Act 20 was passed in 2012 to incentivize the export of services to markets outside of Puerto Rico. On the other hand, Act 22 was passed in 2012 to attract U.S. and foreign investors to the Island. Act 20 provides a preferential 4% tax rate on services provided by all Puerto Rican companies, whereas Act 22 provides a full tax exemption on certain items of passive income to those individuals who relocate to Puerto Rico and have not lived on the Island from 2006 to 2012. Both statutes were extended under Puerto Rico Act 60 of 2019.
Beyond their combined incremental economic impact, such Acts have recently been the object of criticism both locally and in the U.S., based on their preferential tax treatment to new resident investors, as well as their potential for abuse. The relevancy of Act 22 is also a current topic, as local lawmakers aim for an updated measurement of its cost-benefit relationship from a fiscal standpoint. Such Acts, especially the Act 22, have been targeted from an ideological and social focus, although its economic impact is often questioned.
I have had a first-hand experience to see how these Acts have evolved, and how they have represented a competitive job opportunity for local professionals like myself, and in my case, as an in-house tax analyst of a private equity firm owned by a former U.S. resident who relocated to the Island in 2013. I started my career in 2011 as a tax advisor for a regional public accounting firm, where I was part of the team assisting such former U.S. residents with the transition to the Island.
Investor interest has resurfaced mainly in tourism, real estate and digital companies
Both Acts have helped to forge my general business acumen. I have been able to constantly learn how to develop myself by shadowing the intangibles that come as part of working close to new resident entrepreneurs and investors. Their unique points of view, approaches, techniques, emerging market awareness, and their wealth of knowledge are few of the unmeasurable elements inherent to the influx of seasoned investors under these Acts.
I have also had the opportunity to be part of a cross-functional and a multicultural team of co-workers and mentors, who are not only determined to achieve excellence in the workplace, but also contribute to the community. This same group of individuals, spearheaded by Acts 20 and 22 entrepreneurs and investors, also actively contribute to local nonprofits. From providing food, water and medical aid to families severely impacted by Hurricane Maria in towns like Morovis and Ciales, to privately flying sick family members out of the Island in the aftermath of the hurricane, and supporting housing reconstruction projects after the earthquakes that affected families in the South.
These are minimal examples of the unmeasured impact of new investors and entrepreneurs who go beyond the inherent economic aspects underlying the incentives. There needs to be a sensible approach to evaluating the economic and social impact of investors and entrepreneurs who have relocated to Puerto Rico since 2012, as well as educating constituents about the design and scope of these Acts. Phasing out or significantly amending the incentives will affect their stability and economic impact, as well as deter further investment and jeopardize the many job opportunities that have been created.
According to a local study, at least 40,000 direct jobs have been created as of 2019. Such contributions to the local job market, as well as to the economic and nonprofit sectors, must not be overlooked at the time of determining the future of both statutes, which is currently being challenged by local and federal regulators and lawmakers.