Introduction to Puerto Rico Banking License
Attaining a Puerto Rico banking license is a smooth and hassle-free process with Block3 Finance at the wheel. We advise you to read through this guide on the Puerto Rico banking license to fully understand the legal regulations and requirements to adhere to during the process of applying for the license. Block3 Finance is an international consulting firm that provides assistance with the attainment of a Puerto Rico banking license. Our team of professional consultants has extensive experience with the rules and regulations governing such licenses.
Puerto Rico is a non-incorporated territory of the United States. While all citizens of Puerto Rico are deemed citizens of the United States, the island nation is far from a smooth extension of the United States. Puerto Rico is a self-governing, democratic nation among other government entities as its own independent taxing authority.
Given its location in the Caribbean and recent economic challenges, the Puerto Rican government has sought to enact legislation to encourage the development of an offshore financial services center. This includes certain tax benefits, such as rates as low as four percent on corporate taxes and tax holidays for certain expatriates. Most recently, Puerto Rico passed Act 273, which established international financial entities and an associated international banking license.
Puerto Rico is the perfect location for the formation of an international offshore bank, despite the fact that it is not strictly "offshore." With a favorable tax rate of 4% of profits and simple access to the US financial system, Puerto Rico’s International Financial Entity license gives its holder extensive banking authority. Even though the banking regulations were recently enacted, the licensing accelerated the development of offshore banking in Puerto Rico, leading to the establishment of approximately 25 offshore banks in 2018.
What Are the Benefits of Acquiring a Puerto Rico Banking License?
Attractive Tax Regime: Puerto Rico has no dividends tax or capital gains tax. The corporate tax rate is territorial for foreign companies engaging in business in Puerto Rico, meaning they only pay taxes on their Puerto Rican income. It can be reduced from a heavy 33% to just 4% thanks to a wide array of tax incentives.
Financial entities benefit significantly. Foreign-derived income is immune from taxation for an international financial company created in Puerto Rico for its first 20 years, while all locally sourced corporate revenue is subject to a 4% tax rate.
Location: Despite being in the Caribbean, Puerto Rico is a US territory. As a result, it serves as the ideal gateway for Latin Americans to enter the US market. Many Americans who seek to minimize their tax obligations migrate there for retirement and business purposes.
Solid Banking Confidentiality: Because Puerto Rico is not a member of the Common Reporting System (CRS), it does not automatically exchange tax data with other countries’ tax agencies. As such, it is a top choice for investors and high-net-worth individuals who wish to secure their money in complete secrecy.
The Best of the Best: One of the most potent financial service structures in the world is a legally registered international financial corporation in Puerto Rico. These organizations can provide a variety of foreign banking services, investment management services, and financial services to overseas clients from Puerto Rico.
Flexible License: In Puerto Rico, everyone can apply for a license to operate an international financial company, not just foreign banks. Financial firms like insurance companies, hedge fund managers, and investment advisors can also benefit from the license, showcasing its unparalleled versatility.
Reduced Costs: Even though other top offshore banking licenses continue to offer major economic benefits, licensing prices have risen rapidly. Puerto Rico remains one of the favorites due to its low costs. A financial institution in Puerto Rico is required to have a minimum capital of US$10,000,000, which is the lowest minimum capital requirement in the offshore banking business. Additionally, the required cash deposit has been increased to US$1 million from US$200,000, totaling US$11 million to apply for the license.
What Activities Are Allowed Under a Puerto Rico Banking License?
With a Puerto Rico Banking License, you can:
Accept deposits and loans from non-residents of Puerto Rico as well as certain government agencies.
Transfer funds to any Puerto Rican bank or an international bank with a presence in Puerto Rico.
Offer loans to non-residents of Puerto Rico and issue letters of credit.
Offer discounted money orders and bills of exchange to non-Puerto Rican residents.
Invest in tax-free assets, equities, and Puerto Rican government bonds.
Carry out transactions in any currency, as well as gold or silver trading and foreign currency trade.
Underwrite and trade notes and debt instruments issued by non-residents of Puerto Rico.
Engage in trade finance of raw materials and finished goods imports and exports.
