Employers must have "just cause" to terminate an employee based on performance or behavior on the job. If there is no legitimate reason for firing, the employee is compensated with severance compensation.

No notice period is required.

In Puerto Rico, the probationary period is typically nine months for the majority of employees, but twelve months for those classified as "executives," "administrators," and "professionals."

There is no severance pay if the termination is for "just cause." If there is no just cause for termination, the employee is entitled to two months' pay if the termination occurs within the first five years; three months' pay if the termination occurs between five and fifteen years; and three months' pay after fifteen years. Additionally, the employer must pay an additional two weeks' salary for each year of service, up to a total of nine months severance.

For businesses subject to the Federal Fair Labor Standards Act, the minimum wage is $7.25 per hour (FLSA). For individuals not protected by the act, the minimum wage is $6.55 or 70% of the federal minimum wage, whichever is greater.

Employees under the age of 20 may be paid a "training" pay of $4.25 for the first 90 days of employment, but must be paid the federal minimum of $7.25 immediately after the conclusion of the 90-day period.

A domestic corporation's global revenue is taxed in Puerto Rico. A foreign company engaged in trade or commerce in Puerto Rico is taxed on income from Puerto Rican sources that is effectively linked income at the normal corporate tax rates. A non-resident foreign company is subject to a withholding tax (WHT) rate of 29 percent on Puerto Rican-source gross revenue that is not effectively linked with a Puerto Rican trade or activity.

The current CIT rate is made up of a regular tax of 18.5 percent plus a progressive surtax (calculated on surtax net income).

The surtax net income' is essentially the net taxable income subject to normal tax minus a surtax deduction of 25,000 US dollars (USD). The following are the graded surtax rates:

Surtax net income of up to USD 75,000 is taxed at 5%.

USD 3,750 + 15% surtax on net income ranging from USD 75,001 to USD 125,000.

From USD 125,001 to USD 175,000, net income is subject to a surtax of 16%.

USD 19,250 + 17% surtax on net income ranging from USD 175,001 to USD 225,000.

From USD 225,001 to USD 275,000, net income is USD 27,750 + 18% surtax.

USD 36,750 + 19% of surtax net income in excess of USD 275,000 results in a maximum nominal tax rate of almost 37.5 percent.

For controlled groups and associated businesses, the relevant surtax rate is determined on a consolidated basis, which means that the net taxable income of all entities subject to tax in Puerto Rico within such groups must be aggregated to determine the applicable surtax rate.

Puerto Rican citizens are taxed in Puerto Rico on their global income, regardless of where it is earned. Non-resident Puerto Ricans are solely taxed in Puerto Rico on income earned in the territory. Income for services rendered is directed to Puerto Rico depending on the location of the services. In most cases, such revenue is apportioned to Puerto Rico depending on workdays.

Puerto Rico has a de minimis regulation in place to prevent extremely tiny sums of revenue from personal services from being sourced to the territory. Income from personal services done in Puerto Rico will not be included if it is USD 3,000 or less and the individual was present in Puerto Rico for 90 days or less during the calendar year (such personal services must have been provided to an employer who is not engaged in trader or business in PR).

For an income not over USD 9,000, the tax rate is 0.

For an income over 9,000, but not over 25,000, the tax rate is 7% of the excess over USD 9,000.

For an income over USD 25,000, but not over USD 41,500, the tax rate is USD 1,120 plus 14% of the excess over USD 25,000.

For an income over USD 41,500, but not over USD 61,500, the tax rate is USD 3,430 plus 25% of the excess over USD 41,500.

For an income over USD 61,500, the tax rate is USD 8,430 plus 33% of the excess over USD 61,500.

The state sales and use tax is 10.5 percent, with an extra 1 percent applied at the municipal level, for a total tax of 11.5 percent.

Employment contracts in Puerto Rico may be either verbal or written, and they must be understood by both parties in any language. If an employee signs an agreement, it is assumed that he or she understands the terms of the agreement.

Contracts might be for a set period of time or for an unlimited period of time. If no expiration date is specified in the contract, the agreement will be regarded for an infinite time. Fixed-term contracts cannot be more than three years in length, either in their original term or in the sum of their renewals.

United States Dollar