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  • Writer's pictureAlex Ortiz

Navigating Non-Resident Withholding in Puerto Rico Real Estate Transactions

Investing in Puerto Rico's vibrant real estate market can be an enticing opportunity for both residents and non-residents. However, it's crucial to be aware of the tax implications associated with such transactions. One important aspect to consider is the concept of non-resident withholding, a requirement that affects non-residents sellers involved in Puerto Rico real estate deals. Let's delve into what non-resident withholding entails and how it impacts real estate transactions in our Caribbean paradise.

Non-resident withholding, also known as "retención de no residentes" in Spanish, is a tax mechanism imposed by the Puerto Rico Treasury Department (Hacienda) that applies to the sale of real estate by non-residents.

Here's a concise guide to understanding non-resident withholding in Puerto Rico real estate transactions:

1. Scope of Application: Non-resident withholding applies when a non-resident individual SELLS real property located in Puerto Rico. This includes residential, commercial, and industrial properties.

2. Withholding Rate: The applicable withholding rate to non-resident US citizens (USC) is currently set at 15% of the gross sales price or consideration paid for the property. For non-USC non-residents, the rate is 25%.

3. Buyer's Responsibility: As the withholding agent, the buyer is responsible for calculating the withholding tax amount and remitting it to Hacienda before the 15th day of the month after the transaction closes. Buyer is liable for the monies, and is subject to fines if it remits later than the due date.

4. Filing of Returns: The buyer must also file the corresponding tax return to report the withholding and provide information about the transaction and the parties involved. This is done through the SURI platform.

5. Seller's Claim for Excess: If the actual tax liability of the non-resident seller is lower than the amount withheld, the seller can file a claim with Hacienda to request a refund of the excess amount withheld.

As with everything tax-related, there are exceptions, conditions, and ways to legally avoid withholding during the transaction.

In summary, if you're planning to invest in real estate in Puerto Rico as a non-resident, you must be aware of non-resident withholding, to avoid $urprises and ensure a smooth transaction. At The Notary Lab, we’ll assist you in the process, and connect you to our trusted CPA partners.

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