August 2022: Puerto Rico Enacts New Legislation on Remote Workers of “Out-of-State” Employers

01 Aug


Update Applicable to: 
All employers with employees working remotely out of Puerto Rico.

What happened?
On June 30, 2022, the Governor of Puerto Rico signed into law Act No. 52 (Act 52-2022), which amended the concept of “engaged in trade or business” under the Puerto Rico Internal Revenue Code of 2011, to address the pandemic-related issue of employees working remotely from the Island for “out-of-state” employers with no business nexus to Puerto Rico.

What are the details? 
According to Act 52-2022, for taxable years commencing after December 31, 2021, businesses with employees working remotely from Puerto Rico will not be deemed “engaged in trade or business,” provided the following conditions are met:

  • At no time during the taxable year, the business (i.e., the taxpayer) has an office or a fixed place of business in Puerto Rico;
  • At no time during the taxable year, the taxpayer has an “economic nexus” with Puerto Rico;
  • The taxpayer is not considered a merchant under the provisions of the Puerto Rico Internal Revenue Code (“Any person engaged in the business of sales of taxable items in Puerto Rico, including any wholesaler”);
  • The remote worker is not an officer, director, or majority shareholder of the taxpayer;
  • The services provided by the remote worker are provided for the benefit of clients or businesses of the taxpayer that do not have a nexus with Puerto Rico; and
  • The taxpayer reports the income paid to the remote worker on a Federal Form W-2 or Form 499R-2/W-2PR.

The statute further establishes that the taxpayer will not be considered to have an “economic nexus” with Puerto Rico even when:

  • The remote worker’s home office is necessary for, or is a condition of, employment;
  • There is a business purpose of allowing the remote worker’s home to be used as an office;
  • The remote worker is required to perform at least some basic job duties from an employer’s location; and
  • The employer reimburses some of the remote worker’s home office expenses.

While under this legislation, the employer does not have to withhold Puerto Rico income taxes, companies still need to be cautious about allowing workers to telework from Puerto Rico since Puerto Rico’s labor, and employment laws may apply to the employment relationship. 

Currently, no online document of Act 52-2022 is available to the public.

Act 52-2022 will go into effect on January 1, 2023.

For more information, please see the links below:

Article 1 – Article 2 – Article 3

What do employers need to do?
Employers should review the links above and be aware of additional news regarding this law.

Need help understanding how changes to employment laws will affect your business?

Learn more about how Vensure's Puerto Rico PEO services can help you navigate complex employment laws and keep your business compliant.

This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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