Friday, October 31, 2014

Incentives dictate the future



"...the art of government consists in taking as much money as possible from one class of citizens to give to the other"

Voltaire

Welcome to The Golden Sense! There is a tropical island not too far away with warm temperatures year round, turquoise blue water, and all the conveniences of modern day America.

I am sure you can think of a few places that fit this description. Most of these islands are vacation destinations for Americans seeking a relaxing atmosphere and an escape from the 9-5 work week. Nobody ever seriously considers moving to these tropical islands because, unless you’re in the tourist industry, there is simply a lack of cutting edge work available along with a high cost of living.

This preconceived notion is about to change. The island of Puerto Rico is redefining its image. The island is an unincorporated territory of the United States and the commonwealth is poised for a huge upswing.

As with everything in life, change occurs and opportunities arrive. Incentives dictate the future. For the last decade Puerto Rico has struggled economically. The Puerto Rican government bankrupted itself by growing too big and taking on mountains of debt. The public debt of Puerto Rico has grown at a faster pace than the growth of its economy, reaching $46.7 billion in 2008. In January 2009, Luis Fortuño enacted several measures aimed at eliminating the government's deficit, including laying off 12,505 government employees. Puerto Rico's unemployment rate was 15.9 percent in January 2010. Consequently, the island became poorer than the poorest state of the United States with 41% of its population below the poverty line.

The terrible story of economic ruin is about to change for the better. In 2012 the government enacted Act 20 and Act 22. These laws were put into place to bolster a diversified economy. The local government has created an aggressive economic and tax incentives program with the purpose of helping operations on the island become more profitable to those companies which establish themselves there. These incentives were created to ensure Puerto Rico’s competitiveness in attracting investment. In a sense, Puerto Rico has made a 180 degree turn and has embraced capitalism.

A quick glance at Act 22 shows it seeks to attract new residents to Puerto Rico by providing a total exemption from Puerto Rico income taxes on all passive income. Investors and traders who are residents of Puerto Rico can exclude 100% of all short-term and long-term capital gains on investments. This includes sale of personal property accrued after moving to Puerto Rico.

Act 22 is the real gold mine, said Alex Daley of Casey Research, who commissioned a report called “Puerto Rico’s New Tax Advantages”, after moving to the island to take advantage of the new incentives.

To be a bona-fide resident of Puerto Rico a person has to be present for at least 183 days during the taxable year in Puerto Rico and does not have a tax home outside of Puerto Rico during the taxable year.

Basically, Act 22 is one of many economic incentives that the government of Puerto Rico has developed to benefit the island's economy. The Act provides significant tax breaks for those looking to relocate their company on the island. Additional incentives offer unique benefits to investors for sectors like manufacturing, hospitality and tourism, international insurance and banking, export services, and agriculture.

The other incentive put in place by the Puerto Rican government is Act 20. This Act seeks to incentivize businesses to come to Puerto Rico by taxing corporations at a flat 4% on earnings, as well as offering them 100% tax exemption on dividends or profit distributions from export services. To qualify, a company has to employ at least 3 people. The act also allows a 3% fixed income tax rate in case of services considered strategic.

The laws aim to promote the export of services from the Caribbean island and to encourage the ‘import’ of wealthy individuals. Now, few places on earth offer a return on investment the way Puerto Rico does. With a growing array of services and emerging industries, there are a multitude of opportunities with incentives available.

Not only does Puerto Rico have great financial and economic incentives, it also has a strong existing infrastructure. The roads are better than the ones here in California, the health facilities are equivalent to mainland America, and there are quality schools and education available to children as well. On top of this, the current median home price in Puerto Rico is $155,000.

Of course, Puerto Rico is not perfect. It's recovering from an economic disaster. But, like I said, incentives dictate the future. Puerto Rico is coming back to life. There is a chance that if circumstances allow it, you could actually own a business or work for a multinational company earning top wages all the while enjoying a fantastic tropical island lifestyle.

It is up to you.

Over and Out

T. Norman