Puerto Rico Tax Laws

By Edwin Thomas
The island, Puerto Rico, an anomalous status
Wikimedia Commons

The island of Puerto Rico occupies an anomalous status. Puerto Ricans have enjoyed U.S. citizenship since 1917. But as a self-governing, unincorporated territory, the island is partially inside and partially outside American law. This picture leads to a number of misconceptions, especially regarding taxation.

Sales Taxes

Most visitors to Puerto Rico are limited to encountering local sales taxes. The general sales tax is 5.5 percent, but local municipalities have the option of imposing an additional 1.5 percent at their discretion. In addition, there is a different 11 percent tax on rented rooms in hotels with casinos, a 9 percent tax on rented rooms in hotels without casinos and 7 percent on rented rooms in small inns. Hotels in San Juan have an additional surcharge of $3 per room and $5 per person.

Property Taxes

The government of Puerto Rico levies a 2.03 percent property tax on personal property and a 4.03 percent tax on real property. Local municipalities can levy additional property taxes. The combined property tax for real property in San Juan is 8.05 percent.

Capital Gains

Short term capital gains are those on assets held less than six months, and are taxed a flat rate of 29 percent. Long term capital gains are taxed at a flat rate of 20 percent. There is a mandatory withholding of 25 percent from the sale of any property by a non-resident.

Income Taxes

Income taxes for residents are progressive, but employ a system unfamiliar to most Americans. They start at 7 percent for those making less than $5,000 annually, but from there they employ a formula of a minimum payment plus a percentage of the excess. Residents with taxable income over $60,000 pay 33% income tax.

Federal Taxes

Puerto Rico is subject to some federal taxation, but not the federal income tax, as is often believed. Only federal employees and companies doing business with the U.S. government are obliged to pay federal income taxes. They do pay the FICA taxes for Social Security and Medicare, as well as federal import and export tariffs.