Helping you achieve your goals - Employment Law Alliance Documents/Starting … · Helping you achieve your goals. . . 2 Puerto Rico – An Introduction In 1898, Puerto Rico was ceded

Start a

Business Practice Group

Helping you

achieve your goals

Overview of Firm ................................................................................................................... 1

Puerto Rico – An Introduction ............................................................................................... 2

Overview: How to Start a Business in Puerto Rico .............................................................. 4

Tax Overview ......................................................................................................................... 7

Free Trade Zone ..................................................................................................................... 8

Labor and Employment .......................................................................................................... 9

Immigration Overview ......................................................................................................... 11

Permitting Requirements .................................................................................................... 12

Intellectual Property ............................................................................................................ 15

Special Regulations and Requirements to Conduct Business .............................................. 16

The information provided in the Goldman Antonetti & Córdova, P.S.C. Start a Business Guide is not intended to be legal advice, but merely conveys general information on starting a business in Puerto Rico. Any information provided herein is not a legal opinion and is not intended to replace consultation with a qualified legal professional.

Dear Clients and Friends We are delighted to share with you some of the highlights of the legal requirements your business may encounter as you establish a business in Puerto Rico or decide to expand your existing one. Throughout the years, we have served many local, national and international clients involved in business transactions and litigation in Puerto Rico. We have found over the last 50 years of our practice that compliance with applicable legal requirements is crucial to start on the right track to success. Our clients are the reason for our existence, so we are dedicated to the practice of law with the highest regard to ethical standards and professional competence aimed at satisfying and exceeding our clients’ needs and expectations. This long tradition and continuing commitment has placed our firm in the forefront of legal services in Puerto Rico. Also, as a business, we are fully aware of the challenges, realities and needs you may have. Given this profound understanding, we are always adding value to our relationships and are committed to partner with you in your road to success by offering world-class legal services at competitive and reasonable rates. We, at Goldman Antonetti & Córdova, P.S.C., wish to express our most sincere appreciation for your interest in doing or continuing to do business in Puerto Rico. We look forward to the opportunity to be your partner and trusted advisor.

Goldman Antonetti & Córdova, P.S.C.

Overview of Firm Goldman Antonetti & Cordóva, P.S.C. (GAC) is a large diversified law firm serving local, national and international clients involved in business transactions and litigation in Puerto Rico. Our lawyers provide representation before all courts of the Commonwealth of Puerto Rico, including the U.S. federal court sitting in Puerto Rico; before government agencies; and in domestic and foreign negotiations and transactions. The Firm protects clients with interests in Puerto Rico against the challenges and potential pitfalls posed by the increasingly complex web of local and federal laws and regulations that apply in the Commonwealth of Puerto Rico. The Firm provides each client with tailor-made, efficient and cost-effective legal solutions. Depending on the circumstances, the services may be provided by one attorney or by a legal team composed of lawyers with experience in the pertinent areas. GAC’s practice is divided into four principal departments: Corporate and Banking; Labor and Employment Law; Litigation and Trial Practice; and Tax Law. In addition, members of the above-referenced departments have formed several inter-disciplinary practice groups that enable the Firm to provide targeted solutions to its clients in specific areas of the law. In other words, those groups include transactional and litigation lawyers with experience in one or more substantive areas of the law. One of these groups is the Start a Business Practice Group.

