Puerto Rico Banking License

Introduction to Puerto Rico Banking License 

• Attaining a Puerto Rico banking license is a smooth and hassle-free process. Tetra Consultants advises you to read through this guide on Puerto Rico banking license to fully understand the legal regulations and requirements to adhere to during the process of applying for the license. Tetra Consultants 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, Puerto Rican government has sought to enact legislation to encourage the development of an offshore financial services center. This includes certain tax benefits, including 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, which means 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. 
• There are great tax advantages that are provided with regard to financial entities. A 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 in the US. It is an excellent first step in opening up a company in this nation. A lot of 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. Because of this, it is a top choice for investors and high-net-worth people 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 are able to 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. Among the financial firms that typically seek for this license and benefit from it are insurance companies, hedge fund managers, and investment advisors. This demonstrates its unparalleled versatility. 

Reduced costs 

• Even though other top offshore banking licenses continue to provide major economic benefits. Nonetheless, licensing prices have risen rapidly. That is just another reason why Puerto Rico remains a popular destination and one of the favorites. 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$1million from US$200,000. Thus, in total the applicant will be required to have US$11million in cash ready prior to applying for the license. 

What are the activities 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 from 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 to them. 
• 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 was initially enacted to allow international banking to compete with offshore financial institutions in the Caribbean. However, with the enactment of Act 273, whose goal was to strengthen the country’s environment for conducting international banking. It allows International Financial Entities to conduct standard banking and financial activities with Puerto Ricans who are not residents. 
• The country’s Office of the Commissioner of Financial Institutions (OCFI) is the entity responsible to license 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 when applying for a Puerto Rico banking license. It must secure sufficient office space and show confirmation of this to the Board. In the case of existing banks in Puerto Rico, these requirements can be met by reserving a portion of the bank’s current office space. 
• Additionally, there is a need for at least one independent director who has no economic interest in a bank. Also, the independent director must not be an employee of the IFE. 
• Moreover, there is a requirement for a minimum of 3 directors, one of which should be an independent director and they must constitute the board of directors which must be in odd number. 

Capital 

• The International Banking Entity preferring to obtain a Puerto Rico banking license is required to have an authorized share capital US$10,000,000 which must be paid to obtain a license. 
• Upon receiving a Puerto Rico banking license and at all times thereafter, an International Banking Entity is required to maintain at least US$300,000 in unencumbered assets in Puerto Rico. Also there is a non-refundable fee of US$50,000. Regulators have the authority to charge applicants fees for investigating their organizational structure and shareholders. The annual license fee has been increased from $5,500 to $25,000, with an additional $5,000 fee for each branch. These assets may consist of deposits with the Government Development Bank for Puerto Rico or with other banks doing business in Puerto Rico (not including affiliates of the IBE), investments in Puerto Rico government securities, United States government securities, and United States municipal securities, or any other real or personal property owned by the IBE and held in Puerto Rico. 

Changes Requiring Board Notification or Approval 

• The capital structure of an International Banking Entity may not be altered without the prior written approval of the Board. This restriction applies to any reduction in capital and to any issuance of stock or other securities convertible into stock. An IBE is also required to seek prior written approval from the Board for amendments to its articles of incorporation.” 
• Transfers involving the sale of more than five percent of the outstanding shares of any class of voting securities of an International Banking Entity or more than ten percent of the outstanding shares of any class of non-voting securities, or transfers that cause any person to own more than five percent of the outstanding voting shares or ten percent of the non-voting shares require thirty days prior notice to the Board and written authorization. Similar transfers involving the securities of the parent entity must also be reported to the Board within ten days after the occurrence of the transfer, but the Board’s prior approval is not required. 
• A transfer of control would not result in revocation of an IBE’s license unless the Board determined that the International Banking Entity’s ability to conduct its operations and meet its obligations could be impaired, that the transfer would result in a violation of the Act or regulations, or that the transfer would have a negative impact on the economy of Puerto Rico. 

Reports and Records. 

• An International Banking Entity must maintain a complete set of books and records in its business office in Puerto Rico. Such records must be segregated from the records of any other affiliated enterprise. These records are subject to inspection by the Board. An IBE must submit annual and quarterly financial statements to the Board. The annual statements, which must include a balance sheet and an income statement, must be certified by an independent certified public accountant licensed to practice in Puerto Rico. 

Personnel 

• Within the course of its first year of operation, an International Banking Entity applying for a Puerto Rico banking license must employ in Puerto Rico at least 8 employees on a full-time basis. For these purposes, employees of a corporation of which the International Banking Entity is a unit will be considered employees of the International Banking Entity only if such employees are assigned exclusively to the operations of the unit. 

What is the procedure of obtaining the Puerto Rico Banking License?

Tetra Consultants’ team of experts has summarized the most prevalent steps that take place during the process of obtaining a Puerto Rico banking license.