The debt burden of Puerto Rico is well-documented and understandably scares investors away. But entrepreneur Neil Billock said that foreign companies will find plenty of opportunities in this Caribbean island if they look past the bad press.
“Puerto Rico is a tax haven for foreign businesses,” Billock, who runs a consultancy service in the island, states. “Because of its economic difficulties, the country has to create an environment that is conducive to business.”
Looking to Singapore as a model, the US Commonwealth has been trying to repackage itself as a knowledge economy as it adopts all the best practices from service- and manufacturing-based economies to create an ecosystem where intellectual capital thrives.
Billock explained that there are four basic components in knowledge-based economies, and these are the availability of skilled labor, excellent education structure, superior incentives and perks to promote entrepreneurship and solid ICT infrastructure.
With the financial crisis, Puerto Rico has been saddled with a brain drain as its best workers are going abroad, even illegally, where the wages are higher despite the risks. But intellectual capital—anchored on its skilled workforce—remains strong. “For instance, of the more than 22,000 STEM graduates in the country, about 7 in 10 of them will look for a job overseas,” Billock added.
Indeed, jobs are difficult in Puerto Rico and the federal government is working to rectify the problem. One of its more revolutionary innovations is the tax holidays that no American company or entrepreneur can find anywhere in the United States.
“A unique feature of the Commonwealth is that Puerto Rico can craft its own tax laws. Residents here are not required to report to the IRS although they can still have their US citizenship and they remain under the protection of the US government,” he said.
However, one provision of the law is that the American entrepreneur has to live in the country at least 183 days in a year before he or she can enjoy the tax perk.
Among the tax holidays outlined in Act 20 and Act 22 is the 4% personal income tax, which can go up to 60% in big cities in the US, for the entrepreneur. Those who are in the manufacturing and service industries can enjoy as much as 90% exemption in personal property tax. The government is also waving levies on capital gains and dividend income.
“To promote its goal of becoming a knowledge economy, spending on research and development will get a 50% tax credit,” he said. “In addition, manufacturing and export companies will be tax-exempt on the distribution from profits and earnings.”
“Startups, meanwhile, won’t pay property taxes in the first five years of operations,” Billock added.
Billock, through his consultancy services, has been helping foreign corporations set up their business in Puerto Rico. Having moved his whole family to the island back in 2016, and surviving the whole financial mess, the entrepreneur can help investors maneuver their way through the US territory’s bureaucracy, as well as maximize all the tax windfalls.