Acts 20/22 gain huge momentum

Issued : Monday, February 23, 2015 12:00 AM 

Acts 20/22 gain huge momentum

Edition: February 26, 2015 | Volume: 43 | No: 7

When the Puerto Rico Investment Summit kicks off today at the Puerto Rico Convention Center, a new crop of successful business millionaires will hear about the tremendous tax incentives contained in Acts 20/22 of 2012 that the island offers. Under Act 22, anyone who sets up a new residence in Puerto Rico—under the U.S. flag—for 183 days out of the year enjoys 0% tax rate on locally sourced dividends; Act 20 provides a 4% tax on service income for exporters of services.

Importantly, the tremendous incentives in those two laws begun under the previous administration of former Gov. Luis Fortuño have been adopted and aggressively promoted by Gov. Alejandro García Padilla’s administration. The shared vision of two administrations has led to a virtual conga line of investors coming to Puerto Rico.

It has also helped greatly that hedge-fund king John Paulson drew global attention to Puerto Rico when he invested more than $1 billion combined in the Condado Vanderbilt hotel, the six-star Bahía Beach St. Regis Resort and other properties, besides being a major stockholder in our biggest bank. Likewise, Nicholas Prouty, whose Putnam Bridge helped revive the once moribund La Ciudadela housing complex in San Juan’s Santurce district, made a very clear statement that Puerto Rico is an attractive place to do business.

This second investment summit is a milestone to be celebrated because it signals that the continued promotion of these important tax incentives has led to the steady stream of investors who will be adopting both Act 20 and Act 22 tax decrees. The crop of new investors has some observers saying that Puerto Rico could be at a tipping point—a defining moment for the Acts 20/22 movement that will see investors descend on Puerto Rico with wildfire strength—one investor leading to 10; 10 leading to 100, pushing investment in Puerto Rico into the billions of dollars.

Economic Development & Commerce Secretary Alberto Bacó Bagué told CARIBBEAN BUSINESS that as many as 400 new companies and 600 new residents could be adopting Acts 20/22 tax decrees by the end of 2015. The viral spread of Acts 20/22 has the potential to attract as much as $5 billion annually during the next four years, according to economists interviewed by this newspaper.

It is why some people believe that Puerto Rico can become the next Singapore. The Asian island-nation increased its gross domestic product from $74.5 billion in 2000 to $348.7 billion today by increasing capital through tax incentives and getting capital to invest in small and midsize businesses to create jobs on a massive scale. This part is still missing from our laws. It can be done in Puerto Rico, but it takes aggressive promotion of tax lures. Up to now, most investments have been in distressed properties with giant discounts and large grants from the government.

Those were the ingredients that led Puerto Rico to become an important turnaround story in the days of Operation Bootstrap, the industrialization program commenced in the 1950s that led to the island’s transformation from the poorhouse of the Caribbean to an industrial powerhouse.

It was achieved by bringing in New Deal economists—among them former Gov. Rexford Tugwell, Hugh Barton, Alvin Mayne, Morris Moses and Mohinder Bhatia—who together with Puerto Rico’s first-elected Gov. Luis Muñoz Marín and Fomento then-administrator Teodoro Moscoso, helped industrialize Puerto Rico. They devised a plan and recruited an army of professionals who worked at offices all over the world to promote Puerto Rico’s industrial tax incentives.

It was done before and it can be done again. Puerto Rico has the perfect opportunity to become a huge turnaround story—the tax breaks are there and the continuity is there. Now we must promote Acts 20/22 with Operation Bootstrap strength—with an army of promoters in offices across the world, as Singapore has done. And when the capital comes, it must be invested in small and midsize businesses. That is the only way to help create the tens of thousands of jobs that Puerto Rico needs to help ignite significant economic development.

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