Puerto Rico gov’t banks on Opportunity Zone incentives to spur economic development
SAN JUAN – Puerto Rico officials said the government will pass its own version of the Opportunity Zones program for the island, which is expected to bring about economic prosperity for the next 10 years that is comparable to the now-eliminated U.S. Tax Code section 936 credits.
Chief of Staff Raúl Maldonado said he does not expect opposition from the island’s Financial Oversight and Management Board because the panel is supposed to provide economic development tools to Puerto Rico.
“We believe this is it,” he said. “This will allow local investors to have the same benefits as outside ones.”
The government sent the legislation for introduction Monday after the U.S. Treasury Department issued regulations for Opportunity Zones, which are designated low-income areas that offer financial incentives to potential investors to build up the distressed communities.
The areas must have at least a 20 percent poverty rate to be nominated to be an Opportunity Zone, and average income must be lower than 80 percent of the state’s median income.
About 98 percent of Puerto Rico was designated as an Opportunity Zone. Certain areas San Juan metropolitan areas such as Condado and Miramar do not qualify for the program. Opportunity Zones come with certain tax incentives. For instance, investors can put their unrealized capital gains in opportunity zones, where they gain tax deferral.
Maldonado said that after 10 years, they can also use many of the other incentives offered by Puerto Rico or get an extension, which lets them step up their basis. They help provide capital for housing, small businesses and infrastructure.
The bill filed Monday would extend the tax benefit to investors who live in Puerto Rico. For tax purposes, the island is considered a foreign jurisdiction by the U.S. government.
The idea is that individuals with capital in Puerto Rico can establish funds that are invested in new businesses such as the creation of commercial establishments, factories, hotels or homes, among many others.
Maldonado said Puerto Ricans who took their investments abroad now have a financial incentive to bring that money back to the island and invest it in the Puerto Rican economy. Locally, the benefit would be for about 15 years.
The chairpeople of the island’s House and Senate Treasury committees, Antonio “Tony” Soto and Migdalia Padilla, respectively, support the measure.
“I don’t think it’s something that we would take too long to pass like the tax reform,” Padilla said, adding that because Thursday is the last day to pass bills, she expected the bill to be voted on by the Senate. Soto said the legislation is an important economic development tool that could bring millions of dollars in investments to Puerto Rico.
Maldonado urged the legislature to evaluate the bill as soon as possible to allow Puerto Rico to gain a competitive edge over the states.
“This cannot be seen as a tax bill but as one of economic development. This is a bill to move the economy, to strengthen it,” Maldonado said. “We are competing with other states and our offer should be as broad and attractive as in other states.”
He stressed that there are a number of investors already willing to immediately put more than $600 million into the island.