Opinions expressed by Digital Journal contributors are their own
Puerto Rico is a small island territory in the Caribbean, famous for being an American protectorate. However, it is also a region offering unique tax incentives that are challenging to find in many other places in the Western hemisphere, causing it to attract a massive influx of dollars.
“The tax benefits for people moving to Puerto Rico are potentially enormous,” Dorado Beach, a real estate agent operating in the region, explains. “It has similar weather to Florida, but many of the financial burdens are lower, despite being home to epic country houses, delightful golf courses, and plenty of stunning blue ocean.”
Part of Puerto Rico’s appeal is its 4% tax rate under what’s known as “Act 20” or the “Export Services Act.” This rate of taxation means that American businesses located in the country can benefit from rates that are sometimes less than 20% of what they would hand to the government just a few miles away in Florida. The added tax incentive means that Puerto Rico now has many trappings and amenities of a high-wealth territory. The island offers amenities you would expect to see in places like the Bay Area in California and wealthy communities on Long Island. Furthermore, the tax benefits don’t end with corporations.
“Amazingly, Act 20 is not the only incentive for living in the territory,” according to Dorado Beach. “Wealthy expats are moving to the island for many other reasons besides, including further lenient tax laws.”
One of these is Act 22. This offers people moving to the island exemption from capital gains and dividend taxes, helping them to extract the maximum possible value from their savings and retirement funds. People only need to meet a few residency requirements to qualify, increasing the attractiveness of the territory even more.
“What’s nice about Puerto Rico is that much of it feels like the mainland US,” Dorado Beach explains. “You have a similar atmosphere whenever you come here, which makes it a special place for those who want to live in a tax haven but be within striking distance of the mainland.”
This point is relevant to many people looking to leave the US and retire overseas in the coming years. Other territories offer tax-free living, but they often come with downsizes. Some islands are physically small, while other locations are a long way from home, like Uruguay and Paraguay in South America. There’s a significant push for more places like Puerto Rico closer to home, offering people a combination of the things they want, and less of what they don’t.
Act 60 tax incentives are also a significant bonus, according to Dorado Beach. “On July 1, 2019, Puerto Rico enacted legislation providing tax incentives for U.S. citizens who become residents of Puerto Rico. Of particular interest are Chapter 2 of Act 60 for Resident Individual Investors and Chapter 3 for Export Services, which shield new residents who live in Puerto Rico for at least half the year from paying most federal income taxes,” the brand explains.
These rules mean that the US IRC exempts people living on the island from federal income taxes and means that property taxes are also lower than they are just a stone’s throw away in Florida.
Of course, there is an extensive application process (as there tends to be with matters of this nature). But the result means that organized people (or those who use their accountants) can often get tax-free living for many years, and sometimes apply for extensions at the end of their initial terms.
What this means is that Puerto Rico is now a renowned strategic location. It offers straightforward access to the continents of North and South America and facilities that make it a tempting base for businesses wanting to be more tax-competitive.
“In the past, you had people located on various Caribbean islands, particularly the wealthy, and Puerto Rico has had to learn to compete with this. It knows that if it wants to do well, it needs to offer Americans a lifestyle they can’t refuse,” Dorado Beach says. “Part of this is achieved with the high quality of the property on the island. It’s just amazing that you can have a Miami Beach-style experience in a place that’s hundreds of miles from the mainland.”
Of course, Puerto Rico’s tax laws aren’t the only reason it became an international investment haven. It also offers appeal in other ways.
For one, the cost of living is far lower. This makes the region popular among entrepreneurs and digital nomads wanting to live on a shoestring. It’s not quite the same as places like California where the idea of relocating is alien for many.
There are also territory benefits (since Puerto Rico is under the leadership of the U.S.). For one, the area uses the US dollar, meaning that those choosing to move there don’t need to worry about changing their currencies to the local one. This avoids paying fees but also makes it easier to understand transactions.
The low cost of living is also appealing to retirees looking to make their incomes and pensions go further. The average monthly price to stay in the country is often around 60% of the U.S., offering a higher quality of life for those who make the move.
Puerto Rico’s government is friendly to the U.S. and its citizens, meaning that it is easy to move to the territory and set up a life there. The country believes in attracting investment from abroad to build itself up at home and deal with domestic issues. Currently, the region is trying to diversify its economy into new sectors like finance, technology, and manufacturing to help it compete on the global stage. It believes it can mature as an industrial powerhouse, offering a similar level of services to equally small places, like Singapore.
“The time to take advantage of the Puerto Rico opportunity is now,” explains Dorado Beach. “It’s time many Americans started seriously considering it before everyone finds out.”
