Puerto Rico is an unincorporated territory of the US. A company can enjoy the benefits and protections of operating within a US jurisdiction with the added tax benefits of operating as a foreign corporation. The combination of cash grants, financial incentives and credits, and venture capital initiatives together with Puerto Rico's tax laws offer a wealth of incentives that promote corporate growth, underscoring the government's commitment to providing a pro-business environment. Maybe that is why 55 of the Fortune 100 companies and 178 of the Fortune 500 operate in Puerto Rico.
Tax Savings Puerto Rico is a United States community with a foreign tax structure, so a business can have the benefits and protections of operating within a U.S. jurisdiction, with the added tax benefits of operating under a Controlled Foreign Corporation (CFC) structure. Puerto Rico's government offers favorable tax laws combined with cash grants and tax credits. Many companies have established their operations in Puerto Rico as profit centers to take advantage of special tax provisions, allocating the maximum share of the revenue stream to the lowest tax jurisdiction, reducing taxation and enhancing profitability.
• The top tax rate in Puerto Rico is 7%, with some qualified companies paying as little as 2 %.
• Puerto Rico offers a highly attractive incentives package that includes 100% exemption from multiple taxes and special treatment for “pioneer industries.”
• Goods from Puerto Rico are not subject to tariffs, and profits on U.S. sales are tax-exempt.
• Other forms of cash grants, tax credits, and venture capital initiatives include: - 200 % super-deduction for research and development costs - 200 % super-deduction for job training costs - For some manufacturing companies, a deduction of 15% of annual production payroll, or $100,000 - Accelerated depreciation for investment in buildings, machinery and equipment with unlimited loss carry forwards - 100 % deduction on real estate and personal property taxes during initial construction and first-year of operations - A credit of 25% on the purchase of locally manufactured goods - A credit of 35% on the purchase of locally recycled products - Businesses producing high technology products are eligible for a credit of the amount exceeding $100 million of annual taxes retained for the payment of rights, rents, royalties and licenses related to the production of those goods - A credit of 50% on the purchase of an exempt closing business - Stockholders or partners of a corporation or society that is an exempt corporation that operates under a decree under this Law are not subject to filing income tax returns on dividend distribution - Incentives for Service Industries - Operations of designated services for external markets will also be eligible for a tax rate of 7% on their industrial development income, 90% of their property taxes and 60% on municipal license taxes and fees - Many exemptions from the Capital Gains tax, like 100% tax exemption on state and municipal property taxes during the construction period and the first year of operations, 100% exemption on intangible assets, 100% exemption from excise tax on the machinery and equipment needed to fulfill environmental, safety, sanitary or health regulations. - The opportunity to conduct business in the most comprehensive, noncontiguous Foreign Trade Zone system in the U.S
The Controlled Foreign Corporation (CFC) Investment Model also offers several models from which a US company can choose to maximize the advantages offered by Puerto Rico. Each model has its own special set of tax incentives and special deductions. • The Puerto Rico subsidiary will generate a maximum corporate income tax rate of 7%. This subsidiary may use profits to fund foreign operations, including in Puerto Rico. Earnings of these investments or loans will be taxed as current income by the US Federal Tax. However, the principle will not be taxed until it is repatriated. The company will receive a foreign tax credit for taxes paid in Puerto Rico. • A company can invest funds in the company’s research and development (R&D). R&D can be performed anywhere in the world, including on the US mainland, but the Puerto Rico operation must own and fund the R&D centers.
