In brief
- Puerto Rico has updated the law that governs the tax incentives for crypto entrepreneurs and others.
- Governor Vazquez has increased the yearly fee to qualify for such incentives from $300 to $5,000.
- Local tax consultants say the new fees dissuade new crypto investment on the island, given the current state of the market.
Crypto investors and entrepreneurs looking to take advantage of Puerto Rico’s favorable tax incentives will now find it more costly to do so.
Late last week, Governor Wanda Vazquez signed Law 40-2020 into effect, which made a key change to the rules that govern tax incentives for new residents. Previously, investors who moved to the island and applied for these incentives were required to pay a yearly fee of $300 for the privilege. The new law increases that yearly fee to $5,000.
The Puerto Rican government expects to generate $11.9 million in fees with this rate increase in an update to what was formerly known as law 22-2012. The new legislation also provides a tax contribution reduction of 3% for those who earn $100,000 or less.
"The increment in maintenance costs for the decrees raises the bar for those who take part and for potential investors looking to relocate to the island for the tax benefits,” Giovanni Méndez, managing partner at Puerto Rican tax consulting firm Geo Tax, told Decrypt.
“The higher fee assumes that all of the participants are millionaires who hold fortunes with immediate liquidity. Those of us in the community know that this is not the case for a large part of investors and entrepreneurs that have relocated to the island," he said. Indeed, the fees and other requirements apply to anyone who has lived in Puerto Rico for at least six months and applies for tax relief for his or her business.
According to Geo Tax, the total cost of moving to the island to save on taxes includes a $750 filing fee, $5,000 special fund fee once approved, $10,000 yearly donation (split in two), plus the new $5,000 yearly fee.
"Regarding investors in the cryptocurrency market, the increase in costs affects whether some will remain on the island due to the volatility of the market and changes in value,” said Méndez. “The new Incentives Code brought sections that incorporate benefits to the crypto and blockchain markets which is something positive, but it clearly contrasts with this last legislation,” he said.
It’s these tax incentives that have brought entrepreneurs from across various industries, including cryptocurrency, to the US commonwealth. Co-founder of EOS Alliance Block.one Brock Pierce and gold proponent (and Bitcoin skeptic) Peter Shiff, for example, make Puerto Rico their home for at least half the year.
Just last month, during the CoinAgenda Caribbean conference in San Juan, Pierce reiterated his optimism that Puerto Rico can still become the “blockchain island”—a beacon for the industry—that was once promised.