Tax Incentive Association Launches to Promote Puerto Rico

Nonprofit Looks to Foster Economic Development By Educating About Incentives Code

SAN JUAN — On Wednesday, Feb. 19, a team of economic development experts from Puerto Rico announced the launch of the Tax Incentives Association (TIA), a nonprofit created to educate, investigate and analyze economic results and foster the island’s development by attracting investment. 

During its inaugural conference at coworking network Piloto 151’s Old San Juan location, members of the organization’s board presented TIA’s mission to representatives from sectors that promote economic development, including lawmakers, members of commonwealth investment promotion agency Invest Puerto Rico, banking execs and representatives from the film, healthcare, real estate, investment, private equity and technology industries.

TIA spokesperson Jeanelle Alemar-Escabí, founder of JAE-CE

“If there’s one thing I want to clarify is that the tax incentives are not only available to foreigners. Tax incentives are designed to promote creation of businesses and economic activity in Puerto Rico, regardless of the nationality of the owners. Any Puerto Rican that establishes an eligible business can apply for the incentives. Only one incentive is for new residents of Puerto Rico and those new residents can be Puerto Ricans that are coming back home,” said Jeanelle Alemar-Escabí, founder of consulting firm JAE-CE and spokesperson for TIA.

In a press release, TIA said its vision is to “have Puerto Rico’s tax incentives as the cornerstone of the island’s offer for incentive attraction and the engine of its economic recovery.”

Event attendees were given a  general view of the new Tax Incentive Code (Act 60 of 2019) and its effect on investors. 

“People need to know these benefits are available and have always been available to every single Puerto Rican taxpayer and business,” explained Paola Medina Prieto, who emphasized the competitive nature of reducing the corporate tax of most eligible businesses to a flat 4 percent, “the most attractive incentive in the United States,” the release reads.

Juan Carlos Stolberg, Piloto 151’s co-founder and TIA board member, gave a presentation on the present and future of tax incentives in Puerto Rico with a focus on Opportunity Zones, tourism and infrastructure. 

Juan Carlos Stolberg, Piloto 151 co-founder and TIA board member

“There is a direct correlation between tax incentives and the heating up of the real estate market, and that shows how incentives can positively change our economy,” Stolberg pointed out. 

Another TIA member, Giovanni Méndez Feliciano of GEO TAX, spoke about oversight and information requests, using tax incentive cases. 

“It’s important to keep proper compliance on local and federal regulations to ensure the optimum implementation, growth and stability of the program,” Méndez stressed.

The conference ended with a presentation on the political and economic landscape of Puerto Rico by Raúl Vidal y Sepúlveda, the former assistant secretary for international affairs at the Puerto Rico Economic Development Department, lead promoter of the island’s incentives and director for the island’s New York Office who co-founded Omnia Economic Solutions.

Raúl Vidal y Sepúlveda, Omnia Economic Solutions co-founder

He discussed the contribution of “this new economic sector to Puerto Rico’s wellbeing, including the creation of 40,000 jobs with an average salary of $36,000 per employee, and the annual tax revenue of over $200 million, not to mention the $10 million in charity donated by investors under the former Act 20/22 incentives (now Act 60 of 2019),” as explained by the association.

“Puerto Rico’s economic development is our main focus and calling, which is why we are here to continue to promote the pro-business best practices that can make Puerto Rico a leading investment hub in the world,” the former official said.




Report: Since 2015, fiscal impact of Act 20 incentives is $210 million

DDEC Secretary Manuel Laboy and Estudios Técnicos CEO José “Joaquín” Villamil (María Miranda/CB)

Stresses that ‘Act 22 grantees are no billionaires’

SAN JUAN — A study commissioned by the Puerto Rico Economic Development & Commerce Department (DDEC by its Spanish initials) on the laws approved in 2012 to attract investors was presented Tuesday at a roundtable with business reporters at the Puerto Rico Industrial Development Co. (Pridco) building in Hato Rey. 

DDEC Secretary Manuel Laboy and  José “Joaquín” Villamil, the chief executive officer of consulting firm Estudios Técnicos, which was commissioned to conduct the research for the “Performance of Incentive Programs Act 20-2012 and Act 22-2012” report, as well as some former economic development heads, explained the results. 

