Stresses that ‘Act 22 grantees are no billionaires’
SAN JUAN — A study commissioned by the Puerto Rico Economic Development & Commerce Department (DDEC by its Spanish initials) on the laws approved in 2012 to attract investors was presented Tuesday at a roundtable with business reporters at the Puerto Rico Industrial Development Co. (Pridco) building in Hato Rey.
DDEC Secretary Manuel Laboy and José “Joaquín” Villamil, the chief executive officer of consulting firm Estudios Técnicos, which was commissioned to conduct the research for the “Performance of Incentive Programs Act 20-2012 and Act 22-2012” report, as well as some former economic development heads, explained the results.
From 2015 to June 2019, some 1,680 companies were conferred the incentive benefits of Act 20, the Export Services Act. Before that, 211 decrees had been granted between 2012 and 2014. Thirty five percent of the decrees have been awarded to local firms, according to the report.
Act 22, known as the Act to Promote the Relocation of Individual Investors to Puerto Rico. It entices potential investors to move to Puerto Rico with a 100 percent tax exemption on all interest, dividends and long-term capital gains.
After the 410 decrees awarded under Act 22 by 2014, an additional 2,202 more were granted from 2015 to mid-2019.
Act 20 aims to promote the island as an international export business hub. The law provides incentives to companies that export services such as a 4 percent corporate tax rate and 100 percent tax exemption on dividends from business earnings derived from export services. Some 8,257 jobs directly “linked to export-related activities” were created from 2015 to 2019, the report says.
The fiscal impact of Act 20 businesses, from 2015 to June 2019, is estimated at $210 million.
The results of the new report, the Economic Development secretary said, “reveal that under the Export Services Act, some 36,222 jobs were created from 2012 to mid-2019. The previous study, presented in 2016, revealed that, at that time, some 7,400 jobs had been created, and the 10-year projection was to create 56,601 jobs. Meanwhile, in 2015, the investment totaled some $500 million. The new report found that this line increased to $1.2 billion. These are very positive results, as they show that the law is fulfilling its mission of boosting Puerto Rico’s economic development by exporting the services and/or products that we generate on the island.”
Nevertheless, the report says that estimating the impacts of Act 22 is more complex than those of Act 20, but among the findings are that 35 percent of individual investors started a businesses in Puerto Rico, including some that operate under Act 20. Between 2015 and mid-2019, the total real estate investment by decree-holder is estimated a $1.3 billion.
Between 2015 and mid-2019 some 4,400 direct jobs were created by Act 22 investors, whose “planned capital investments are estimated at $678 million,” the report reads. Some 68 percent of these beneficiaries have purchased real estate in Puerto Rico “and 32 percent currently rent a property on the island,” Villamil noted. “The value of the real estate purchased was more than $1.3 billion. The total value of a year’s estimated rent equals $560 million.”
Villamil said that more than 81 percent of these individuals have a net worth of less than $10 million and 2.8 percent have a net worth of more than $50 million. A bulleted section of the report is titled: “Act 22 grantees are no billionaires.”
“There is a strong misconception of Act 22 grantees as ‘super rich’ individuals,” the report reads, adding that the “above evidences that Puerto Ricans in the U.S. with a net worth of over $1million could consider the benefits of Act 22 as an incentive to relocate, retire or contribute to the local economy.”
It adds: “Debunking the above misconception could open the door for a bigger pool of successful diaspora members (5.2 million Puerto Ricans in the U.S.) that could invest in Puerto Rico.”
By 2029, it is estimated that some 6,392 decrees should be approved under Act 22. More than 14,600 jobs are expected to have been created by that year. According to the report, the aggregate impact on the housing sector projected from 2015 to 2029 could reach $7.4 billion in purchased properties and nearly $450 million in rented properties.
It should be noted that under the stipulations of the Incentives Code, incentive decree beneficiaries will have to purchase property on the island.
Laboy said that after going over the results of the study, the DDEC has identified several areas of “opportunity to maximize the performance” of both laws.
“The public policy of the administration of Gov. Wanda Vázquez is to continue to evaluate all the initiatives and laws we implement,” Laboy said. “Like everything else, there are always opportunities to maximize the results. For example, we have identified great potential to attract Puerto Rican entrepreneurs residing in the United States who are eligible to invest on the island through Act 22 of 2012. There is also an opportunity to continue promoting the export of products and services. In addition, cooperatives and commercial banking can benefit from the transfer of investors’ capital to the island. We will continue to evaluate these results to make the necessary adjustments that allow us to achieve or exceed the stipulated projections.”
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