Helping you achieve your goals. . . 2

Puerto Rico – An Introduction In 1898, Puerto Rico was ceded by Spain to the United States of America as a result of the Spanish-American War and has since been a territory of the United States. Puerto Ricans were granted U.S. citizenship in 1917. Governors elected by the people of Puerto Rico have served since 1948. In 1952, a constitution was enacted proclaiming internal self governance. The legal system is based mostly on Civil Law in the Spanish tradition with a strong influence of the U.S. common law, particularly within the U.S. federal court system. Puerto Rico, like the states of the U.S., has a dual court system of local and United States (federal) courts. Nearly all federal laws apply to Puerto Rico. Legal tender in Puerto Rico is the U.S. Dollar. Geography: Puerto Rico is an island located between the Caribbean Sea and the North Atlantic Ocean, east of the Dominican Republic and west of the U.S. and British Virgin Islands. The Mona Passage between Puerto Rico and the Dominican Republic is a key shipping route to the Panama Canal. The capital city of San Juan has one of the biggest and best natural harbors in the Caribbean with a yearly average temperature of 84°F. The climate is tropical (wet and humid in the entire island except the south coast, which is a dry savannah). Time Zone is Atlantic Standard Time (AST) (four hours behind Greenwich Mean Time). People: Population estimate as of 2010 is 3,725,789. Median age is 36.9 years. The official language is Spanish. English is widely spoken amongst college-educated professionals, federal civil servants, residents of the capital city of San Juan, and many others who labor in the banking, franchising, real estate, insurance, manufacturing, tourism and hospitality and other commercial sectors. Literacy is 94.1 percent. Economy: Puerto Rico has one of the most dynamic economies in the Caribbean. A diverse industrial sector has far surpassed agriculture as the primary focus of economic activity and income. Encouraged by duty-free access to the U.S. and by local tax incentives, U.S. firms have invested heavily in Puerto Rico since the


1950s. U.S. federal minimum wage laws apply. Sugar production has been replaced by dairy production and other livestock products as the main source of activity in the agricultural sector. Tourism has traditionally been an important source of income, with estimated arrivals of nearly 5 million tourists in 2008. As of 2010, the gross domestic product was estimated at $64.84 billion with the following composition: agriculture 1%; industry 45%; services 54%. The labor force totals approximately 1.3 million. Electrical power is provided by a government-owned monopoly with a total installed generation capacity of 5,387 megawatts produced in seven (7) major installations, including 2 privately owned cogeneration plants. The system, which produces 23,900 million kWh per year, is almost completely dependent (99.2 percent) on fossil fuels such as coal, oil and natural gas. Power is usually delivered to industrial clients in either the 480w, 240w or 208w format at 60 Hz. Exports total $64,000 million f.o.b., most of which is derived from chemicals, biomedical and pharmaceutical manufacturing, electronics, apparel (mostly U.S. military contracts), rum, beverage concentrates, and medical equipment and devices. Most products were exported to the U.S.; England, the Netherlands and the Dominican Republic markets. Imports totaled $44,900 million c.i.f., mainly in chemicals, pharmaceutical products, machinery and equipment, clothing, food, fish, and petroleum commodities. Currently, principal partners are the U.S., Ireland, and Japan. Puerto Rico’s telephone system is modern and integrated with that of the U.S. by a high-capacity submarine cable and Intelsat with high-speed data capability. Submarine cables also provide connectivity to the Caribbean, Central and South America. There are 400 plus Internet hosts and 70 plus Internet Service Providers or ISPs.


The transportation system is composed of approximately 26,676 km. of roadways (including 427 km. of toll roads); two major airports (Aguadilla and Carolina) receiving approximately 10 million passengers per year; and five major ports and terminals: Guayama, Guayanilla, Ponce, Mayagüez, San Juan, and Yabucoa. The Guayama, Guayanilla, and Yabucoa ports and terminals only handle petroleum products. Ocean freight service to and from Puerto Rico is served by approximately 34 shipping lines. A mass transit system (Tren Urbano) serves a portion of the San Juan greater metropolitan area.

