Ordinary tax brackets for taxable year 2015 and thereafter range between 9,000 United States dollars (USD) and USD 61,500.
The level of income subject to the gradual adjustment (or so-called ‘recapture’) is USD 500,000 for taxable year 2015 and thereafter.
Calculation of tax liability
The Puerto Rico Internal Revenue Code of 2011, as amended (2011 PR Code), includes an election for taxpayers to file their income tax returns under the Puerto Rico Internal Revenue Code of 1994 (1994 Code) for tax year 2011 and the following four tax years. The election is binding and irrevocable for the total five years (i.e. tax year 2011 through 2015). However, Act 40 of 30 June 2013 provides that those taxpayers that elected to be taxed under the 1994 Code can now elect to be taxed under the 2011 PR Code for taxable years beginning after 31 December 2012. This election will be irrevocable. For additional details on the 1994 Code, please feel free to contact us.
Acts 22 and 138 - The Individual Investors Act
Acts 22 and 138, also known as The Individual Investors Act, were approved by the Legislative Assembly of Puerto Rico during 2012. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. In order to encourage the transfer of such individuals to Puerto Rico, the Acts exempt from Puerto Rico income tax their passive income, which may consists of interest, dividends, and capital gains. See the Other tax credits and incentives section for more information.
Act 77, signed by the Governor of Puerto Rico on 1 July 2014, includes amendments to the Puerto Rico Internal Revenue Code of 2011, as amended (the 'Code'). The most significant changes affecting individuals are as follows:
Alternate basic tax (ABT) brackets
The ABT rates by taxable income level have been modified for taxable years after 2013. These are as follows:
- ABT income from USD 150,000 to USD 200,000: 10%
- ABT income from USD 200,000 to USD 300,000: 15%
- ABT income in excess of USD 300,000: 24%
Act 135, signed by the Governor of Puerto Rico on 7 August 2014, provides incentives to taxpayers between the ages of 16 and 26. The first USD 40,000 earned by employees between those ages will be exempt from income tax withholding and taxation. This law will apply for the years beginning after 31 December 2013 up to 31 December 2019.
Act 72, signed by the Governor of Puerto Rico on 29 May 2015, includes amendments to the Puerto Rico Internal Revenue Code of 2011, as amended (the 'Code'). A list of the most significant changes affecting individuals follows:
Individual tax rates
Tax rates in effect as of 31 December 2014 continue to be in force.
The gradual adjustment applies for tax years after 31 December 2014 for those individuals with net income subject to tax over USD 500,000.
Special tax on self-employed individuals
Special tax of 2% on self-employed individuals with adjusted gross income over USD 200,000 was eliminated for taxable years beginning on 1 January 2015.
Net operating loss (NOL) carryovers
For those individuals reflecting NOLs in their business or industry for three consecutive taxable years, the carryover of the loss corresponding to the third year beginning after 31 December 2014 and any other subsequent taxable year is limited to 50% of the net operating loss incurred in that year.
The amount of the capital losses incurred in a taxable year can only be used up to the amount of the capital gains generated in such year. Any excess can be used to offset the individual’s net income or USD 1,000, whichever is lower.
Capital loss carryovers
For taxable years beginning after 31 December 2014, capital loss carryovers may only be used to offset up to 80% of the net capital gain of the taxable year in which they are used. Capital loss carryovers shall be considered short-term capital losses.
Commencing on tax years after 31 December 2014, only contributions made to non-profit organisations duly qualified by the Puerto Rico Secretary will be allowed as a deduction.