Puerto Rico has always offered beautiful weather, cheap local labor, sun, sand and surf. Now, in a move to bolster the island’s suffering economy, the island is looking to woo wealthy U.S. business owners with tax breaks that provide generous dividend and capital gains tax breaks for those willing to relocate their businesses to the tropical paradise.
Paulson and others
John Paulson, founder of Paulson & Co., is looking to expand his investment in Puerto Rico to $1 billion by the end of 2015. Paulson with an estimated worth of $11 billion already invested $260 million earlier this year to create two luxury resorts San Juan’s Condado district. This investment comes on the heels of his investment in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Gold Club last year.
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While the company has yet to comment, Paulson is headlining an invitation-only summit in San Juan, Puerto Rico later this week to explain the tax breaks available to companies willing to make the move.
Despite a declining population, unemployment is rising on the island whose $70 billion debt burden has found it in the news quite often but for the wrong reasons.
Act 20 and Act 22
The Puerto Rican government would rather see Act 20 and Act 22, both of which were created in 2008, in the headlines. Act 20 offers incentives by taxing companies at a flat 4% on earnings, as well as offering them 100% tax exemption on dividends or profit distributions from export services.
“What we are trying to achieve here is a second transformation with the Puerto Rico economy,” said Alberto Baco, the Puerto Rican secretary of economic development and commerce.
And it’s not just Paulson. According to the government, Putnam Bridge Investments is expected to invest around $200 million this year.
“Get on a plane now, and business class is filled with representatives from The Blackstone Group L.P. (NYSE:BX), Goldman Sachs Group Inc (NYSE:GS), DE Shaw, and every private equity firm I know,” said Nicholas Prouty, president of Putnam Bridge.
The government is expecting 300 applications for relocation this year, and is already well on its way with 150 active applications filed. The hope of the government is that these moves will add 90,000 jobs and an additional $7 billion to the island’s present GDP of just over $105 billion by the end of 2016.