From 2015 to June 2019, some 1,680 companies were conferred the incentive benefits of Act 20, the Export Services Act. Before that, 211 decrees had been granted between 2012 and 2014. Thirty five percent of the decrees have been awarded to local firms, according to the report.

Act 22, known as the Act to Promote the Relocation of Individual Investors to Puerto Rico. It entices potential investors to move to Puerto Rico with a 100 percent tax exemption on all interest, dividends and long-term capital gains.

After the 410 decrees awarded under Act 22 by 2014, an additional 2,202 more were granted from 2015 to mid-2019.

Act 20 aims to promote the island as an international export business hub. The law provides incentives to companies that export services such as a 4 percent corporate tax rate and 100 percent tax exemption on dividends from business earnings derived from export services. Some 8,257 jobs directly “linked to export-related activities” were created from 2015 to 2019, the report says.

The fiscal impact of Act 20 businesses, from 2015 to June 2019, is estimated at $210 million. 

The results of the new report, the Economic Development secretary said, “reveal that under the Export Services Act, some 36,222 jobs were created from 2012 to mid-2019. The previous study, presented in 2016, revealed that, at that time, some 7,400 jobs had been created, and the 10-year projection was to create 56,601 jobs. Meanwhile, in 2015, the investment totaled some $500 million. The new report found that this line increased to $1.2 billion. These are very positive results, as they show that the law is fulfilling its mission of boosting Puerto Rico’s economic development by exporting the services and/or products that we generate on the island.” 

Nevertheless, the report says that estimating the impacts of Act 22 is more complex than those of Act 20, but among the findings are that 35 percent of individual investors started a businesses in Puerto Rico, including some that operate under Act 20. Between 2015 and mid-2019, the total real estate investment by decree-holder is estimated a $1.3 billion.

Between 2015 and mid-2019 some 4,400 direct jobs were created by Act 22 investors, whose “planned capital investments are estimated at $678 million,” the report reads. Some 68 percent  of these beneficiaries have purchased real estate in Puerto Rico “and 32 percent currently rent a property on the island,” Villamil noted. “The value of the real estate purchased was more than $1.3 billion. The total value of a year’s estimated rent equals $560 million.”

Villamil said that more than 81 percent of these individuals have a net worth of less than $10 million and 2.8 percent have a net worth of more than $50 million. A bulleted section of the report is titled: “Act 22 grantees are no billionaires.” 

“There is a strong misconception of Act 22 grantees as ‘super rich’ individuals,” the report reads, adding that the “above evidences that Puerto Ricans in the U.S. with a net worth of over $1million could consider the benefits of Act 22 as an incentive to relocate, retire or contribute to the local economy.”

It adds: “Debunking the above misconception could open the door for a bigger pool of successful diaspora members (5.2 million Puerto Ricans in the U.S.) that could invest in Puerto Rico.”

By 2029, it is estimated that some 6,392 decrees should be approved under Act 22. More than 14,600 jobs are expected to have been created by that year.  According to the report, the aggregate impact on the housing sector projected from 2015 to 2029 could reach $7.4 billion in purchased properties and nearly $450 million in rented properties. 

It should be noted that under the stipulations of the Incentives Code, incentive decree beneficiaries will have to purchase property on the island.

Laboy said that after going over the results of the study, the DDEC has identified several areas of “opportunity to maximize the performance” of both laws.

“The public policy of the administration of Gov. Wanda Vázquez is to continue to evaluate all the initiatives and laws we implement,” Laboy said. “Like everything else, there are always opportunities to maximize the results. For example, we have identified great potential to attract Puerto Rican entrepreneurs residing in the United States who are eligible to invest on the island through Act 22 of 2012. There is also an opportunity to continue promoting the export of products and services. In addition, cooperatives and commercial banking can benefit from the transfer of investors’ capital to the island. We will continue to evaluate these results to make the necessary adjustments that allow us to achieve or exceed the stipulated projections.”




Puerto Rico official: No current contracts with VantageKnight

Puerto Rico Economic Development Secretary Manuel Laboy (CyberNews)

Lawmaker alleges former gov’s lobbyist violating tax decree

SAN JUAN — Puerto Rico Economic Development Secretary Manuel Laboy reacted to denouncements by a lawmaker regarding tax credits awarded to VantageKnight, a consulting and advisory services firm that specializes in public relations and legislative and regulatory affairs.

