Merchant Accounts in Puerto Rico: Everything You Need to Know Before Making the Move - DirectPayNet

Merchant Accounts in Puerto Rico: Everything You Need to Know Before Making the Move


We get it; you want to move your business to Puerto Rico to take advantage of advantageous tax breaks and the year-round sun, sea, and sand! But you need to understand that you can’t take your merchant accounts with you.

While business owners can move over to Puerto Rico pretty seamlessly, setting up payment processing in this US territory is not quite as straightforward. What’s more, the generous accommodations made to foreign investors and entrepreneurs are not quite as accommodating as they once were.

So before you decide to move your online or small business to Puerto Rican business hotspots such as San Juan, here’s what you need to know so that you can make an informed decision ahead of time.

Why a Relocation to Puerto Rico Tempts Businesses and Entrepreneurs

Let’s start by explaining why you might want to move to Puerto Rico aside from the glorious year-round tropical weather, of course! Firstly, much like the nearby US Virgin Islands, Puerto Rico is a US territory, making it far easier for businesses and individuals to relocate to this warm, tropical island.

Furthermore, some pretty enticing tax incentives were brought in under legislation known as Acts 20 and 22. By moving to Puerto Rico, you can secure ZERO capital gains tax on all future gains on bonds, stocks, crypto, and other investments. That’s right; NOTHING TO PAY on your passive income streams, including if you pay yourself primarily using dividends from your own company!

On the company side, you can benefit from a corporate tax rate of a mere 4% too (compared to 21% on US soil), and they are ways to also reduce this to zero.

The qualifications for these tax breaks are pretty lax too. Even though they have been tightened up quite substantially, they are still very attractive. To qualify for all of the tax incentives, you need to:

  • Make a charitable donation of $10,000 each year (used to be $5,000)
  • Pay a $5,000 tax filing fee (was $300)
  • Buy a house and use it as your primary residence with two years of living on the island (it makes sense if you’re moving there anyway)
  • If your company turns over more than $3,000,000 per year, you need to employ a full-time bona fide Puerto Rican citizen (this can be you if you live there full-time)

We think you’ll agree that if you’re turning over a solid five-figure monthly revenue, then these stipulations won’t be too much of a problem in return for (when structured correctly):

  • ZERO US federal income tax
  • A 4% corporate tax for your business
  • ZERO capital gains and dividends tax

Sounds pretty good, right?

But what if moving there meant that you lost your current merchant services? Suddenly it does sound so rosy. Most of you in high-risk categories would prefer to hold on to credit card processing that you’ve worked so hard for.

But here’s the thing, with the right planning and some help from the experts, there are ways that you can secure the best of both worlds. We will take a look at how you might achieve that outcome shortly. But first, let’s look at why moving your business to Puerto Rico creates an issue for payment processors and other financial institutions such as acquiring banks.

US High-Risk Merchant Accounts Cannot Be Transferred to Puerto Rico

While Puerto Rico is a US territory, you cannot obtain a US-based merchant account when your business is registered in Puerto Rico. You need to operate your company with a US mainland address in order to secure a domestic Merchant Identification Number (MID). Further stipulations include having an office with local employees and a business bank account on the mainland.

Then there’s the issue of Puerto Rico’s country-specific debit network used by merchant account providers and processing companies over there.

We won’t get into too many technical specifics here. In basic terms, Puerto Rico’s payment processing uses a unique debit network, making processing US cards such as Visa, Mastercard, and American Express challenging via a Puerto Rican merchant account.

This is especially the case if a portion of your business involves accepting in-person or over-the-phone payments with EMV credit or debit cards via virtual terminals or physical point-of-sale devices (POS systems).

Many payment processors don’t accept companies based in Puerto Rico for this exact reason. The extra work on the backend to process debit and credit card payments isn’t as profitable for them, so they don’t serve this US territory. Today, only a few Puerto Rican merchant account service providers (sometimes referred to as registered ISOs) are happy to take on this burden.

Thus, if you primarily serve US customers, a Puerto Rico merchant account alone will not be a viable solution for you. You will need to keep hold of your domestic US merchant accounts or find suitable workarounds.

So how can you keep the tax incentives of Puerto Rico without losing the best payment processing solutions for your business? As it turns out, you have plenty of options to choose from.

Already moved over to Puerto Rico and found out that you can’t move your US MIDs with you? Don’t panic! Here’s our guide to setting up a payment processing solution that works for you!

Maintain a US Mainland Subsidiary Company To Retain Access to Domestic Merchant Accounts

If you almost exclusively serve the US market, it probably makes the most sense to maintain a US subsidiary of your existing operation. You can then hold onto all of the benefits that come with your US merchant account (such as reduced processing rates compared to third-party providers such as Stripe) and retain access to important debit networks such as ACH for your electronic payments.