Overview: How to Start a Business in Puerto Rico Puerto Rico offers many advantages to those companies that decide to establish their business operations in the Island. These include local tax incentives; a strong, dedicated and skilled bilingual labor force; proximity to the United States; and governmental assistance to export products to the Latin American, Caribbean and U.S. markets. For these and many other reasons, Puerto Rico is home to many Fortune 500 companies’ operations. When starting a new business, whether as a new entity or through the expansion of an existing entity, there are a number of important decisions to be made, as well as a number of rules and procedures that must be considered as a first step on the road to success. Issues such as financing, corporate structure selection, tax structure, location selection, intellectual property protection, equipment acquisition, licensing and permitting, contracts, personnel recruitment and retention, and employee benefits are just a few of the matters that must be addressed by an emerging or expanding business. Other considerations include assessing and adhering to the multiple federal, Commonwealth of Puerto Rico, and local laws and regulations that may apply to their particular business operations. Companies that are interested in entering into governmental contracts must also consider additional requirements such as: insurance coverage, bonds, warranties, and other financing provisions prior to the


contract bid or execution. Businesses performing certain activities may also need to consider particular statutes and regulations applicable to those activities, as further discussed below. The following forms of enterprise are the most common alternative structures to conduct business in Puerto Rico. Sole Proprietorship: A sole proprietorship is a business whose assets are owned by a single individual and not by a separate legal entity. Since the business is not incorporated, a registration of the trademark used in the business, if any, is recommended. There is only one level of taxation: at the owner’s level and at the owner’s tax bracket. The principal disadvantage of this form of enterprise is that the sole proprietor will be personally liable for the debts and obligations of the business. Traditional Partnership: The creation, actions, obligations, and dissolution of a traditional partnership are governed by the Puerto Rico Civil Code. A partnership is formed by two or more natural or legal persons that decide to bind themselves to conduct and operate a business as partners, with the intention of dividing the profits amongst themselves. However, although a traditional partnership is a separate legal entity from its partners, the partners will generally be personally liable for the debts and obligations of the partnership. Partnerships are not subject to income tax at the partnership level but rather at the partner’s level. Limited Liability Partnership: Limited liability partnerships (LLPs) are formed by, at least, two or more natural persons. In general, the partners of an LLP benefit from limited liability exposure for the debts and obligations of the partnership, with the exception of cases where the partner had personal knowledge and/or acted with willful misconduct. LLPs are subject to yearly renewal. Absence of a timely renewal may convert the LLP into a community property, and therefore expose the partners to unlimited liability. LLPs can offer all types of services, including professional services. If professional services are to be offered, all of the partners of the LLP must have a license duly issued by the corresponding Puerto


Rico instrumentality, and must also have professional liability insurance coverage. LLPs are taxes in the same manner as traditional partnerships. Corporation: Although Puerto Rico offers several mechanisms for doing business, the corporation is one of the most commonly used alternatives. A corporation can be organized for profit and not for profit purposes. A for profit corporation can be formed by one or more shareholders (natural or legal). It is a separate legal entity independent from its shareholders, whose personal responsibility for the debts and obligations of the corporation is limited to their capital contribution. Corporations’ income is subject to taxation at two levels. Corporations are taxed at the corporate level on their net income while shareholders are subject to income tax at their personal level on dividends distributions received from the corporation. In general, corporations are operated by directors and officers and are subject to strict corporate governance compliance. A not-for-profit corporation can be organized by one or more members and could qualify for tax exemption. Professional Service Corporation: A professional service corporation (PSC) is an entity that can be formed by one or more shareholders, whose business is to render only one professional service for which a license is required. Shareholders and officers must all be individuals licensed to render the same professional service in Puerto Rico. PSCs are subject to corporate governance as regular corporations. As in corporations, the shareholders of PSCs benefit from limited liability, except when professional liability, negligence or willful misconduct has been proven to have occurred while they are rendering the service. PSCs are also subject to taxation at two levels in the same manner as regular corporations. Limited Liability Company: Limited liability companies (LLCs) are one of the most recent alternatives to engage in business in Puerto Rico. In essence, LLCs are a hybrid between a partnership and a corporation. LLCs are constituted by members, rather than shareholders, who own an interest in the entity rather than shares. LLCs can be formed by one or more members (natural or legal), whose actions are governed by an operating agreement. Internally, they can operate as a


partnership or as a corporation, or as a combination of both. As opposed to corporations, LLCs are not required to file annual reports, but payment of an annual fee is required. While LLCs are by default subject to taxation at two levels in the same manner as regular corporations, they can elect to be treated as partnerships. Additionally, such partnership tax treatment is mandatory in certain circumstances. LLCs can be organized for profit and not-for-profit businesses. LLCs can be also organized to render professional services, subject to most of the limitations of the PSCs.

