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Tips To Apply For A Puerto Rico Offshore Banking License

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Puerto Rico adopted the International Banking Center Regulatory Act Number 52 (Act52) in 1989.  It was adopted to try and compete with all of the offshore banking activities in the Caribbean.  Act 52 granted all sorts of tax exemptions to international banks and offered some leniency for leases, securities, international banking, and insurance.  Act 273 came along and replaced Act52 in 2012 to further improve the conditions of international banking in Puerto Rico.  It basically allows for international banking activities to occur with non-Puerto Rican residents and further expands their capabilities. 

The Puerto Rican Office of the Commissioner of Financial Institutions or (OCFI) is the office that is responsible for granting licenses to international financial entities to conduct certain financial transactions.  These entities can apply for a tax grant once they are licensed through the OCFI- once the tax grant is approved; it is valid for 15 years according to this source.

Some of the benefits are:

  • 0% tax rate on distributions to non-Puerto Rican shareholders
  • Fixed 4% income tax rate for Puerto Ricans on net income, the rate increased to 10% at the time of renewal
  • Full property and municipal license tax exemptions
  • 6% tax rate on distributions to Puerto Rican resident shareholders

There are many licensing requirements to get an international banking license:

  • Must show articles of incorporation and by-laws
  • Hire at least 4 employees
  • Must have authorized capital of at least $5million
  • Must rent an office space
  • Must have at least $300,000 in acceptable guarantees to the OCFI
  • Must submit an application to the OCFI
  • Pay $5,000 non-refundable fee and then the same yearly renewal fee
  • Must comply with the US Bank Secrecy Act, US Patriot Act, and Office of Foreign Asset Control or the OFAC
  • Personal statements are required for 10% or more shareholders
  • Tax grant will be authorized for 45 years or 3 consecutive 15-year terms
  • Any extensions must be submitted 6 to 24 months before the 15-year term expires

Once an entity has gotten the license to become an IFE, there are many different things that they can do legally.  Some of these eligible activities are the following:

  • Asset Management
  • Management of alternative investments
  • Management of private capital
  • Management of hedge funds
  • Management of pools of funds
  • Administration of trusts
  • Management of escrow funds for non PR residents
  • Establish branches outside of Puerto Rico
  • Purchase non-performing or substandard loans from Puerto Rican banks
  • Accept deposits and borrow money from non-Puerto Rican residents
  • Accept deposits and borrow money from certain government institutions
  • Lend or guarantee loans originated in some government institutions
  • Place deposits in any Puerto Rican bank or foreign banks organized in Puerto Rico
  • Manage and organize financial institutions that are not related to Puerto Rican residents
  • Act as a clearinghouse for instruments for foreign persons
  • Make loans to non-Puerto Rican residents
  • Issue letters of credit to residents and non-residents
  • Issue letters of credit for import activities for both non-residents and residents
  • Sell and buy a security for non-residents outside of Puerto Rico
  • Lease and acquire personal property for non-residents outside of Puerto Rico
  • Act in any fiduciary capacity for non-residents of Puerto Rico after obtaining a special permit from the government
  • Bills of exchange and discounted money orders for non-residents of Puerto Rico
  • Invest in Puerto Rican government bonds, securities and stocks that are tax exempt
  • Trade financing for import or export of raw materials and finished goods
  • Underwrite and trade debt instruments and notes issued by non-Puerto Rican residents
  • Carry transactions in gold, silver, or other foreign currencies

Funding for Real Estate Projects

The idea behind this license is to add due diligence, scrutiny and a check and balance process, and access to the United States banking system.  There are also additional benefits for an investor to try and claim Puerto Rican residency.  As always though, we suggest you work with a knowledgeable and qualified professional that can help you navigate through the process and help your application be successful. 

If you are interested in creating an IFE, or you already have one and require financial advice, Click here to email us and start your project.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason. 

 

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized in Tax Planning for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution and Offshore Strategies. You can email him to fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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