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Puerto Rico enacts new law on remote workers of out-of-state employers

09/01/22

Author: ADP Admin/Tuesday, August 30, 2022/Categories: Compliance Corner

The Governor of Puerto Rico has signed into law Act 52-2022  (the “Act”) stipulating that beginning after Dec. 31, 2021, out-of-state businesses with remote workers in Puerto Rico will not be considered “engaged in industry or business in Puerto Rico.”

The Details:

As a result , out-of-state businesses with remote workers in Puerto Rico, will not be required to withhold income tax, if: 

(1) during the taxable year, the business does not have an office or other fixed business place in Puerto Rico;

(2) there is no economic nexus with Puerto Rico during the taxable year;

(3) the business is not considered a merchant under Sec. 4010.01 of Internal Revenue Code of 2011;

(4) the teleworker is not an officer, director or majority shareholder of the taxpayer;

(5) the remote worker's services are provided for the benefit of clients or businesses of the taxpayer that do not have a connection with Puerto Rico; and

(6) the business reports the income paid to the telecommuter on Form W-2 or Form 499R-2/W-2PR.

Under the Act, an employer will not be considered to have established a nexus when a business has a remote worker in Puerto Rico even when:

(1) the remote worker's home office is necessary or a condition of employment;

(2) there is a business purpose allowing the employee's home to be used as their office;

(3) the employee is forced to attend to some basic duties of their job from an employer's location; and

(4)  some expenses are reimbursed by the employer to the remote worker for the home office.

Next Steps:

Out-of-state businesses with remote workers in Puerto Rico should consult with their legal counsel and/ or tax advisor to determine whether they should withhold income tax on their Puerto Rico remote worker’s wages.

Have Questions?

Please contact your dedicated service professional with any questions.  

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