April 24, 2014
Big-time investors, business executives, economic development officials and tax experts are gathering Thursday for the Puerto Rico Investment Summit.
The two-day conference held in collaboration with Puerto Rico’s Department of Economic Development & Commerce and Paulson & Co. will focus on Puerto Rico as a business and investment destination as part of the government’s bid to lure wealthy investors.
The summit highlights reasons why Puerto Rico would be a good place for investors, including a law that allows new residents to avoid taxes on capital gains, the main revenue source for many high-end investors.
Summit attendees will learn about Puerto Rico’s competitive advantages directly from tax experts, CPAs and government officials, and share experiences from a group of successful early adopters, that are now part of the island’s community.
Keynote speakers include hedge fund billionaire John Paulson, the CEO of Paulson & Co. who has already bet big on Puerto Rico through his acquisition of three oceanfront luxury resorts and has signaled that more investments are in the works.
Also slated to speak is investor Nicholas Prouty, president of Putnam Bridge Funding, which is spending $450 million to overhaul its Puerto del Rey Marina complex in Fajardo and spending hundreds of millions more at its La Ciudadela housing and commercial complex in Santurce, a project that includes plans to create a sprawling public park in the historic heart of San Juan.
Popular Inc. Chairman & CEO Richard Carrión, who heads the biggest bank in Puerto Rico and the 36th largest in the U.S. by assets, will also be a featured speaker.
Economic Development & Commerce Secretary Alberto Bacó Bagué will deliver the opening address at the plush Vanderbilt Hotel in the heart of the Condado tourism district. The elegant property is half of the so-called Condado Duo acquired by Paulson last month in a $260 million deal that also included the nearby La Concha Resort.
The second day of the conference will move to the St. Regis Bahia Beach Resort in the northeast coastal town of Río Grande. Paulson’s purchase of a majority stake in that lush property last year marked his first major investment on the island.
The two-day conference will include in-depth discussions of Puerto Rico’s unique laws aimed at luring high-end investors to the island.
The lures are included in legislation passed by the previous Fortuño administration in January 2012 that are starting to pay off under an aggressive push by the current administration of Gov. Alejandro García Padilla.
Law No. 22 of 2012, also known as the Individual Investors Incentives Act (Law 22), provides tax exemptions to eligible individuals residing in Puerto Rico, and may have profound implications for the continued economic recovery of the island. To avail themselves of such benefits, individual investors need to become residents of Puerto Rico and apply for a tax-exemption decree, which has generated interest from many investors as well as criticism from detractors.
Law 22 is designed to primarily attract to Puerto Rico high-net-worth individuals, empty nesters, retirees who currently relocate to other states and individual investors from the U.S. and other countries, by eliminating all taxes on passive income that accrues after they relocate to the island. While dividends and interest income earned by Puerto Rico residents on U.S. securities are generally taxed by the federal government, capital gains taxes on their sales are based on residence.
Another lure, Law 20, aims to promote the export of services from the island, while also attracting professionals to the territory by reducing the corporate tax rate to 4% on service export revenue.
Both of these laws were signed by Fortuño in early 2012, but hadn’t yet been aggressively marketed and promoted until the new García Padilla administration and Bacó started doing so after taking office in January 2013.
Puerto Rico is particularly attractive to wealthy investors residing stateside. U.S.-based millionaires and billionaires who move to the island would avoid taxation on the sale of securities, which are normally taxed federally at a 23.8% rate.
The Puerto Rico program has an advantage over foreign jurisdictions because investors don’t have to renounce their citizenship to take advantage of the tax-shelter offer. 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.
By Kevin Mead