The disadvantage of this setup is that you would have to pay at least some taxes to the IRS as your US subsidiary would be liable for transactions processed on the mainland. However, you could optimize the structure to send all debit and ACH payments to your US merchant account and then set up an offshore merchant account or rely on a third-party provider that supports Puerto Rican companies such as PayPal to process your credit card payments.

That way, you maximize the revenue from Puerto Rico that is subject to the advantageous tax arrangements.

But what if you’re less dependent on the US for sales? Are there better ways to take your high-risk e-commerce business to the next level?

Look to Setup Offshore Merchant Accounts to Secure Better Fees and Conversions

Perhaps the US isn’t the most crucial market to you. Maybe you’re based in the US but primarily sell your services to European individuals, for example. In this instance, you could opt to use a full-service, third-party payment services provider such as Ayden or PayPal, who both currently accept Puerto Rican businesses.

However, while they give you the advantage of supplying you with a multi-faceted payment gateway that handles PCI compliance requirements, they have many drawbacks. Firstly, they have more expensive processing fees. Secondly, they like to change their minds about what counts as a restricted industry all the time, and they freak out at the first signs of your chargeback ratios climbing.

With third-party processors, you could be processing one day and suspended the next. It’s too much of a risk.

Besides, if you already have a solid processing history, you can secure much better pricing terms with an offshore merchant account.

Remember, there are no rules against you securing an offshore merchant account in the US. All you have to do is meet the requirements of having a business address, a business account, and a few local employees to secure offshore processing for US transactions. But then you start running into tax issues with the IRS again.

A way around this is to secure an offshore merchant account in a tax-friendly country. Some options to consider include Canada, Panama, or Ireland. These offer different tax advantages depending on your business needs.

But Canada is one of the best options for an offshore merchant account if the American consumer market is one of your main focuses as a business owner.

Canada Offers an Excellent Merchant Account Solution for Puerto Rican High-Risk Merchants

Firstly, since Canadian and American banks handle so much trade between each other, there should be little to no impact on your US conversions.

Canadian banks have a stellar reputation for processing USD payments made by US citizens, which presents an excellent workaround for the tax implications presented by processing US payments through a mainland subsidiary company.

Better still, with help from payment experts based in Canada (such as DirectPayNet), we can help you structure your company so that you pay little to no taxes on those payments as long as you’re not interested in selling to Canadians.

This arrangement may not be preferable for all Puerto Rican merchants, but it’s an excellent way to reduce the tax burden on your company and enjoy the perks of the Puerto Rican tax system at the same time.

Better still, you can repeat the process for different jurisdictions (such as the EU). You can set up another offshore merchant account in Ireland and start to secure similar benefits almost immediately.

Once you have serious monthly sales volumes, offshore processors will allow you to accept and settle in different currencies. This gives you the option to make some extra profit by trading your currencies strategically.

Yes, setting up offshore processing is more complex than running through a third-party provider, but you’ll reap the rewards for doing so. Plus, it’s easy if you leave the setting up part to the experts!

Call in the Help of Payment Experts Before Moving Your Business and Merchant Accounts to Puerto Rico

There is no question that life in Puerto Rico is tempting. HUGE tax breaks and a life of sea, sun, and sand is an offer that is hard to refuse. However, remember that there are some significant strings attached to those tax breaks. Worse, upping and moving your company has serious implications for your payment processing.

That’s not to say that you shouldn’t do it. Structured correctly, you can enjoy the best of both worlds. However, you will need the help of expert lawyers, accountants, and payment processing experts to make it happen.

Here at DirectPayNet, we’ve been helping companies and entrepreneurs move to Puerto Rico ever since the passing of Acts 20 and 22. The right solution for you depends on several factors, so it’s always best to speak to us to see how you can enjoy seamless payment processing while enjoying the tax break Puerto Rico has to offer.

So if you’re mulling over whether to start a new life in Puerto Rico with your high-risk business, make sure to get in contact with us today

About the author

As President of DirectPayNet, I make it my mission to help merchants find the best payment solutions for their online business, especially if they are categorized as high-risk merchants. I help setup localized payments modes and have tons of other tricks to increase sales! Prior to starting DirectPayNet, I was a Director at MANSEF Inc. (now known as MindGeek), where I led a team dedicated to managing merchant accounts for hundreds of product lines as well as customer service and secondary revenue sources. I am an avid traveler, conference speaker and love to attend any event that allows me to learn about technology. I am fascinated by anything related to digital currency especially Bitcoin and the Blockchain.