Tax Overview Puerto Rico offers attractive tax incentives to businesses wishing to establish operations in the Island. The Economic Incentives for the Development of Puerto Rico Act of 2008 (“Tax Incentives Act of 2008”) continues the historical line of local government incentives for investment in Puerto Rico. The Tax Incentives Act of 2008 reduces the income tax rates for eligible businesses to 4% (in some cases to 0% income tax). No tax is imposed on corporate distributions to shareholders. Exempt businesses also receive substantial tax exemption for other local taxes, such as a 90% exemption on property taxes and a 60% exemption on local municipal business taxes. Other tax incentives acts, such as the Puerto Rico Green Energy Incentives Act and the Tourism Development Act of Puerto Rico, also provide similar tax benefits. In addition to reduced rates, exempt businesses may qualify for substantial tax credits on certain investments. Many of these credits may be sold to third parties. These tax credits apply to eligible investments made in energy efficiency, strategic construction projects, tourism projects, acquisition of machinery and equipment, and research and development, among others. Moreover, in this time of globalization, the Exportation of Services Promotion Act of 2012 also offers tax incentives for the export of services from Puerto Rico. Puerto Rico’s geographic location and bilingual workforce, coupled with lower tax


rates for businesses that export services, make the Island particularly attractive for businesses looking to set up headquarters for the eventual export of services to other markets in Latin America and the rest of the world.

Free Trade Zone Puerto Rico has a very close relationship with the United States while conserving certain fiscal independence. This is particularly evident when discussing Puerto Rico’s “free trade zones.” A free trade zone offers a business a unique opportunity to establish its operations in an area with lower trade barriers and fewer bureaucratic requirements. As a general rule, imports and exports to and from Puerto Rico are subject to customs and tariff regulations issued by the United States. The Federal Foreign Trade Zone Act allows merchandise to enter and leave free trade zones in Puerto Rico without being subject to the customs laws of the United States. While in a free trade zone, a business may handle the merchandise as provided by the federal statute, and subsequently export it outside the zone with little or no customs impact. This also includes the manufacture of certain articles in the free trade zone. Many businesses have taken advantage of the Puerto Rico free trade zones, allowing them to move merchandise between free trade zones with no customs impact. This translates into lower operational costs, resulting in increased business revenues. ___________ IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


Labor and Employment Puerto Rico is subject to all federal laws unless specifically deemed locally inapplicable due to geographic or public policy considerations of the U.S. Congress. Hence, labor and employment statutes applicable in the fifty U.S. states are almost always applicable and enforced in Puerto Rico. Local statutes enhance or supplement federal employment law, and sometimes offer other protections not recognized by federal law. Some of the U.S. federal laws applicable in Puerto Rico in the labor context are: The Fair Labor Standards Act; the Employee Retirement Income Security Act (ERISA); the Consolidated Omnibus Budget Reconciliation Act (COBRA); the Family and Medical Leave Act (F.M.L.A.; the Americans with Disabilities Act (A.D.A.); and the Uniformed Services Employment and Reemployment Rights Act (USERRA); among others. Employers in Puerto Rico engaged in interstate commerce, or whose activities affect interstate commerce, are subject to the provisions of ERISA, COBRA and the F.M.L.A. The following is a summary of the most relevant local labor and employment statutes applicable to workers in Puerto Rico. Minimum Wage: The Minimum Wage, Vacation and Sick Leave Act of Puerto Rico provides for minimum vacation and sick leave for employees. Working Hours: The Puerto Rico Constitution establishes that the maximum working period per day shall not exceed eight hours. Local law provides greater protections than the federal counterpart with respect to the payment of overtime for time worked in excess of eight hours in any 24 consecutive hours and/or for time worked in excess of 40 hours in the work week.


