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Financial and pharmaceutical sectors are posed For local growth
Industries with the Potential to Grow Locally
The financial and pharmaceutical sectors are positioned for success
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Zoe Landi Fontana, The Weekly Journal
Puerto Rico is a value-rich destination for international industry leaders. Participants in Forbes’ “Emerging Borders” event discussed the opportunities for growth offered by the island which is home to a burgeoning techno-renaissance, exemplary workforce, and generous tax incentives.
These three facets, described by event organizers as “a vital ecosystem primed to support businesses with favorable benefits and advantages”, are what organizations like Invest Puerto Rico use to promote foreign investment on the island.
The COVID-19 pandemic accelerated the use of technology in daily life and business. With the increasing importance of cybersecurity, blockchain technology, and green/blue tech worldwide, Puerto Rico, some investors believe, is the ideal place to where leaders in these industries should relocate.
When suppliers located in Asia couldn’t meet the pandemic’s demand for the manufacturing and distribution of medical equipment and pharmaceutical products due to supply chain issues, Puerto Rico stepped in. This provided the island with an opportunity to fill the gap and emphasized the importance of its relationship with the U.S. as well as its role as a link within the Caribbean and Latin America.
The island, panelist Rodrick Miller, CEO of Invest Puerto Rico recalled, “has the most aggressive incentives in the country.” The organization is focused on reaching out to companies around the globe with their campaign “Welcome home, game-changers”. They provide direct support in relocating, finding talent, and navigating systems such as the permit process and how to leverage the generous incentives the business will receive upon moving operations to Puerto Rico.
The Finance Sector
J. Robert Collins, Jr., Chairman and CEO of Mercantile Bank International, is an example of the type of business Invest PR wants to see on the island. He predicts that in the next five to ten years, the island will become an international hub for the financial services sectors, especially those related to the blockchain. “At the time they created these incentive programs, there was very little like this going on in the world,” said Collins. With ‘creativity and thoughtfulness’ the government leveraged itself to become competitive for international investors, spurring what Collins called “a zeitgeist –a hub, if you will– of knowledge and information,” comparing it to the likes of Silicon Valley in the early 90s.
Pharmaceutical and Medical Device Manufacturing
The island has a long legacy in the manufacturing of medical and pharmaceutical devices. Top international medical device manufacturing companies such as Medtronic, Abbott Medical Optics, and Coopervision, among others, operate out of Puerto Rico. According to the Puerto Rico Department of Economic Development and Commerce (DDEC, for its Spanish acronym), the industry has a total
In fact,
According to the Puerto Rico Department of Economic aggregate economic impact of $4.3 billion – 4.1% Development and of its total GDP. Commerce, the Additionally, Puerto Rico has over 50 years of pharmaceutical experience in pharmaceutical manufacturing and industry has a total is home to leading multinational pharmaceutical aggregate economic companies that manufacture two dozen types of impact of $4.3 pharmaceutical products. Combining direct, indirect, billion. and induced jobs, the industry creates employment for 153,997 people and makes up 16.3% of the GDP. Ricardo Zayas, COO of Ocyonbio, which provides companies with facilities to manufacture and develop pharmaceutical products, highlighted the importance of the Puerto Rican people as being one of the keys to success. “Puerto Rico is as sophisticated and resourceful as any other country around the world…the resilience of the people here and their commitment to their companies is unsurpassed,” said Zayas.
Ricardo Zayas COO, Ocyonbio
Misdirected funding, a stumbling block to a sustainable future
A continued discussion on Puerto Rico’s economy
(Second of a series)
Zoe Landi Fontana, The Weekly Journal
The present economic situation in Puerto Rico is, to say the least, strained. A lack, or misdirection, of federal funding, means that essential things like pension obligations and infrastructural improvements become stumbling blocks on the path to a more stable future.
This article continues a discussion of Puerto Rico’s economic recovery as presented by business strategist and CEO David Allio in his essay “Puerto Rico: A Poli-economic Synopsis”.
Benefits Not for Everyone
With Section 936 of the U.S. Internal Revenue Code about to be completely phased out in 2016, Acts 20 and 22 were passed in 2012 as a strategy to capture foreign capital that could generate local economic activity in the individual, commercial, and service sectors. The two acts were combined under Act 60 in 2019.
Act 20’s goal is to create an environment that will attract service providers with international reach to expand to clients located outside of Puerto Rico, and also to persuade foreign services providers to bring their operations to the island.
Activities eligible to this incentive include research and development, advertising and public relations, consulting services, creative industries, call centers, investment banking and other financial services, and the list goes on.
Virtually any business could qualify, and they would be completely exempt from federal taxes on Puerto Rico source income, 60% tax exemption on municipal taxes, and 4% fixed income tax rate on export service activities. These are just a few of the benefits that they enjoy.
Act 22 seeks to draw new residents by “providing a 100% exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico,” states the Puerto Rico Department of Economic Development and Commerce (DDEC, for its Spanish acronym).
As residents, they are required to live on the island for at least 183 days a year. Under Act 22 long-term capital gains are completely exempt from Puerto Rico income tax (in some cases they may be taxed at a reduced rate of 5%) –and no federal taxes on Puerto Rico source income.
The Results of Act 60
So, how, exactly, is this supposed to generate much-needed revenue for the island? The return on investment so far has equated to $49 to every $1 invested, as reported earlier this year by the DDEC. Although outward migration was cited as one justification for trying to attract new residents with lots of capital to invest on the island, it has many Puerto Ricans asking why these incentives aren’t offered to regular residents. Puerto Rico migration exists in a cyclical fashion –the “la guagua aérea”, as it’s called, is a pattern of leaving and returning to the island that has been occurring for decades. With rising real estate prices
In fact, and land bought by outside investors, what will happen when Puerto Ricans in the diaspora wish to return home? Acts 20 and 22 were passed in 2012 as a PR’s Economic strategy to capture Freedom Score foreign capital that Currently, Puerto Rico is could generate local economically comparable to economic activity Mexico, Serbia, France, and in the individual, the Philippines according to its commercial, and economic freedom score - a service sectors. concept conceived by Gustavo Velez, founder of Intelligent Economics. Countries with high levels of economic freedom are able to achieve significant economic development because of fewer restrictions to trade and investing, creating a healthy business climate with possibilities for improvement - in terms of both the economy and quality of life. In 2019, Puerto Rico scored 64.4 points - an increase of 3.4 points from 2018. In comparison, the United States scored 76.8, Panama had 67.2, and the Dominican Republic scored 61.