On Monday, New Progressive Party (NPP) Rep. José “Quiquito” Meléndez said he had referred an alleged scheme by the lobbying firm’s founder, Manuel “Manny” Ortiz, to the U.S. Attorney’s Office in Puerto Rico, the Internal Revenue Service and to Gov. Wanda Vázquez.

New Progressive Party Rep. José “Quiquito” Meléndez (Limarys Suárez/CB)

“Information has been received that attorney Manny Ortiz has an Act 20 decree…,” Meléndez said. “This person is not a Puerto Rico resident and doesn’t comply with the Act 20 requirements.”

Under Act 20, for export services, tax incentives such as a 4% corporate tax rate and a full tax exemption on dividends from export services are granted when becoming a bona fide resident.

In a statement Tuesday, Laboy said VantageKnight does enjoy investor benefits under Act 20 but “doesn’t have any contracts with the DDEC [Spanish acronym for Economic Development & Commerce Department] or with the [Puerto Rico] Industrial Development Co. [Pridco]” and that “it is not in the process of renovating [contracts], as has been asserted.”

Ortiz later tweeted that VantageKnight complies with all the stipulations of the tax decree.

“The operations meet all the requirements that this statute demands, and the entity has met each and every one of the obligations demanded by the act in Puerto Rico or at a federal level,” Ortiz said. “As a professional, I demand future declarations carried out in an irresponsible manner and solely seeking to attack my persona be avoided.”

Meléndez stressed the VantageKnight was established in Florida, operates from offices in Washington, D.C., and that the Puerto Rico State Department Registry of Corporations “indicates that its offices are located in a residence in Dorado.”

The lawmaker said VantageKnight has a nearly $700,000 a year contract with DDEC to lobby on behalf of the government of Puerto Rico and has billed Pridco about $1.6 million during the past two and a half years.

“Corruption is corruption. I have been making complaints against this man before because his relationship with Venezuela and with the Citgo oil company has been singled out,” the lawmaker replied Monday when asked by Caribbean Business why he was making the allegations now. “He is claiming that his business headquarters are in Puerto Rico, but the documents that his company files say otherwise. I think it would be fair for the governor to order everything investigated.”

Meléndez wrote to the governor, saying that “the Department of the Treasury and the DDEC should investigate whether said company and its owner are committing tax evasion crimes that are not only squandering hundreds of thousands of dollars of the Treasury of Puerto Rico but putting at risk the very existence of the mechanisms of acts 20-2012 and 22-2012 if it is determined that a person so close to our past governor and with large contracts representing the Government of Puerto Rico in the Federal Capital is abusing the benefits said laws provide to bona fide investors who fully comply with the requirements of these laws and generate jobs and significant economic activity on our islands.”

He also told the media that he would soon introduce a resolution in the House of Representatives to have the process of granting contracts under acts 20 and 22 investigated.

Limarys Suárez and María Miranda contributed to this report.




Puerto Rico Incentives Code requires tax breaks be made public

Rep. Antonio “Tony” Soto (CB file)

Benefits by individual, entity and sector to be published online

SAN JUAN — Puerto Rico Economic Development Secretary Manuel Laboy confirmed to Caribbean Business that language introduced by the House of Representatives to the Incentives Code was included in the measure the governor enacted Monday. 

The Incentives Code contains a number of amendments introduced by the lower chamber. Some call for greater transparency regarding individuals and companies that receive tax breaks having to submit information that would be made public in a government website. 

House Treasury, Budget and Promesa Committee Chairman Antonio “Tony” said the new code centralizes the incentives under the Economic Development & Commerce Department’s (DDEC) Puerto Rico Business Incentives Office, which will manage the site that will group current and future incentives and publish reports with data on who requests and has received a tax decree. 

“That was included in the final measure that is now Act 60 of 2019, and it has two important aspects. The first establishes the cyber portal, which we had already launched that part last year with the Single Business Portal that works on various permits and incentives. So now the Incentives Code will be fully implemented in the Single Business Portal,” Economic Development Secretary Manuel Laboy replied to Caribbean Business when asked about the changes Wednesday during an unrelated press conference. “The second aspect is that it establishes certain parameters on what information will be made public, which includes publishing the sectors that benefit from incentives, how many incentives each sector receives a year and the return on investment, so everyone knows whether the investment made by the government has a return on investment.”