Maternity Leave and Benefits: Local law grants pregnant employees the right to enjoy maternity leave. The rights, protections and benefits afforded by law apply to pregnant employees that are working, enjoying regular vacation or on sick leave, or are under any other type of special leave or rest authorized by law while the employment relationship is in effect. During pregnancy, working women are entitled to a fully paid rest period of four weeks before childbirth and four weeks after childbirth. In Puerto Rico it is illegal to dismiss, lay-off, reduce the salary, or discriminate in any manner against a female worker by reason of a reduction in her work productivity while she is pregnant. The employee is entitled by law to reinstatement and double damages for any violation. Christmas Bonus: Employers that employ 15 or more workers within the 12-month period comprised from October 1 of any calendar year until September 30 of the subsequent calendar year must pay each employee that has worked 700 or more hours during the period, an annual Christmas bonus. Special provisions apply to employers with less than 15 employees and/or who are experiencing economic hardship. Discharges: The general rule in Puerto Rico is that any employee in commerce, industry or any other business that has been hired without a fixed term of employment can be discharged for just cause, without cause, or even for an unjust cause. However, Commonwealth of Puerto Rico law provides for a mandatory severance payment to any employee hired without a fixed term who is discharged from his employment without just cause or for an unjust cause. A breach of contract action may be brought by any employee hired for a fixed term. Under certain circumstances, an unjustified dismissal may also trigger a statutory presumption of discrimination which may result in a very expensive lawsuit against the employer. It is therefore indispensable that reasonable written work rules of discipline and performance be published by the employer, and a copy of such rules is given to the employees in order for a discharge made pursuant to such rules to be considered as one for “just cause” within the meaning of the law.


Discrimination: Payment of substantial compensation may be imposed upon employers that are found to engage in the following activities: the discharge, lay-offs or discrimination against an employee regarding his/her salary, wage, pay or remuneration, terms, rank, working conditions, or work privileges; or, failing or refusing to hire or rehire a person, or limiting or classifying its employees in any manner which tends to deprive a person of employment opportunities, or to affect her/his status as an employee, on the basis of age, race, color, gender, status as a victim of domestic abuse, social or national origin, social position, marital status, political or religious beliefs of the employee or applicant for employment. Sexual Harassment: Commonwealth of Puerto Rico law prohibits sexual harassment in the workplace towards any employee and imposes severe monetary liability on any person or employer responsible of sexual harassment as defined in the law. Discrimination against the Disabled: Commonwealth of Puerto Rico law also prohibits discrimination by government contractors and employers with 15 or more employees against individuals with disabilities. Employers must make reasonable accommodation for the limitations of disabled individuals, unless said accommodation constitutes “an undue hardship in economic terms to the enterprise.” Veterans: Puerto Ricans can voluntarily serve in all branches of the U.S. armed forces. Puerto Rico law imposes upon the employer the obligation to reinstate a veteran to his former job, provided he petitions for it within a period of six months after his dismissal or discharge from the armed forces.

Immigration Overview Puerto Rico is subject to the federal Immigration and Nationality Act of 1952 in a manner identical to the 50 States of the U.S. Therefore, only the following


individuals may legally engage in employment in Puerto Rico: (1) citizens of the United States of America; (2) legal permanent residents; and (3) temporary foreign workers specifically authorized by the federal Department of Homeland Security through its Citizenship and Immigration Services and the Department of State with the issuance of a visa. The employment of foreign specialized professionals, middle and high managers, and executives is usually allowed by the federal government. Recruitment of unskilled and skilled labor, as well as first-line supervisors is usually more difficult. A special arrangement exists for individuals of the following countries: Canada, Mexico, Chile, Australia and Singapore.

