the dollar bill is usually modest. And bona fide residents of Puerto Rico are generally exempt from federal income tax on income sourced to the island, though federal payroll taxes still apply.
Individual Income Tax
Puerto Rico’s individual income tax is progressive. The first $9,000 of net taxable income is tax-free. Above that:
- $9,001 to $25,000: 7% on the amount over $9,000
- $25,001 to $41,500: $1,120 plus 14% on the amount over $25,000
- $41,501 to $61,500: $3,430 plus 25% on the amount over $41,500
- Over $61,500: $8,430 plus 33% on the amount over $61,500
Personal exemptions come off taxable income before the brackets apply. A single filer claims $3,500; married couples filing jointly claim $7,000.1Justia. Laws of Puerto Rico Title Thirteen, Section 30138
Returns are due April 15, matching the federal calendar. An automatic six-month extension is available if requested by the original due date, pushing the filing deadline to October 15. The extension gives you more time to file, not to pay. Interest accrues on any unpaid balance after April 15.
Gradual Adjustment and Alternate Basic Tax
Two additional layers hit higher incomes. Once net taxable income crosses $500,000, a gradual adjustment adds an extra 5% that effectively claws back the benefit of the lower brackets until the entire income is taxed at the top rate.
The alternate basic tax (ABT) works like the federal AMT. It applies to individuals whose income includes items otherwise exempt from regular tax, such as certain incentive income. Rates run 1% on income between $25,000 and $50,000, 3% between $50,000 and $75,000, 5% between $75,000 and $150,000, 10% between $150,000 and $250,000, and 24% above $250,000. You pay whichever is higher, the regular tax or the ABT. If your only income is wages reported on a withholding statement, the ABT does not apply.
Sales and Use Tax (IVU)
Most retail purchases carry a combined 11.5% IVU. That’s 10.5% going to the Puerto Rico Treasury and 1% to the municipality where the transaction occurs. Merchants must register with the electronic filing system to report and remit collections, and failing to do so can mean fines or loss of a business license.
Business-to-business transactions and designated professional services are taxed at a reduced 4% rate rather than the full 10.5% state component.2Government of Puerto Rico Treasury Department. Regulation to Amend Articles of Regulation No. 8049 – Sales and Use Tax The designated professions include legal services, certified public accountants, architects, engineers, surveyors, geologists, professional appraisers, and agronomists. If one business buys consulting, accounting, or engineering services from another, the rate is 4%.
Unprocessed foods and prescription medicines are exempt from the IVU entirely. Sellers claiming exemptions need to keep documentation showing that exempt items were categorized correctly at the point of sale.
Property Tax
Real property tax rates run roughly 8% to 12.33% of assessed value depending on the municipality, administered by the Centro de Recaudaciones de Ingresos Municipales (CRIM). That percentage sounds brutal, but the assessed value is not what you’d think. Real property valuations are still based on 1957 replacement cost estimates, the last time an island-wide reassessment was performed.3Government of Puerto Rico. Certified Fiscal Plan for the Municipal Revenue Collection Center (CRIM) Assessed values are a small fraction of current market value, so the actual dollar amount on a typical home is far smaller than the rate implies.
Homeowners who occupy the property as their primary residence get an exemption on the first $15,000 of assessed value, which corresponds to more than $215,000 in current market value.3Government of Puerto Rico. Certified Fiscal Plan for the Municipal Revenue Collection Center (CRIM) Many moderately valued homes end up owing little or nothing.
Businesses owe a separate personal property tax on movable assets like equipment, machinery, and inventory. Rates run from about 5.80% to 10.33% of net taxable value depending on the municipality.4Government of Puerto Rico. Certified Fiscal Plan for the Municipal Revenue Collection Center (CRIM) FY2024-FY2028 Inventory values are generally based on the lesser of book value or fair market value as of January 1, with finished goods assessed on the monthly average balance from the prior year. The return is due by May 15, with a 90-day extension available if requested on time.