Foreign Trade Zone Advantages Puerto Rico has the most comprehensive, non-contiguous Free Trade Zone system in the USA. The system allows companies to obtain significant financial savings opportunities because raw material, components, finished goods and packaging may be stored in and transported tax free through these zones. Items shipped abroad after processing are exempt from taxes. Benefits of the FTZ in Puerto Rico include :
• Deferment of federal customs duties • Deferment of Puerto Rico excise tax • No payment of Municipal License Taxes on exports outside the United States. • No duty paid on damaged, scraped and obsolete merchandise • U.S. customs duties are not owed on labor, overhead and profit attributed to production operations in a FTZ • Reduction of time and effort in the activation process
Financing Options The public and private sectors in Puerto Rico have joined forces to make locating or expanding a business in Puerto Rico financially attractive. Private and government banks provide long-term or low-interest loans for new businesses locating here. In addition, financing is available from a variety of alternative sources such as:
• The Government Development Bank of Puerto Rico (GDB) makes long-term and large loans to the private sector. • The Puerto Rico Economic Development Bank loans or guarantees loans up to $1.5 million and also invests in qualified high-risk projects. • AFICA sells Puerto Rico tax-exempt industrial development bonds to provide low-cost financing to some projects. • The Special Fund for Economic Development provides for economic development in specific scientific and technical research, risk sharing programs for new small businesses and managing tax-exempt businesses. • Venture Capital initiatives promote venture capital financing for growing companies
Benefits Offered by Puerto Rico Industrial Development (PRIDCO)
• PRIDCO develops industrial parks and constructs and maintains factory buildings that are available for lease throughout the island, at very nominal rental rates • There are monetary incentives granted to projects that require the development of infrastructure and special changes or improvements to the industrial buildings that are supplied by PRIDCO • PRIDCO assists companies in marketing, design, infrastructure, or in the area of permits and regulations • A supplier network of international and local companies has sprung up to assist companies with plant design, engineering, validation services, packaging, instrumentation, environmental protection, and other essential services. - “You do not have to import resources to meet your needs,” Enrique Mirandes says. The manufacturing plants operate under FDA, EPA, and OSHA regulations to manufacture products for the U.S. market, and managers are familiar with European regulations. The FDA maintains a district office in San Juan, adding to the island’s appeal as a one-stop shop.” - Gen News (www.genengnews.com)
Lower Labor Cost US companies can enjoy lower labor costs in Puerto Rico: • The average hourly wages in the manufacturing sector were $11.86 per hour as of April 2007. • The law allows for flexible work schedules, continuous shifts and minimum breaks between shifts. • Other benefits under the Welfare to Work and Workforce Investment Act include: - Grant of 100% of salary incentive by a period of 6 months and a maximum of 20 weekly hours - Reimbursement to the employer of 75% of the salary of the participant for a minimum of 6 and a maximum of 18 months - During the Job Training, refund to the employers 100% of the salary of the participant - 100% subsidy for vocational trainings
Import / Export Duty Savings As per Puerto Rican rules, profits from sales to the US mainland are free from U.S. taxation and goods enter the U.S. market duty-free.
Exchange Rate The currency in Puerto Rico is US Dollar, so there are no exchange rate related costs and issues.
Workforce Puerto Rico has a pool of bilingual workers. Of 3.8 million citizens, 1.2 million are in the workforce. As only six percent of employees in private sector manufacturing are union members, Puerto Rico enjoys friendly labor relations and infrequent business disputes, making it extremely conducive to business.
Also, education is a constitutional right in Puerto Rico, and this ensures that employers have access to a large pool of qualified job candidates. According to PRIDCO, more than two-thirds of Puerto Rico's workforce is high school graduates, and about one-third have one or more years of post-secondary education.
Accessibility Puerto Rico has an extensive transportation network that places virtually all companies within two hours of an airport or seaport. Transportation between Puerto Rico and the U.S. mainland is deemed domestic by the U.S. • “We have a world-class infrastructure,” says Enrique Mirandes, director of life sciences at PRIDCO (Puerto Rico Industrial Development Company; www.pridco.com), including a 100% digital switching telecommunications network, the seventh busiest container port in the western hemisphere, airports with more than 4,300 cargo flights monthly, and a highway system that links people to airports or seaports within two hours.” - Gen News (www.genengnews.com)
Communication Infrastructure Puerto Rico has a state-of-the-art telecommunications system, allowing instant access to the U.S. mainland and international markets via high-speed, third-generation technologies. The island is linked to the United States, Europe, South America and the Caribbean by high-capacity undersea fiber optic cables and an extensive satellite network.
A self-healing fiber optic loop provides first-rate service around the island. Long distance voice, data and video services, as well as WATS lines, are offered by several providers, and wireless PCS is available from a number of local and national venders, using the latest digital protocols, including CDMA 2.5G, GSM and TDMA.
Sources:
----------------------- http://www.allbusiness.com/marketing/direct-marketing-telemarketing-call-center/770556-1.html
http://www.pridco.com/english/tax_&_business_incentives/tax_incentives/3.12corp_tax_incentives.html#PioneerIndustry
http://www.pridco.com/english/tax_&_business_incentives/business_incentives/3.23bus_inc_foreign_trade.html
http://www.genengnews.com/articles/chitem.aspx?aid=2007&chid=4
http://www.businessregisterpr.com/websearchservlet?manufacturing=true
http://www.pridco.com/english/tax_&_business_incentives/3.0tax_bus_incentives_overview.html http://www.allbusiness.com/marketing/direct-marketing-telemarketing-call-center/770556-1.html http://www.genengnews.com/articles/chitem.aspx?aid=2007&chid=4
Edward DuCoin is a professional speaker, race car driver and best selling author. He is the published author of the best seller “The Glass is Half Full and Frozen” in May of 2006. Ed owns ‘New Edventures Management Consultancy’ (www.newedventures.com> www.newedventures.com ). He is a certified productivity trainer and has been teaching his business techniques and philosophies, which have been proven to increase productivity and achieve results, for over 15 years.