Purchase and lease personal property on behalf of non-residents of Puerto Rico.
Establish branches outside Puerto Rico in the continental USA or in other foreign countries.
Custody of virtual assets and virtual currencies.
Who Is the Issuing Authority of a Puerto Rico Banking License?
In 2012, Puerto Rico replaced the long-existing Act 52, which initially allowed international banking to compete with offshore financial institutions in the Caribbean. With the enactment of Act 273, international banking was strengthened, allowing International Financial Entities (IFE) to conduct standard banking and financial activities with Puerto Ricans who are not residents.
The Office of the Commissioner of Financial Institutions (OCFI) is the entity responsible for licensing International Financial Entities (IFE) to conduct specified financial transactions.
What Are the Regulatory Requirements for Obtaining a Puerto Rico Banking License?
General Requirements
A physical presence in Puerto Rico is required for an International Banking Entity (IBE) when applying for a Puerto Rico banking license. Sufficient office space must be secured and confirmed to the Board.
There must be at least one independent director who has no economic interest in the bank.
A minimum of three directors is required, one of which should be independent. These directors must constitute the board, and the number of directors should be odd.
Capital Requirements
Authorized share capital of US$10,000,000 is required to obtain a license.
Upon obtaining a license, the IBE must maintain US$300,000 in unencumbered assets in Puerto Rico.
There is a non-refundable fee of US$50,000 and an annual license fee of US$25,000, with an additional US$5,000 fee for each branch.
Changes Requiring Board Notification or Approval
The capital structure of the IBE cannot be altered without prior written approval of the Board.
Transfers involving more than 5% of outstanding shares require 30 days’ prior notice to the Board.
Reports and Records
IBEs must maintain a complete set of books and records in Puerto Rico, segregated from any affiliated enterprises.
IBEs must submit annual and quarterly financial statements to the Board, certified by an independent public accountant.
What Is the Procedure for Obtaining a Puerto Rico Banking License?
1. Setting Up the Banking Entity: Block3 Finance will organize the steps required to register the banking entity in Puerto Rico.
2. Meeting Local Substance Requirements: Block3 Finance will assist you to meet local office and employee requirements. Our HR team will help with the recruitment of local qualified employees, including for critical positions like a compliance officer.
3. Preparing the Legal Documents: We will prepare all required documents, such as the business plan, AML/CFT policy, and insurance policy, for your application.
4. Applying for the Correspondent Bank Account: We will assist you in opening the correspondent bank account via Fedwire, with the US Federal Reserve Bank as your corresponding bank.
5. Applying for the Operative Puerto Rico Banking License: After meeting all the regulatory requirements, we will submit your application for the Puerto Rico banking license.
6. Applying for the SWIFT/BIC: Once the license is obtained, we will assist you in applying for the SWIFT Code for your bank.
What Are the Documents Required to Obtain a Puerto Rico Banking License?
Passports and CV of final beneficiaries and directors
Copies of financial licenses held (if applicable)
Proof of funds and their legitimacy
Business plan
Anti-money laundering policy
Financial analysis for the next five years
What Is the Tax Implication?
Puerto Rico Offshore Banking License Tax Treatment
4% income tax on net income (increased to 10% at renewal)
Full property and municipal license tax exemptions
6% income tax rate on distributions to Puerto Rican resident shareholders
0% tax rate on distributions to non-Puerto Rican resident shareholders
How Much Time Does It Take to Obtain a Puerto Rico Banking License?
The total timeline to obtain the Puerto Rico Banking License takes about 6 months, from the registration of the company to obtaining the SWIFT Code.
How Much Does It Cost to Obtain a Puerto Rico Banking License?
The total engagement fee will depend on the services you require from Block3 Finance. We provide transparency in our pricing, and all costs are discussed upfront.
Looking for a Puerto Rico Banking License?
Contact Block3 Finance to find out more about how to obtain a Puerto Rico banking license. Our team of experts will revert within the next 24 hours.
Block3 Finance is committed to guiding you through the entire Puerto Rico banking license process efficiently. Let us take care of the regulatory and procedural details so that you can focus on growing your business.
