The Governor of Puerto Rico has signed into law Act 52-2022 (the “Act”) stipulating that beginning after Dec. 31, 2021, out-of-state businesses with remote workers in Puerto Rico will not be considered “engaged in industry or business in Puerto Rico.”
The Details:
As a result , out-of-state businesses with remote workers in Puerto Rico, will not be required to withhold income tax, if:
(1) during the taxable year, the business does not have an office or other fixed business place in Puerto Rico;
(2) there is no economic nexus with Puerto Rico during the taxable year;
(3) the business is not considered a merchant under Sec. 4010.01 of Internal Revenue Code of 2011;
(4) the teleworker is not an officer, director or majority shareholder of the taxpayer;
(5) the remote worker's services are provided for the benefit of clients or businesses of the taxpayer that do not have a connection with Puerto Rico; and
(6) the business reports the income paid to the telecommuter on Form W-2 or Form 499R-2/W-2PR.
Under the Act, an employer will not be considered to have established a nexus when a business has a remote worker in Puerto Rico even when:
(1) the remote worker's home office is necessary or a condition of employment;
(2) there is a business purpose allowing the employee's home to be used as their office;
(3) the employee is forced to attend to some basic duties of their job from an employer's location; and
(4) some expenses are reimbursed by the employer to the remote worker for the home office.
Next Steps:
Out-of-state businesses with remote workers in Puerto Rico should consult with their legal counsel and/ or tax advisor to determine whether they should withhold income tax on their Puerto Rico remote worker’s wages.
Have Questions?
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