The U.S. Congress enacted the Corporate Transparency Act (the "Act"), which went into effect on January 1, 2024. The Act creates another tool in the fight against illegal financial activity. The Act requires "reporting companies" to disclose certain information about their "beneficial owners." The U.S. Treasury enforces the Act through the Financial Crimes Enforcement Network ("FinCEN"), which issued regulations. Under the Act, the term "State" includes Puerto Rico.
To whom applies? A “Reporting company” must file a Beneficial Ownership Information Report (“BOI Report”) with FinCen within certain time limits. A “Reporting company” can be domestic or foreign. A Domestic Reporting company means any entity that is a corporation, limited liability company, or other entity created by filing a document with the secretary of state or any similar office created under State law (for instance, the Puerto Rico Department of State).
What information is disclosed in the BOI Report? A Reporting company must provide information about the company and its beneficial owners. A "Beneficial Owner" is defined as any individual who, directly or indirectly, either exercises substantial control over the reporting company and/or owns or controls at least 25% of the ownership interest of the reporting company. The regulations provide guidelines for identifying "Beneficial Owners."
What is substantial control? Reporting companies are required to identify all individuals who exercise substantial control over the company. There is no limit to the number of individuals who can be reported for exercising substantial control. An individual exercises substantial control over a Reporting Company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company.
The Reporting company must provide its full legal name, trade names or dbas, complete current address, state, jurisdiction of formation, the state where first registered, the Employer Identification Number (EIN). The Reporting company must provide the Beneficial Owner's full legal name, birthdate, complete current address, and copy of passport or valid driver's state license.
The due dates are the following:
• For Reporting companies created on or after January 1, 2024, and before January 1, 2025, their BOI Report is due within 90 calendar days from its creation date.
• For reporting companies already existing as of January 1, 2024, the due date to file the BOI Report is not later than January 1, 2025.
• For Reporting companies created on or after January 1, 2025, their BOI Report is due within 30 calendar days from its creation date.
• The regulations also require updating/correcting the information previously reported to FinCen within 30 calendar days of any change.
Failure by the Reporting company to file or update the BOI Report will subject it to a daily penalty of up to $500 until the non-compliance is resolved, a fine of not more than $10,000, and/or imprisonment for ten years if the failure was voluntary or with intent to avoid the obligation.
The regulations provide over 20 exemptions to the obligation of the BOI filing. You should contact a professional to determine if one of them may apply to your case. In our view, most Puerto Rican (domestic) businesses owned directly or indirectly by individuals and/or with individuals who exert substantial control over the reporting company will be required to file the BOI Report. The BOI report must be filed online with FinCEN.
We recommend you access https://fincen.gov/boi, where you will find official information about how to file the BOI report.
We hope you take note of this new reporting obligation. Please get in touch with us if you need additional information on the BOI filing.
