Pass-Through Entity in Puerto Rico: What It Is, How It Works, and Why It Matters to Your Business

One of the most important changes to Puerto Rico’s tax system in recent years arrived almost without fanfare: Act 52-2022, signed June 30, 2022, formally introduced the concepts of pass-through entity (entidad conducto) and disregarded entity (entidad ignorada) into the Puerto Rico Internal Revenue Code.

For many business owners, this changed — or should have changed — how their company is taxed.

If you have an LLC, corporation, or partnership in Puerto Rico and are not sure how it is classified for tax purposes, this article is for you.

What is a pass-through entity?

In simple terms: a pass-through entity is a legal entity — LLC, partnership, or in certain cases a corporation — whose income and expenses flow directly to its owners for income tax purposes.

The entity itself does not pay income tax. Instead, each partner or member includes their proportional share of the entity’s income (or losses) on their individual return and pays tax at the personal level.

This eliminates the double taxation that affects regular corporations: the corporation pays tax on its income, and then shareholders pay tax again on dividends they receive.

A pass-through entity is taxed once — at the owner level.

What changed with Act 52-2022

Before Act 52-2022, Puerto Rico’s tax system already had entities with flow-through treatment — the old partnerships, special partnerships, and individuals’ corporations. But they were separate classifications with their own rules, creating administrative complexity.

Act 52-2022, as explained by the Department of the Treasury in Administrative Determination 22-10 issued November 21, 2022, grouped these classifications under one set of rules to simplify compliance.

The main changes were:

For LLCs: Starting tax year 2022, an LLC in Puerto Rico can elect to be treated as a pass-through entity (if it has more than one member) or as a disregarded entity (if it has a single member). Before, the election depended on the LLC’s federal treatment.

For corporations: Starting tax year 2022, a corporation can elect to be treated as a pass-through entity, provided it meets certain requirements. This was not available before this law.

Unified rules: The former categories of special partnership and individuals’ corporation automatically became pass-through entities starting in 2022, under the new unified rules.

Pass-through entity vs. disregarded entity: the difference

These are two distinct categories within flow-through treatment:

Pass-through entity — Has more than one owner. Files the Pass-Through Entity Information Return (Form 480.2(EC)) and issues each partner or member a Form 480.6EC with their distributable share. Each owner includes that information on their individual return.

Disregarded entity — Has a single owner. For tax purposes, the entity "does not exist" — the owner reports income and expenses directly on their individual return as if they had generated them personally. No separate entity return is filed.

How do you elect pass-through entity treatment?

According to the Department of the Treasury’s Administrative Determination 23-01, the election is formalized through Form SC 6045, filed electronically as supporting documentation for the corresponding return.

For tax years 2022 onward, Form SC 6045 is required to make the election. Without this form, the entity is treated under the default classification that applies to its type.

What is the default treatment?

• Non-foreign LLC → Corporation (default treatment), unless it elects otherwise with SC 6045
• Partnership in existence as of January 1, 2011 that already taxed as pass-through → Continues as pass-through automatically
• Corporation → Corporation, unless it elects pass-through treatment

The critical point: if your LLC has been filing corporate returns without submitting SC 6045 electing another treatment, it is being taxed as a corporation — with double taxation included.

The 2025 pass-through entity return

Internal Revenue Circular Letter 26-04, issued by Hacienda on February 3, 2026, establishes filing rules for tax year 2025:

Deadline: The Pass-Through Entity Return (Form 480.2(EC)) must be filed no later than the last day of the third month following the close of the tax year.

For entities with a calendar year (closing December 31, 2025), the deadline was March 31, 2026.

Mandatory electronic filing: Since tax year 2021, the pass-through entity return can only be filed electronically through one of Hacienda’s certified programs.

Forms 480.6EC: Simultaneously with the return, the entity must file and deliver to each partner or member their corresponding Form 480.6EC, with the detail of their distributable share.

Extension: Taxpayers who cannot file by the deadline may request an automatic extension using Form SC 2644.

Why might an LLC want to be a pass-through entity?

The main answer is to eliminate double taxation.

Consider this simplified scenario:

An LLC with two partners generates $200,000 of net income for the year.

Taxed as a corporation:

• The LLC pays corporate tax on the $200,000 (rates from 18.5% to 37.5% depending on income level)
• Then, if partners want to withdraw those earnings as dividends, they pay additional tax on dividends at the individual level
• The same money is taxed twice

Taxed as a pass-through entity:

• The LLC does not pay tax on income
• Each partner includes $100,000 on their individual return and pays tax at their individual marginal rate
• Income is taxed once, at the owner level

For many small and mid-size businesses, the difference is significant.

When pass-through treatment might not be advantageous

Not every situation favors flow-through treatment. There are scenarios where taxing as a corporation may be more advantageous:

When the corporate rate is lower than the individual rate: In Puerto Rico, the corporate rate in certain brackets can be lower than the highest individual marginal rate (33%). If income is high and retained inside the corporation for reinvestment, taxing as a corporation can defer and reduce the burden.

For businesses under incentive decrees: Certain operations under Act 60 or other incentives have very low preferential corporate rates (4% for service exports) that may be more favorable than flow-through to partners.

When there are multiple investors with different needs: A corporate structure can facilitate selective dividend distribution and estate planning in ways a pass-through entity does not.

The decision requires analyzing projected income, owners’ marginal rates, the need to retain vs. distribute profits, and interaction with partners’ other income sources.

What many business owners do not know

Since Act 52-2022, the tax landscape for entities changed in ways many business owners have not fully processed.

If you have an LLC in Puerto Rico that was taxed as a corporation before 2022, there may already have been an automatic conversion to pass-through — or you should have elected and did not. Consequences of not managing this transition correctly can include incorrect returns and the wrong tax treatment for several years.

If you have a corporation that has never evaluated whether pass-through treatment makes sense, the analysis is worth doing — especially if owners are in low individual marginal rates or if the entity has losses that could flow to partners.

And if you have a new LLC that has never filed Form SC 6045, you should know that without that explicit election, Hacienda treats it as a corporation under the default treatment.

Key dates for pass-through entities in 2026

For entities with a calendar year (December 31 closing):

• 2025 return (480.2(EC)): due March 31, 2026
• Forms 480.6EC to partners: simultaneous with the return (March 31, 2026)
• Extension: request via SC 2644 before the deadline
• 2026 return: due March 31, 2027

For entities with a fiscal year other than December 31, the deadline is the last day of the third month following the close.

An important note

An entity’s tax classification — and the decision to elect or revoke pass-through treatment — has implications beyond the annual return. It includes how distributions to partners are reported, basis rules, treatment of losses, and interaction with other local and federal tax obligations.

This article provides a general framework based on current legislation and administrative determinations. To evaluate whether pass-through treatment suits your specific situation, do so with an accounting professional familiar with the Puerto Rico Internal Revenue Code rules.

If you want to review your entity’s tax classification or understand whether your current election is correct, you can request an initial evaluation with no commitment.