Several forces propel the boom, including the work-from-anywhere movement, chronic lack of housing and an explosion in Airbnb and short-term rental units, said Raul Santiago, a professor of planning at the University of Puerto Rico.
But the incentives are an easy target and foster the belief that the government is rolling out the red carpet for mainlanders at the expense of average Puerto Ricans. “The incentives are incredibly unpopular,” Santiago said.
Sun, Fun, Tax Breaks
When the pandemic hit New York City in 2020, cryptocurrency trader Mitchell Dong went searching for a new home. He visited Florida, Alaska and Hawaii before stumbling on Puerto Rico.
Speaking on the sidelines of a cryptocurrency conference in December, Dong said the U.S. territory of 3.3 million people offers a mix of colonial architecture and Latin charm that he found irresistible.
“Obviously, we’re here for the taxes: That’s why everybody comes here,” said Dong, the founder and CEO of Pythagoras Investments, a crypto hedge fund which he says has $100 million under management. “But we immediately found a superfriendly expat and crypto community. Our social life is pretty good.”
Manuel Cidre, Puerto Rico’s secretary of economic development, said a distinction must be made between those like Dong who are creating businesses or producing taxable income, and those solely seeking to evade capital-gains and dividend taxes.
“If you come here just to buy a house, play golf and enjoy the weather, I don’t want you paying zero taxes,” he said. He suggested that the island could begin charging some capital gains under Act 22 and still remain competitive compared with the mainland.
Like many jurisdictions, Puerto Rico’s tax incentives are designed to support strategic sectors such as manufacturing, health care and tourism. Many newcomers are also taking advantage of incentives designed for service-export companies that provide a 4% tax rate versus the island’s standard rate of about 35%.
As Puerto Rico emerges from bankruptcy, it’s important to see whether all the incentives are working, said Jesus Santa, the head of the Puerto Rico House Finance Committee.
“If the incentive is good, explain it to me, show me the numbers, but don’t come here with theories and philosophies,” he said. “We need to know which incentives should stay, which ones can be improved and which ones need to be killed.”
On an island that lost a staggering 12% of its population from 2010 to 2020—more than any other U.S. jurisdiction—incentives can stop the demographic bleeding, Santa said.
“For decades we’ve used our incentives to bring people from abroad,” he said. “That’s not a bad thing, but we also have to work with people who are already here.”
This article was provided by Bloomberg News.