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On June 30, 2022, Act No. 52-2022 (“Act 52”) introduced amendments to certain provisions of the Puerto Rico Internal Revenue Code of 2011, as amended. Such amendments included the incorporation of Remote Worker provisions, which allow employers that are not engaged in trade or business in Puerto Rico (“Foreign Employers”) to hire employees working remotely from Puerto Rico, without creating nexus for income tax purposes. However, Act 52 did not exempt Foreign Employers from compliance with Puerto Rico labor law provisions and applicable local payroll taxes. To address this issue, Act No. 27-2024* (“Act 27”) was enacted on January 17, 2024 with the purpose of clarifying the applicability of Puerto Rico labor law provisions and local payroll taxes to Foreign Employers who have domiciled and non-domiciled employees who work remotely from Puerto Rico.
Act 27 seeks to provide a clear framework for remote work in Puerto Rico with respect to the applicability of labor law provisions, with the aim of attracting more people to the region and enabling more Puerto Ricans to secure remote jobs in companies without a presence in Puerto Rico.
The new guidelines for remote work in Puerto Rico are summarized below:
- Puerto Rico labor legislation will not apply to Puerto Rico domiciled employees classified as executive, administrative, or professional under the Fair Labor Standards Act and the regulations of the Puerto Rico Department of Labor and Human Resources (“PRDL”) who work remotely for a Foreign Employer. These employment relationships will be governed by what is agreed in the employment contract.
- The applicability of certain local laws related to occupational and non-occupational accidents, disability, and, if applicable, chauffers’ insurance is conditioned on the employer providing the employee with insurance that provides coverage equal to or greater than that established by these local laws. In other words, Workers Compensation Insurance issued by the Puerto Rico State Insurance Fund, Non-occupational Disability Insurance (“SINOT”, for its Spanish acronym), and Chauffeurs Social Security (if applicable) would not be required, provided that the Foreign Employer offers an equal or greater benefit than required under local law through private insurance.
- Contributions to unemployment insurance pursuant to the provisions of Act 74-1956 would still need to be made, unless the state law where the Foreign Employer operates allows employees working remotely in Puerto Rico to claim unemployment insurance benefits in that jurisdiction. Foreign Employers that are required to register and pay unemployment insurance in Puerto Rico can authorize a representative (including the employee themselves) to make the quarterly contribution payment to the PRDL.
- Employees who are not Puerto Rico residents but are working remotely from the Island on a non-permanent basis will be governed solely by the employment contract any protections they may have in the state or jurisdiction where they reside. This exemption will cease if the employee becomes domiciled in Puerto Rico, in which case the aforementioned rules would apply.
At RSM Puerto Rico we can provide you with additional information and advice regarding these matters. Please contact our tax advisors at (787) 751-6164 | [email protected] for help or more information.
*Act 27-2024, known as “Law to Facilitate the Implementation of Remote Work in Private Companies and to Encourage the Establishment of Air Operations Bases in Puerto Rico”