DDEC is required to publish three reports yearly on the portal. These will include the incentives requested and awarded under the code or any other law previously enacted that awarded a decree, such as Act 22 of 2012, known as the Individual Investors Act, for whom new requirements were established.

“All those people who are established under Act 22 are going to have to purchase a home in Puerto Rico, and the donation made to a nonprofit is being raised from $5,000 to $10,000,” Soto explained. 

“For us, it’s very important that the people of Puerto Rico have complete and updated information,” Soto said. “We are demanding for reports to be drafted by the Incentives Office that will publish the most extensive information on the decrees that have been awarded and those that will be granted in the future.” 

The so-called “Incentives Reports” must, “at a minimum” contain “the name of the exempt business, the principal shareholders, date the decree was requested and granted, preferential rates, the municipality where the business is operating, the municipal exemptions it enjoys, the number of jobs generated or retained in Puerto Rico in comparison to jobs said exempt business committed to maintaining,” Soto stressed. 

The majority party lawmaker further said “we are emphasizing” that the tax decrees are contracts and reiterated that those who receive a decree must “comply with the contractual responsibility.”

On June 21, Soto announced that some of the amendments in the Incentives Code would establish an easier process when requesting an incentive, and that a “mechanism is being incorporated so that we can determine if the investment made by the government has a return on investment.” 

He explained that he believes the newly required disclosure “strengthens the fulfillment and oversight of the incentives and offers a level of fiscal transparency, accountability and risk management, among others.” 

Language was also introduced in the amended Incentives Code to help boost the development of land-based and online betting on sports and esports.




Deadline for Puerto Rico Acts 20/22 tax exemption applications is Nov. 15

SAN JUAN – Nov. 15 is the deadline for entities and individuals to file the online application for tax exemptions under Act 20 (Act to Encourage the Export of Services) and Act 22 (Act to Promote the Relocation of Individual Investors to Puerto Rico), Economic Development Secretary Manuel Laboy announced Friday.

Laboy, who is also executive director of the Puerto Rico Industrial Development Co., added in Friday’s release that entities and individuals can apply for tax exemptions under different laws at the Single Business Portal (SBP_ found at www.businessinpuertorico.com/sbp.

Javier Bayón Torres, director of the agency’s Office of Industrial Tax Exemption (OECI by its Spanish initials), explained in a statement that “a request is considered filed when all documents and information have been submitted in the OECI along with the filing. Requests for the laws begun on the previous platform, but not filed on or before November 15, 2018, will have to be processed through the SBP.”

“We urge all interested parties to complete the applications with all the required information on or before November 15 so they can be evaluated as soon as possible. Our interest is that more and more entities and individuals can benefit from these laws that encourage the investment and export of goods and services from local and international entrepreneurs, to create jobs and contribute to the development of the Puerto Rican economy,” Laboy said.

For more information, call the OECI at 787-764-6363.




Puerto Rico incentives code slashes individual investors law

Editor’s note: This report first appeared in the June 21-27 issue of Caribbean Business

Wording contained in the proposed new Incentives Code for Puerto Rico could virtually destroy the tax advantages and credits provided under Act 22 of 2012 to attract high-net-worth individuals to the island.

Act 22, the Individual Investors Law, was enacted to attract new residents to Puerto Rico by providing total exemption from local income taxes on all passive income realized or accrued after such individuals become bona fide island residents.

Fernando Goyco Covas, counsel for Pietrantoni Méndez & Álvarez, said wording in the new Incentives Code would not only deter potential investors from moving to the island because they will not enjoy tax incentives but would also promote investment off-island instead of in Puerto Rico.

First, according to Goyco Covas, the proposed Incentives Code limits the kinds of investments that can be made under Act 22. Under the Incentives Code, the term “valores” is defined as securities, referring to bonds, stocks or notes, which is very limited. He said the bill should use the broader term “investment assets,” which would cover investments in real estate or even virtual coins.

Act 22 uses the term capital gains on “valores” or securities, but the law does not define the term, Goyco Covas said. When the government began to grant decrees under Act 22, it used the term “investment assets,” which is broader and can include a stamp collection but not things such inventory or commercial property that depreciates.

