Puerto Rico

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Puerto Rico: Tourism, Trade, and Taxes

There is a lot to be said in favor of working in Puerto Rico, especially if you are in the tourism industry. However, there is a lot more to employment in Puerto Rico than running a beach bar. Despite economic challenges, the island’s manufacturing industry is huge.

Tourists Are Welcome on the Island

Tourism is an important source of income for the island and its inhabitants. In 2016, it contributed about 8 billion USD in total to the island’s GDP according to the World Travel and Tourism Council. The sector suffered significantly from the hurricanes in September 2017 and many tourists have cancelled their reservations for the high season, which runs from December until May. Nevertheless, the Puerto Rican government hopes to get visitors back on the island sooner rather than later.

More than 68,000 people were employed in jobs connected to Puerto Rico’s tourism industry in 2016. Roughly 10 million of the visitors to the island in the year 2016 arrived via plane, while the number of cruise passengers ranges from 1.5 to 1.6 million. .

Puerto Rico — A Regional Trading Hub

With a total of eleven seaports, Puerto Rico is a significant regional trading hub and its economy, especially the manufacturing sector, has a strong focus on exports and imports, mainly to and from the US mainland. Puerto Rico’s main export commodities are chemicals, electronics, rum and other beverages (mainly concentrates), as well as medical equipment, a large part of which go to the US. Other export partners include the Netherlands and Belgium.

As a country of virtually no profitable natural resources, Puerto Rico often imports the raw materials and machinery it needs for the manufacturing of export goods. Other commodities which are most frequently imported to the island are chemicals, food, and petroleum products. Many of the imports come from the US, but Ireland, Singapore, and Switzerland are also big importers.

A Word on Income Tax in Puerto Rico

Puerto Rico may have its own tax laws, but its residents are nevertheless subject to most US federal taxes, including social security, business taxes, and estate taxes. One exception is the federal personal income tax. Unless they are employed by the US government in one way or another, residents of Puerto Rico pay their income tax to local tax authorities instead of the IRS. It ranges from 0% on the first 9,000 USD of net taxable income up to 33% on all net taxable income exceeding 61,500 USD.

As a resident foreigner, you will be taxed like a Puerto Rican citizen on all your income. You will be classified as a resident if you

  • spend more than 182 days in Puerto Rico during one calendar year;
  • have your tax home, i.e. your principal place of business, in Puerto Rico;
  • have close connections to the country.

Non-resident foreigners only need to declare their income from Puerto Rican sources. Although income tax is usually withheld from salaries and wages, you still need to file an annual tax return if you meet the minimum-income threshold.

A recently proposed tax plan of the US could also affect expats and their businesses. The plan proposes a 20% excise tax on goods and services exchanged between company branches in Puerto Rico and their parent companies on the US mainland. The forecasts for Puerto Rico’s economy are pessimistic to say the least, as this additional tax would prompt companies to shut down their operations and move to another destination.

Social Security and Its Potholes

Puerto Ricans also pay into the US social security system. However, they do not enjoy the same benefits as US citizens. While they are eligible for retirement benefits, they are excluded from the Supplemental Security Income.

Although Puerto Ricans pay fully into the system, the island also receives a smaller fraction of Medicaid funding than the US mainland: although the specified share of medical cost which the government covers, also known as federal Medicaid matching rate or FMAP, is fixed at 55% in Puerto Rico, this rate only applies to a certain (very low) annual amount of Medicaid funding. As a result, the island’s effective matching rate is only at 15–20%, and Puerto Rico is left with covering the remaining costs.

For more information on the US Social Security system, please consult our article on Working in the USA.

 

We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.

Saad Dessouki

"Leaving Europe behind was not easy for my family -- but with InternNations, we found other expat families in Puerto Rico immediately."

Sophie Poirier

"Thanks to InterNations, I found other international people in Puerto Rico, who truly enrich my life. "

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