Throughout Puerto Rico’s modern history, tax incentives have long been part of government policy on the island. These incentives started in the 1960’s, when complete tax exemptions were granted to new manufacturing operations established here. These changes were the catalyst that turned Puerto Rico’s agricultural economy into an industrial and manufacturing economy.
Sound government policy plays a key role in economic development, and tax incentives can foster growth and development, while maintaining a tax structure that allows the island’s government to protect essential programs and operations that benefit all Puerto Ricans.
In the last half century, a myriad of tax incentives have been implemented on the island, spanning from the use of renewable energy to tourism and movie production. Specifically, these incentives have included flat tax rates on income, property tax and municipal tax exemptions and zero or small rate on dividend repatriation, which can result in significant savings to a business. Tax credits are usually also part of the equation—making Puerto Rico’s overall competitiveness much higher.
Puerto Rico is and has been the home of prestigious software corporations, military and defense contractors, and a large number of pharmaceutical companies. For instance, to this day pharmaceutical companies in Puerto Rico manufacture some of the most important products used in hospitals and primary care facilities throughout the United States.
When capital investment is an operational priority, these tax credits, that are generally monetized, can improve cash flow as well as other financial ratios. Tax grants, essentially considered a contract between the government and the investor, are produced once a tax incentive is approved. Government efforts have been focused on the establishment of web portals that will allow ease of access to potential investors.
Puerto Rico’s attractiveness is anchored by the fact that an investment made in Puerto Rico is an investment in the United States. There is no need for a passport, a visa or complicated Customs brokerage, unless travel or shipping is done from outside the United States. Puerto Ricans are bilingual, highly educated and uniquely skilled. Puerto Rico follows East Coast time most of the year, making business logistics a breeze.
The island’s unique status means that Puerto Rico is considered fiscally independent despite being a US territory. Even foreign operations in Puerto Rico have not been adversely impacted by the most recent Federal tax reform and have managed to continue doing business in Puerto Rico.
In addition, the interaction between the United States Internal Revenue Code and the Puerto Rico Internal Revenue Code allows those who establish residence in Puerto Rico to take advantage of beneficial tax incentives. This is the case for instance, for individuals and corporations who take advantage of Acts 20 and 22 in order to establish service operations in Puerto Rico.
In the end, Puerto Rico represents a feasible and attractive destination for investors. While the island has seen significant crises in the financial sector, the stability that the federal umbrella lends the island, allows for stable political and regulatory statutes that promote a safe environment for those looking to establish operations and make capital investments. Lastly, while Hurricane Maria hit the island, hurt its infrastructure, and challenged the public and private sector alike, the potential privatization of Puerto Rico’s electric grid, and the reconstruction of essential public and private infrastructure will prove to be a turning point for the island and generate significant benefit to those seeking to invest here.