Nonresident Tax Issues

Hi Marcus,

Choosing the appropriate legal entity depends on many factors including the type of business, types of services, future operational expectations, etc.  Most people that are starting a business will either choose to be a Sole Proprietor or and LLC; however, in some circumstances, starting as an S-Corp or C-Corp make the most sense.  If your business has some risk that you would like to separate from your personal finances, you may want to start out as an LLC.

To answer the question based on your current situation, since your business has zero income and expenses, there will be no tax impact since there will be nothing being passed on to you to be taxed. 

If you are a nonresident alien of the U.S. who does not qualify as a bona fide resident of Puerto Rico for the entire year, you must file:
A Puerto Rican tax return reporting only your income from Puerto Rican sources. Wages for services performed in Puerto Rico, whether from the U.S. government, private employer, or otherwise, is income from Puerto Rican sources.
A U.S. tax return (Form 1040NR) according to the rules for a nonresident alien.

Wages and cost-of-living allowances paid by the U.S. Government or one of its agencies for working in Puerto Rico are subject to Puerto Rican tax. The cost-of-living allowances are excluded from Puerto Rican Gross income up to the exempt from U.S. tax.
These wages are also subject to U.S. tax but the cost-of living allowances are excludable. A foreign tax credit is available in order to ovoid double taxation.

If you have no U.S. filing requirements but have income that is effectively connected with a trade or business in Puerto Rico, you must file Form 1040-SS or Form 1040-PR with the United States to report your self-employment income and if necessary pay self-employment tax.

Phone number for information outside of Puerto Rico is 787-721-2020 Extension 3611
Within Puerto Rico call 1-800 981-9236
The Puerto Rican website is www.hacienda.gobierno.pr or email questions to infoserv@hacienda.gobierno.pr

Generally, you are a bona fide resident of Puerto Rico if during the year you meet the presence test, do not have a tax home outside of Puerto Rico and do not have a closer connection to the U.S. or to a foreign country than to Puerto Rico.

Mail your U.S. tax return and all attachments to:
Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215

Mail your Puerto Rican tax return and all attachments to If you request a refund
Departamento de Hacienda P.O. Box 50072 San Juan, PR 00902-6272
Mail all other Puerto Rican tax returns and attachments to Departamento de Hacienda P.O. Box 9022501 San Juan, PR 00902-2501

If you are a bona fide resident of Puerto Rico during the entire tax year and a nonresident alien of the U.S., you generally must file:,br> A Puerto Rican tax return reporting income from worldwide sources. If you report U.S. source income on your Puerto Rican tax return, you can claim a credit against your Puerto Rican tax, up to the amount allowable for income taxes paid to the United States.
A U.S. tax return (Form 1040) reporting income from worldwide sources, but Excluding Puerto Rican source income other than amounts for services performed as an employee of the U.S. or any of its agencies.
For tax purposes other than reporting income, you will be treated as a nonresident alien individual with its associated limitations.

If you are a U.S. citizen or Resident Alien and also a bona fide resident of Puerto Rico during the entire tax year, you generally must file:,br> A Puerto Rican tax return reporting income from worldwide sources. If you report U.S. source income on your Puerto Rican tax return, you can claim a credit against your Puerto Rican tax, up to the amount allowable for income taxes paid to the United States.
A U.S. tax return reporting income from worldwide sources, but Excluding Puerto Rican source income. If you are excluding Puerto Rican income on your U.S. tax return, you will not be allowed any deductions or credits that are directly or indirectly allocable to exempt income.
If all your income is from Puerto Rican sources, you are not required to file a U.S. tax return.