Taxation of Foreign & Non US Citizens Taxpayers - Martino-Luna Attorneys and Counselors At Law
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- Taxation of Foreign & Non US Citizens Taxpayers
- Sourcing Rules of Puerto Rico BONA FIDE Residents Receiving Income from U.S. Employer
- Temporary Tax On Foreign Corporations
- Withholding Rules Of Income And/Or Compensation Under The Current Provision Of The Puerto Rico Internal Revenue Code
- Summary of the Proposed Tax Reform Project Through Senate Bill 1888 and House Bill 3028
News > Tax Articles and News
Taxation of Foreign & Non US Citizens Taxpayers
A nonresident alien individual is subject to Puerto Rico income tax on Puerto Rico source income, specifically income that is effectively connected with the conduct of a trade or business in Puerto Rico. It will be subject to tax at the normal tax rate structure applicable to individuals in general on the net income effectively connected with its Puerto Rico business. That is the general rule stated in section 1221 of the Commonwealth of Puerto Rico Internal Revenue Code (hereinafter referred to as the “Code”), as amended. For those purposes, a nonresident alien individual is an individual who is neither a U.S. citizen nor a bonafide resident of Puerto Rico. A nonresident alien individual not engaged in a trade or business within Puerto Rico is subject to tax only on income, including capital gain, from sources within Puerto Rico. Only a nonresident alien individual engaged in a trade or business in Puerto Rico will be subject to taxes on their effectively connected Puerto Rico business income. For this purposes, amounts received as distributions in liquidation of a Puerto Rico corporation or partnership, constitute income from sources within Puerto Rico, becoming effectively connected Puerto Rico business income.
Effectively connected income is defined as income that is effectively connected with the taxpayer’s Puerto Rico Trade or Business. A nonresident alien has income effectively connected with the conduct of a trade or business during the tax year only if the taxpayer is engaged in business in Puerto Rico, or has income from real property in Puerto Rico and has made the section 1221 election to treat the real property as effectively connected income.
Section 1221 of the Code sets the standard on the taxation of nonresident alien individuals in the Commonwealth. In the case of income not related to a trade or business in Puerto Rico, but from sources within Puerto Rico, the nonresident alien individual will have to pay a tax of 29% of the interests received, rents, royalties, salaries, annuities, compensation, remunerations, distributions from exempt organizations,
income attributable to the distributive share of a partner in a special partnership, net capital gains, or other fixed or determinable annual or periodical income.
In the case of dividends and partnership profits the tax imposed will be of 10% (this 10% does not apply in the case of dividends an profits from a special partnership), and the income attributable to the distributive share of a shareholder in a corporation of individuals, the tax imposed will be of 33%.
