The St. Regis Bahia Beach Resort in Puerto Rico features a golf course and comfortable villas right on the beach, in an almost 200-hectare nature reserve surrounded by lush rainforest.
But those who can afford to live there are not so much interested in the paradisiacal nature, but in the nature of the tax advantages that come with being a foreign permanent resident on the island.
Anthony Emtman left Los Angeles and bought an apartment in the St. Regis Bahia Beach Resort. The head of Ikigai Asset Management is now part of the growing crypto community on Puerto Rico’s north coast.
Wealthy investors pay up to 20 percent capital gains tax and up to 37 percent income tax on short-term gains in the mainland United States. In Puerto Rico, they pay – nothing. Corporations based in the mainland U.S. pay 21 percent corporate income tax and varying levels of federal income tax. In Puerto Rico, all told, they pay 4 percent. For crypto-investors, it is certainly a no-brainer. The crypto market continues to grow exorbitantly and the ruling Democrats in Washington push for higher taxes on the rich.
Facebook whistleblower Frances Haugen recently told the New York Times she lives in Puerto Rico to be with her “crypto friends”, and New York City Mayor-elect Eric Adams even flew with crypto billionaire Brock Pierce to dinner with Puerto Rican Governor Pedro Pierluisi in November. “It’s no longer, ‘Go to Puerto Rico to save on taxes,’ says tax attorney Giovanni Mendez, who advises clients looking to relocate there, “but it’s, ‘Go to Puerto Rico because that’s where everyone’s going.’
The Puerto Rican government created the tax breaks in 2012 in hopes of injecting cash into the struggling economy and creating jobs. They did, but hedge funds essentially made their way to the island. But a real flood of newcomers was triggered by the Covid 19 pandemic – and by the crypto industry.
All of this has the usual downsides familiar from similar regions all over the world: many of the beneficial laws apply only to foreign residents, leaving locals who have spent their lives on the island from birth empty-handed. No wonder, then, that many are reluctant – to say the least – to welcome the new wealthy arrivals, fearing that the income stream will exacerbate inequality and lead to social tensions. Already, housing prices are absolutely absurd.
This year, Puerto Rico has received more than 1,200 applications for permanent residency – a new record. The number of mainland U.S. citizens seeking Puerto Rico’s tax benefits has tripled this year. 274 corporations, limited liability companies, partnerships and other entities have been authorized by the island´s Exports Services Act, which provides a 4% corporate tax rate and a 100% tax exemption on dividends.
Giovanni Mendez, corporate and tax attorney says It’s no longer, “Go to Puerto Rico to save on taxes.” It’s “Go to Puerto Rico because that’s where everyone is going.”
The crypto community particularly favors three areas along the coast. There are out-of-the-way getaways like Bahia and the Ritz-Carlton Dorado Beach Resort. Those who want to live in the city stay in Condado, an upscale neighborhood and shopping district in the capital San Juan.
“There are restaurants, cafes, and a mall; this is kind of like a mini Miami. I felt like coming here, doing my job, and still being connected to the financial world was much better than Hawaii or Mexico,” says Brent Johnson, managing director of asset manager Santiago Capital, which moved to Condado from San Francisco in May 2021.
The real estate boom
The influx of newcomers is making waves in the real estate market, especially in resort areas. Dorado is seeing the most growth, with prices nearly tripling, says Priscilla Ferrer, a Puerto Rican realtor. “It’s absurd,” she says. “These luxury properties are being bought at an emotional price, not an economic price.”
Francisco Fournier, the founding partner of Luxury Collection Real Estate, says it’s now common to sell properties for more than $20 million. “Right now we are selling a home in Dorado Beach for $27 million and another is selling for $29 million.”
In Bahia, prices per square foot have nearly doubled, says Blanca Lopez, founder of Gramercy Real Estate Group. Priscilla Ferrer, real estate agent, Puerto Rico stated;
It’s absurd. These luxury properties are being bought at an emotional price, not an economic price.
Prices are over $32,000 per square meter in some cases for luxury estates, while high-end homes in Condado range from $15,000 to over $16,000 per square meter, an increase of about 35 percent over last year. And there’s not enough inventory to meet demand, as buyers are flocking to the island faster than high-end homes can be built.
“All of this is hurting the housing and job prospects of islanders,” says Raul Santiago-Bartolomei, assistant professor at the University of Puerto Rico’s Graduate School of Planning. “These places are now out of reach for workers and low-income households that should be living near these high-opportunity areas.”
Jobs are created nonetheless: most of them in call centers, followed by consulting services, advertising, public relations, and tax and accounting services. But most native-born Puerto Ricans aren’t qualified for that – well, the world just isn’t perfect.
“As long as the jobs keep coming, the doors are open for the crypto community,” says Carlos Fontan, department head at the Ministry of Economic Development and Trade. All is well, then.