PUERTO RICO – Still a Viable Investment Destination for Individual and Corporate Investors The Corporate Attraction to Puerto Rico Investing in Puerto Rico is not a new idea. U.S. corporations, particularly those in manufacturing, have relied for decades on Puerto Rico’s many tax benefits and operational advantages to benefit their bottom line. Over time, Puerto Rico has used the income from these investments to reinforce the strong infrastructure of roads, utilities and highly educated workforce that originally attracted U.S. manufacturers to this nearby island. Because Puerto Rico is within the United States and Puerto Ricans are US citizens, investors are by US laws including intellectual property protection. Further, the Island is part of the US customs area, shipments to the US mainland are domestic, making them less complex than many foreign transactions. In addition, there is no currency exchange risk. The question on today’s investor’s minds is not whether Puerto Rico is a viable site for initiating or expanding U.S. manufacturing operations, as the affirmative answer has been proven by hundreds of U.S. companies. Rather, the question is now one of how Puerto Rico compares to competitive “tax advantaged” jurisdictions such as Bermuda and to low-wage locations such as Mexico and Asia. It has become clear in recent years that Puerto Rico can no longer compete with many off-shore alternatives purely on the basis of labor cost. As a U.S. possession, Puerto Rico is required to follow the same minimum wage requirements as the United States. Because of these worker protection laws, the low tax/ low wage options offered by countries such as China and Thailand have pulled many “low tech” manufacturing businesses, garment manufacturers out of Puerto Rico. This trend will likely continue as many U.S. businesses choose to reap the benefit of hiring unskilled foreign labor for a small fraction of the price of the U.S. minimum wage. To compensate for these losses, Puerto Rico has worked to establish itself as the natural alternative for U.S. high tech industries and other manufacturing operations that require a steady stream of educated, highly skilled workers, such as those involved in pharmaceuticals, medical devices and electronic products. These workers, and the infrastructure that supports them, continue to be the single strongest attraction to U.S. companies doing business in Puerto Rico.
With the Tax Act of 2003, there are new incentives for U.S. entrepreneurs and investors to create or invest in dividend paying operations in Puerto Rico. Under the new Act, individual US investors are subject to a reduced income tax rate of 15% on dividends paid directly to them from companies established in locations with tax information sharing agreements with the United States, including Puerto Rico. Dividends from most of the “tax haven” countries such as Bermuda and the Cayman Islands are not eligible for these reduced rates. Dividends earned by the investor must be recognized at full ordinary income tax rates which are now as high as 35%. One of the keys to this new is to establish (or invest in) an also benefits from a low local income tax structure. This is where the Puerto Rico opportunity really takes shape. Puerto Rico offers a reduced income tax rate to companies that manufacture goods or which provide services to off-Island clientele. The range of services include items such as architectural design, call centers. The maximum Puerto Rico income tax rate for these operations is 7%, with additional incentives available based on job commitments, payroll, investment, and location within the Island. This makes the total effective tax rate for a US investor under 22%. The Bottom line for investors looking for new locations is that Puerto Rico is still squarely on the map of viable options. The gross domestic product exceeds $71 billion, and it ships over $47 billion of goods worldwide. The Island continues to invest heavily in high tech education, and boasts two of the 20 largest engineering programs in the United States. In the end, many investors continue to find that the stable economy, highly trained workforce, and tax incentives offered by Puerto Rico continue to outweigh the benefits now offered in competing markets .
Frank Nieves Puerto Rican / Hispanic Chamber of Commerce of Broward County at 954-965-2491 or visit www.prchamberonline.com. Puerto Rican Chamber of Commerce of Miami-Dade County at
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