The tax breaks are doing what they were intended to, said Alberto Baco-Bague, the department’s former secretary and a driving force behind Act 60.
In 2017, he created the Partnership for Modern Puerto Rico, an economic development think tank that connects local business leaders with incoming Act 60 members. John Paulson’s investment management firm, advisory services firm Grant Thornton and tech company Evertec are among its 100 members, whose total assets under management surpass $50 billion, according to Baco-Bague.
“Ideally we want to be building one Puerto Rico,” he said. “Not one Puerto Rico for new residents and another one for local business leaders.”
Still, one of the biggest challenges is convincing the local population of the program’s economic benefits. The Individual Investors Act, also known as Act 22, only applies to non-Puerto Ricans, meaning islanders are ineligible. And even though the Export Services Act is available to locals, many assume otherwise because the tax break is often marketed alongside programs for foreigners.
“There is certainly a cry for a more just taxation system in Puerto Rico,” said Caroline Lopez, a tax attorney who has been working with incentives since 2011. “Puerto Ricans are always wondering, ‘does it make sense that I’m paying all these taxes and a lot of people under Act 22 don’t?’”
During a visit to San Juan this month, Nobel-prize winning economist Joseph Stiglitz said the tax breaks were not an effective economic development tool.
“The people coming under Act 22 are not adding that much to the Puerto Rican economy,” he told a conference hosted by the Center for a New Economy. “They are spending a little, but very little, and at the same time they’re raising real estate prices and the cost of living for others. They are, what we economists call, a negative externality.”
Puerto Rico isn’t the first to try and attract crypto investment, and it certainly won’t be the last. The economy of El Zonte, a surf town on El Salvador’s Pacific coast surf town, runs on Bitcoin. El Salvador’s President Nayib Bukele was a proponent of crypto long before taking office in 2019. This year, the country adopted Bitcoin as its national currency, and announced plans for the first-ever sovereign Bitcoin bonds and a tax-free Bitcoin City. Portugal, too, isn’t taxing the buying or selling of cryptocurrencies, unless it’s an individual’s main source of income.
Juan Carlos Pedreira, a Puerto Rican crypto entrepreneur, says the growing interest, particularly among young islanders, provides a unique opportunity.
If it’s not taken seriously, “we are going to miss the chance to reinvent the island.”
—With assistance from Jim Wyss.
This article was provided by Bloomberg News.