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Study: Tax Incentives Generated Thousands of Jobs, more Expected

By on January 26, 2016

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.

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