“But when you define the word “valores” as securities or bonds and notes, those are things sold on the Stock Exchange, outside of Puerto Rico. Individuals who moved to Puerto Rico because they trade in crypto or properties, will have to go back to the [U.S.] mainland because they would not qualify for the incentives,” he said.

Another area in the proposed Incentives Code that will cause problems for Act 22 investors is that the wording limits tax exemptions on capital gains to long-term capital gains, leaving out tax exemptions for short-term capital gains. Act 22 currently grants tax exemptions to short-term capital gains, which are investments held for a year or less before they are sold, as well as for long-term capital gains, which are gains on assets held for more than a year and are usually taxed at a lower rate.

Section 2022.02, titled “A special tax rate for resident individual investors on long-term capital gains,” provides a special 5 percent tax rate on the portion of the long-term capital gain yielded by an individual investor on securities held before becoming an island resident. Section 2022 also says individual investors will not have to pay any local taxes on the net capital gains resulting from the appreciation of securities after the investor becomes a resident. The specific disposition does not mention any tax exemption for short-term capital gains.

“Because the section is titled ‘special tax on long-term capital gains,’ it appears the tax exemption only applies to long-term capital gains and excludes short-term capital gains. Because of that, individuals who are traders or whose capital gains are short term, will think twice about moving to Puerto Rico,” he said.

The proposed Incentives Code, filed as House Bill 1635 and Senate Bill 1013, is being evaluated by the Finance committees of the two legislative chambers and is slated to go to a vote in a special session that will be convened by the governor.

Lobbyists from different business groups are pushing for changes in the legislation, which consolidated Puerto Rico’s incentives into one document. As it is written, the bill is slated to achieve $300 million in savings to help the government implement tax reform, which is separate legislation.




Senate Amends Puerto Rico Water Authority Bill

SAN JUAN – The Puerto Rico Senate on Monday passed, with a 22-3 vote, an amended version of House legislation that would allow the Puerto Rico Aqueduct and Sewer Authority (Prasa) to create a corporation that will carry out a one-time bond issuance to pay for capital improvement projects and pay $150 million to contractors.

The bill was amended to prevent Prasa from using a securitization mechanism to continue borrowing and to prevent the corporation from using the bond issuance to cancel debt in order to prevent hedge funds from benefitting from the transaction.

“We are stopping this leak,”said Sen. Ramón Luis Nieves, chairman of the Senate Energy Affairs and Water Resources Committee, adding that hedge funds have been lobbying Congress against the bill that would allow Puerto Rico to restructure its debt.

The legislation will now have to go back to the House, which must concur with the amendments. With the bill, Prasa will be exempt from the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act.

Sen. Ramón Luis Nieves

Sen. Ramón Luis Nieves

Nieves said that contrary to the Puerto Rico Electric Power Authority, Prasa is not insolvent and has been paying its debt to bondholders.

Prasa traditionally borrows money from external sources to finance its capital improvements, but for the past four years has been unable to access the bond market because the government has repeatedly given the wrong perception that the entity is having financial difficulties.

One of the instances that prevented Prasa from borrowing money was after the government put the entity’s name in the local bankruptcy law as one of the entities that could benefit from the law, Nieves said.

While Prepa has close to $9 billion in debt, Prasa’s debt is $5 billion and it has been paying creditors, he said.

The legislation, Nieves said, also seeks to rid Prasa from political intervention and would overhaul its governing board. “Prasa should not be a victim of the political partisan sway,” Nieves said.

The Senate also gave the green light to House legislation that would amend the law to Promote the Individual Investors, or Act 22, to ensure that investors who move to Puerto Rico to benefit from tax incentives, comply with minimum requirements of civism.

The island has already granted 509 decrees to individual investors and expects to grant more than 2,500 by 2019. The bill seeks to ensure that the goal of the law, which is to promote economic development, is fulfilled.

“The concession of tax incentives and tax credits should not be used by criminals or unscrupulous people,” states the bill authored by Rep. Carlos Vargas Ferrer, who died in a car accident last year.

The amendments will require investors seeking decrees to buy property in Puerto Rico and have bank accounts on the island. The investors must also provide a sworn statement stating whether they have been the target of a probe. House Bill 2610 will also allow the Treasury secretary to revoke any decree obtained fraudulently.




