How to buy real property in Puerto Rico

Puerto Rico law does not prohibit or restrict a foreign person from purchasing real estate in Puerto Rico. Under Puerto Rico law, the title is referred to as fee simple and can be by a purchase and sale, gift, inheritance, exchange or by adverse possession just as the United States does.

Fee simple entitles the owner to sell, transfer, mortgage, encumber, lease and/or use the property, subject to zoning regulations and recorded easements, covenants and other liens and encumbrances. Fee simple title can be acquired by a private contract between the transferor and transferee. However, if the parties wish for the transfer of title to affect third parties, the title must be transferred by a public deed executed before a notary public in PR.

A certified copy of this deed is then recorded  at the Registry of Property of Puerto Rico (the “Registry.”) Parties to a real estate transaction must pay stamps and recording costs upon the execution of a deed which is to be filed in the Registry, the cost of which depends on the amount of the transaction (such as the purchase price in a purchase and sale transaction). The rate is approximately $5.65 per thousand. Notaries in Puerto Rico have to be admitted to the practice of law and therefore, only lawyers may act as notaries in the legalization of documents that need to be registered at the Puerto Rico Registry of Property, such as deeds of purchase and sale.

The maximum allowable notary fee in Puerto Rico is 1% of the property value for the first US $500,000 plus 0.5% of the amount in excess of $500,000 and notary charges tend to be close to the aforesaid maximum allowable amount. Prospective purchasers and mortgagees may examine title with respect to a parcel in PR by examining the records of the Section of the Registry which covers the municipality where the parcel is located.

The title is usually examined by requesting a local title company to prepare a title study with respect to a parcel. The title study will show who owns the parcel, the liens, and encumbrances to which the parcel is subject and the priority of said liens, and any judicial or creditor liens that may be filed. A title study, if prepared properly, would reflect defects in the chain of title, if any. It is recommended that a person who acquires fee simple title or any other real property right that it does so by means of a public deed, and that a certified copy thereof is filed for recordation in the Registry.

The foregoing action, coupled with other requirements, would protect the acquirer as a “registered third party” from unrecorded rights and subsequent fraudulent sales by the seller/transferor. Also, it is typical in PR for an acquirer of fee simple title to obtain property title insurance. This insurance protects the insurers from damages sustained by reason of title to the property being vested other than in the insurer, any defect in or lien or encumbrance on the title, unmarketability of title, and lack of a right of access.

• Documents Needed to apply for a loan for salaried employees:
• Copy of the last two paycheck stubs showing year-to-date income 
• A complete copy of the two previous years tax returns 
• Copy of W-2 form for the past year
• Copy of the three most recent account statements for all checking, savings or other asset accounts 
• For self-employed persons a copy of the financial statements for the previous two years and year-to-date, including Profit and Loss statement
• Copy of the last six months of business bank statements for corporation
• Copy of the Municipal Patent and Incorporation Certificate
• Copy of year-to-date Profit and Loss statement 
• Original Social security award letter or Pension Award Letter 
• A copy of the fully executed divorce decree indicating the amount of child support, alimony, etc

Property tax in Puerto Rico, real property is subject on an annual real property tax. Real property taxes are computed based on property values that date back to 1957-1958 (which was the last time that a general appraisal was conducted by the Government of Puerto Rico). The assessment is made as of January 1 of each year by the Municipal Revenue Collection Center (“CRIM”, for its Spanish acronym) by discounting the current fair market value (“FMV”) of the property to the 1957-1958 values. The rates, ranging from 8.03% to 11.83 %, of which vary depending on the municipality where the property is located.

The maximum allowable notary fee is 1% of the property value for the first US $500,000 plus 0.5% of the amount in excess of $500,000. Registration and filing fees Several fees must be paid to different offices such as the Municipal Revenues Collection Center (CRIM), Treasury Department and Registry of Property. These fees are minimal and are not expected to exceed 0.75% of property and mortgage value. Internal revenue stamps Internal Revenue Stamps are purchased to be canceled on the original of the deed of purchase and sale and first certified copy of the deed to be filed in the Registry of Property. The notary keeps the original while the certified copy is filed at the Registry.

Each party pays for their own lawyer. Puerto Rico Incentive Laws Puerto Rico already offers significant tax incentives and some tax credits for investors, individuals, certain manufacturing industries, hotel and tourism-related operations, agricultural activities, the film industry, international banking operations and many more.

If you are interested in investing in Puerto Rico there are various tax incentives for you to choose from please contact an accountant to see which option is best for you:

Act 20 - Export Services Act (4% tax rate)
Act 22 - Individuals you establish residency in PR no Federal Tax on income or capital Gains
Act 185 - Private Equity Fund for Investors (Puerto Ricans, American or International Investors)
Act 74 - Puerto Rico Tourism Development Act for Businesses and Hospitality