Permitting Requirements The permitting requirements for businesses establishing operations in Puerto Rico vary, depending on the particular operations in question and the company’s needs and growth expectations, among others. The basic federal, Commonwealth of Puerto Rico and local permits, authorizations or licenses required for most businesses include: Business Authorization: Most companies (corporations, LLCs and LLPs) must register with the Puerto Rico State Department before commencing operations. Federal Employer Identification Number: New businesses shall apply for an employer identification number (EIN) with the U.S. Internal Revenue Service. The EIN is used for all tax purposes, including Medicare and Social Security taxes. Treasury Notification: The EIN must be notified to the Puerto Rico Treasury Department. Municipal Business License (Patente): Commonwealth of Puerto Rico law empowers every municipality to impose and collect municipal license taxes based


on the volume of business of up to 0.5 percent of gross receipts. Entities and individuals that establish businesses in Puerto Rico must apply for a municipal business license in the corresponding municipality within 30 days of commencing operations. Upon compliance with the municipality’s requirements, the Company will obtain a provisional license, which exempts the company from paying tax during the first semester of operation (based on the government’s fiscal year — January 1st to June 30th or July 1st to December 31st). Unemployment and Disability Identification Number: Entities must obtain an unemployment and disability account number assigned by the Puerto Rico Labor and Human Resources Department. The unemployment insurance tax is administered by said agency. Temporary disability insurance may be obtained privately; proof of such insurance must be filed with the Puerto Rico Department of Labor. In the alternative, this requirement may be met by obtaining coverage from the Puerto Rico Non-Occupational Disability Insurance Bureau (“SINOT” for its Spanish acronym). Worker’s Compensation Fund: All employers are required by law to purchase a workmen’s compensation insurance policy issued by the State Insurance Fund Corporation. Insurance premiums vary in accordance with the level of risk assigned to the various categories of employees. Employers having such coverage have absolute immunity from civil liability stemming from employees’ occupational accidents or illnesses, except for those accidents or illnesses which are intentionally caused by the employer. Merchants and Business Registry: All natural and juridical persons engaged in business activities in Puerto Rico must register with the Commerce and Economic Development Department. The registration form must be filed on or before January 15 of the year after commencement of operations. Sales and Use Tax Registration: Commonwealth of Puerto Rico law imposes a sales and use tax on the sale of taxable goods and services. Accordingly, all persons conducting business in Puerto Rico must register as a merchant with the


Puerto Rico Treasury Department 30 days prior to commencing operations. A separate registration with the local municipality may also be required, depending on the municipality in which the company will establish its business. Once registered, businesses will be required to file a return and remit any tax collected on or before the 10th day of every month. Bidders’ Registry: All natural persons or legal entities who wish to provide goods and/or nonprofessional services to the executive agencies and public corporations of the Commonwealth of Puerto Rico, excluding the Public Private Partnership Authority, the Office of Government Ethics, the Puerto Rico Institute of Culture, the University of Puerto Rico, the Planning Board, and the State Election Commission, must register with the General Services Administration’s “Registro Unico de Licitadores.” After registration, each prospective bidder must obtain a Certificate of Eligibility. All applicable executive agencies and public corporations of the Government of Puerto Rico must use and verify the qualifications of the bidders before awarding bids for the purchase of goods or entering into contracts for any such services. Some executive agencies will also require registration with their own bidder’s registry after obtaining the Certificate of Eligibility from the General Services Administration. Manufacturer’s Excise Tax Identification Number: The Excise Tax Act provides tax exemption for raw materials and machinery and equipment used in manufacturing plants. Companies seeking to benefit from such exemption must obtain a Manufacturer’s Excise Tax Identification Number from the Excise Tax Bureau in order to take raw materials at ports of entry and to prove exemption status. Construction and Use Permit: Commonwealth of Puerto Rico law requires that businesses be located in areas which are zoned for the particular intended use. Constructing or expanding existing structures to accommodate a business may require a construction permit by the Office of Permits Management or the Municipal Permits Office, as applicable. Permits are also required before occupying a building and using it as intended. Use permit applications must be