Corporate Income Tax
Corporate income is taxed in two layers. A normal tax of 18.5% applies to the corporation’s entire net income. A surtax then applies to net income above a $25,000 deduction, on a graduated scale:
- Up to $75,000: 5%
- $75,001 to $125,000: $3,750 plus 15% on the excess over $75,000
- $125,001 to $175,000: $11,250 plus 16% on the excess over $125,000
- $175,001 to $225,000: $19,250 plus 17% on the excess over $175,000
- $225,001 to $275,000: $27,750 plus 18% on the excess over $225,000
- Over $275,000: $36,750 plus 19% on the excess over $275,000
Stacking the 18.5% normal tax on the 19% top surtax produces a combined top rate of 37.5% on corporate income above $275,000.5Departamento de Hacienda. Income Tax Return of Taxable Corporations Instructions Corporate returns are due the fifteenth day of the fourth month after the fiscal year ends. A foreign corporation with no office or place of business in Puerto Rico has until the fifteenth day of the sixth month.
Municipal License Tax
Any business operating in Puerto Rico owes a municipal license tax (patente municipal) to the municipality where it’s located. Rates typically fall between 0.2% and 0.5% of gross annual revenue, varying by municipality and type of business activity. The dollars are modest next to income and property taxes, but gross-revenue levies add up fast for high-volume, thin-margin businesses.
Federal Tax for Puerto Rico Residents
Living in Puerto Rico does not mean paying no federal taxes. Under 26 U.S.C. ยง 933, a bona fide resident of Puerto Rico for the entire tax year may exclude income from Puerto Rico sources from federal gross income.6Office of the Law Revision Counsel. 26 U.S. Code 933 – Income From Sources Within Puerto Rico Income from outside the island is not excluded. Rental income from a mainland property, or wages from a U.S. employer for work performed stateside, still goes on a regular federal return.
Federal payroll taxes apply regardless of the Section 933 exclusion. Employers and employees each pay 6.2% for Social Security on wages up to $184,500 in 2026, plus 1.45% for Medicare with no wage cap. An additional 0.9% Medicare tax applies to employees earning over $200,000.7Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide Self-employed residents pay the combined employer and employee share through self-employment tax.
Qualifying as a bona fide resident requires meeting a presence test, a tax home test, and a closer connection test. The most common way to satisfy the presence test is to spend at least 183 days in Puerto Rico during the tax year.8Internal Revenue Service. Tax Guide for Individuals With Income From U.S. Territories (Publication 570) Fail any of the three tests and the Section 933 exclusion does not apply.
Act 60 Reduced Rates
Puerto Rico’s Incentives Code, consolidated under Act 60-2019, offers sharply reduced rates to new businesses and to individual investors who relocate.
Export Services
A company that provides services from Puerto Rico to clients outside the island can qualify for a fixed 4% corporate income tax rate on that export income, compared to the standard 37.5% top rate. Qualifying services include consulting, advertising, data processing, and similar work performed on the island for off-island customers.9Government of Puerto Rico. Puerto Rico’s Incentives Code Brochure – Act 60 These businesses may also receive a 75% to 100% exemption on municipal and property taxes depending on size and location. Companies with annual business volume above $3 million must employ at least one full-time Puerto Rico resident, who can be an owner working in the business.
Individual Investors
Individuals who become bona fide Puerto Rico residents can qualify for a 0% tax rate on interest, dividends, and capital gains realized after establishing residency. The exemption window runs through December 31, 2035, and is available to anyone who was not a Puerto Rico resident during the ten years before applying. The decree carries ongoing obligations: a $10,000 annual charitable donation with at least half directed to organizations working to eradicate child poverty in Puerto Rico, purchase of residential real property on the island within two years of receiving the decree for use as a primary residence, and an annual report to the Office of Industrial Tax Exemption. Missing any of these can lead to revocation, retroactively exposing previously exempt income to regular tax rates.
The 0% rate applies only to appreciation that occurs after you become a Puerto Rico resident. Gains that accrued before the move are not exempt, and getting that allocation wrong is one of the most common and expensive mistakes new Act 60 participants make.