Investors under Act 22 Create $56,647 Endowment for Centros Sor Isolina Ferré

SAN JUAN – Nonprofit organization Centros Sor Isolina Ferré (CSIF) has announced the establishment of the Friends for Puerto Rico Endowment, created by investors who relocated to the island after the passage of Act 22, legislation that encourages new residents to move to the island through tax incentives.

Part of the CSIF Trust, the Friends for Puerto Rico Endowment was launched with donations totaling $56,647. The funds will be invested and distributions will be restricted to the investment’s yields. With this administration strategy, the Friends of Puerto Rico Endowment will help sustain CSIF during times of decreased public funding due to local and federal financial challenges.

“We are grateful to this group of executives who have made Puerto Rico their home. They are contributing not only to the island’s economic growth, but are also investing in our communities most in need,” José Luis Díaz Cotto, CSIF’s chief executive officer, said.

Children with special needs receive education and therapy services in CSIF, Ponce.

Children with special needs receive education and therapy services in CSIF, Ponce.

Lauren and Ashton Soniat, of Dufossat Capital Puerto Rico LLC, initiated the endowment by donating the first $25,000. Adam Sinn, president of Aspire Commodities LP, matched their donation. A group of their colleagues, also investors under Act 22, contributed amounts ranging from $500 to $5,000.  

“As residents of Puerto Rico, we are conscious of our social responsibility, and we are committed to supporting economic development. Centros Sor Isolina Ferré has served Puerto Rico’s communities for over four decades with education, violence prevention, entrepreneurship and economic self-sufficiency programs. By contributing to the Friends for Puerto Rico Endowment, we want to ensure that CSIF’s vital mission can continue for years to come,” Lauren Soniat said.  

Centros Sor Isolina Ferré helps nearly 70,000 people through preventive and corrective programs, as well as personal and community development initiatives. It offers solutions to problems such as school dropout, violence, unemployment and economic crisis. Programs and services are available in 19 municipalities including Ponce, Guayama, San Juan and Canóvanas.




Study: Tax Incentives Generated Thousands of Jobs, more Expected

SAN JUAN – Tax incentives created by Acts 20 and 22 of 2012 to promote exports and attract investors have generated an estimated 5,832 jobs, and could create about 56,000 by 2024, according to a study commissioned by the Economic Development & Commerce Department (DDEC by its Spanish acronym) has found.

The Estudios Técnicos consulting firm’s study shows that Act 22 is responsible for a total investment of $266 million in local real estate, and that it produces $228 million in capital investments.

The research measured the impact of the incentives in 2014 and uses as a basis the annual reports submitted by the companies that use them.

The study, whose preliminary results were obtained exclusively by Caribbean Business, encompasses 328 decrees approved under Act 20, and 574 decrees approved under Act 22 from 2012 to November 2015. However, to date, there are a total of 1,291 decrees that have been either signed or are pending approval.

To continue attracting investors, DDEC is promoting the 2016 Investment Summit that is slated to be held Feb.11 and 12 at the Puerto Rico Convention Center in San Juan. The summit is a forum in which guest speakers seek to promote Acts 20 and 22, as well as other incentives such as those provided by Act 73, the Industrial Incentives Law, and Acts 273 and 399, which provide incentives for financial and insurance centers.

Act 20 of 2012 promotes the export of services through incentives that include a 100% tax exemption on earnings and profit distributions on income generated from export services; a 4% flat income-tax rate on income generated from export services or a 3% tax when more than 90% of a service provider’s gross income is from export services; and a 100% property-tax exemption for the initial five years of operation for certain export services.

Act 22, the “Act to Promote the Relocation of Individual Investors,” offers nonresident individuals 100% tax exemptions on all interest, dividends and long-term capital gains to entice them to move to Puerto Rico. An individual’s 183-day physical presence in Puerto Rico establishes a presumption of residency under the Puerto Rico Tax Code.

This new law has attracted much interest because U.S. citizens, even when they live abroad, have to file federal income-tax reports, with the sole exception of Puerto Rico, which is the only place in the world U.S. citizens don’t have to pay federal income taxes unless they report stateside income. Wealthy taxpayers who opt to re-establish overseas to a foreign country have to surrender their U.S. passports and pay an exit tax of 23.8% on unrealized capital gains, but not in Puerto Rico.