filed with other Commonwealth of Puerto Rico agencies’ endorsements or certifications. Chauffeurs Insurance Employer Account Number and Notice of Employee Entry: Entities shall obtain a Chauffeurs Insurance Employer account number and file the referenced notice for employees who drive motor vehicles in the ordinary course of employment before the Chauffeurs Social Security Bureau of the Department of Labor and Human Resources. Please note that businesses may be required to obtain additional permits, authorizations, and licenses in accordance with other federal, Commonwealth of Puerto Rico and/or local laws and regulations which may be applicable to their particular operations. These permits, licenses and authorizations may pertain to such areas as environmental and natural resources protection, land use, infrastructure, health and safety, building approvals, fire prevention and worker protection, among others.

Intellectual Property Given Puerto Rico’s political status as a territory of the United States, all U.S. federal intellectual property laws are applicable to Puerto Rico. Accordingly, all registrations, notices and rights granted by the United States Patent and Trademark Office (“USPTO”) or by the Copyright Office of the Library of Congress extend to Puerto Rico. In addition, Puerto Rico has enacted its own trademark and copyright legislation which is consistent with federal trademark and copyright law. Pursuant to local legislation, the Puerto Rico State Department accepts both trademark and certain copyright filings in its respective Trademark and Copyright Offices. Such legislation has in fact created a dual system of trademark and copyright protection in Puerto Rico: federal and local registration. In the event of copyright or trademark infringement, the intellectual property owner may have dual causes of action in both the federal and local courts. There is no local patent


law or registry since federal patent law preempts all such legislation. Marks filed with the USPTO may be “deposited” with the local trademark office in order to give publicity of the federal registration to the Puerto Rican public. Unlike the USPTO, registration of a trademark in Puerto Rico does not extend to any other state or jurisdiction in the United States. However, registration of a trademark in Puerto Rico does provide some additional advantages to mere USPTO registration. Trademarks registered with the Puerto Rico State Department constitute prima facie evidence of ownership under Puerto Rico law. Local trademark registration grants a trademark owner access to injunctions from the local courts, and a certified copy of registration exempts its owner from posting bonds in certain cases. Also, local registration impedes unrelated parties from filing confusingly similar marks in Puerto Rico. The Intellectual Property Act covers local copyright registration. It is, however, of limited scope since it only covers moral rights of the author of the work, such as the right of attribution of the work and the right to protect its integrity.

Special Regulations and Requirements to Conduct Business Consumer Protection Laws and Regulations: The Department of Consumer Affairs (commonly referred to as “DACO”) is a governmental consumer advocacy agency which advises consumers on their rights and has the authority to enforce said rights. DACO defends and implements the rights of the consumer; restrains inflationary trends; and establishes and inspects price controls over goods and services. In order to achieve its objectives, DACO has promulgated a series of regulations covering such different areas of consumer interest and protection such as:

Misleading practices in advertising

Contests and sweepstakes

“Rain checks”


In-store pricing labels and other required store signage

Automobile warranties

Real estate brokerage

Residential real estate development

New condominium registrations

Condominium Law violations Construction defects and other construction-related services

Gasoline retail prices

Cement quality controls

Real property contractor registration

Collection agencies Almost any complaint that a consumer may have against a retailer, service provider or any other type of business establishment that serves the public can be presented to DACO for review. DACO has the authority to hold administrative hearings and to issue rulings against businesses, and may inspect businesses and establishments in Puerto Rico as part of its standard regulatory enforcement procedures. DACO is also authorized to impose fines, which currently may be of up to $10,000 per infraction, and may also refer certain violations for criminal action. The Dealer’ and Sales Representatives’ Contracts Acts: Law 75 of June 24, 1964, commonly referred to as Law 75, is aimed at protecting the interests of dealers or distributors, whether they are exclusive or not, operating in Puerto Rico from the harm caused when a principal or supplier arbitrarily terminates or impairs a distributorship once the dealer has created a favorable market for the supplier’s product or services. An offspring of the Dealer’s Contract Act, the Sales Representatives’ Contract Act, was enacted as Law 21 of December 5, 1990. Law 21 protects only exclusive sales representatives — who normally assume all of the operational costs which such representation entails, such as the cost of maintaining an office, exhibition rooms, vehicles, office personnel, phones, power, water, insurance, travel costs,


representation costs, office supplies and municipal patents from termination or impairment without just cause. Under either Law 75 or Law 21, the contract may not be terminated or impaired without just cause. The “established relationship” between the parties is governed by the agreement. Therefore, such laws only protect against detriments to contractually acquired rights of the relationship derived from a dealer’s or sales representative’s contract. However, the laws require just cause to impair, terminate or refuse to renew regardless of any contract clause establishing a fixed term or allowing impairment, termination or non-renewal other than for just cause. Bank Activities: Puerto Rico does not have a central bank and thus forms part of and is regulated by the Federal Banking System. Local as well as foreign banks (by means of branches or representative offices) must obtain a license from the Commissioner of Financial Institutions before starting operations. The Office of the Commissioner controls, supervises and regulates the interest rates and maximum fees applicable to any given financial transaction, unless otherwise specified in special legislation. Securities Activities: The U.S. Securities and Exchange Commission (SEC) controls the purchase and sale of securities in the U.S. markets. For these purposes, Puerto Rico is considered part of the U.S. market. Since Puerto Rico does not have a local capital exchange market, generally all purchases and sales of securities in Puerto Rico are done in the U.S. markets. In addition, the Commissioner of Financial Institutions regulates the financial activity in Puerto Rico. Therefore, certain public issuances of bonds or preferred stocks, among others, must be registered with the Commissioner of Financial Institutions in order to be marketed and sold in Puerto Rico. Insurance Activities: The business of insurance is subject to the provisions of the Insurance Code and the rules and regulations promulgated by the Office of the Commissioner of lnsurance.


Start a Business Practice Group GAC is one of the largest and most prestigious law firms in Puerto Rico. Every lawyer and every member of our staff is committed to providing personal, responsive and high quality service; with expediency and cost-efficiency. We understand the business needs and concerns associated with establishing or expanding a business. For this reason, GAC has an inter-disciplinary practice dedicated to aid, counsel, assist, and protect the interests of business concerns. Our lawyers have extensive experience identifying the requirements and challenges clients may face, offering creative and cost-effective solutions that meet the regulatory standards as well as the client’s needs. A full range of legal services to business are provided, focusing on protecting the companies’ interests and positioning them for profitability and growth. The Start a Business Practice Group will identify and obtain all permit and license applications and filings, assist with the purchase or lease agreements, and loans and financings, and procure and obtain particular authorizations from the applicable governmental agencies. Group members have significant experience assisting clients in the preparation and review of permit applications and the negotiation of numerous permits, authorizations and licenses, including permit terms and conditions at the local, Commonwealth of Puerto Rico, and federal jurisdictions.


Contact Information

If you would like to speak with one of our attorneys about a specific legal issue, or have any other questions, you may contact us by using our e-mail form in our website at www.gaclaw.com, by contacting any of the shareholders of the Firm listed in our website, or by calling us at 787.759.8000.

Address:

Physical: Postal: 250 Muñoz Rivera Avenue PO Box 70364 American International Plaza San Juan, Puerto Rico 00936-8364 Suite 1400 Fax: 787.767.9333

San Juan, Puerto Rico 00918

The information contained herein is current as of January, 2012 or as otherwise indicated. Since laws and regulations may be amended or repealed, no action should be taken in reliance of any information in this guide, except after prior consultation with your legal representation

© 2012 All rights reserved.