A Crypto Island Paradise
In a 483-acre nature reserve beside turquoise waters and thick jungle, the St. Regis Bahia Beach Resort in Puerto Rico has a golf course and coastal apartments. The piece on the property’s website describing tax incentives for island inhabitants is perhaps most tempting to people who are currently racing to this property.
That was the case with Anthony Emtman, who moved to the resort from Los Angeles in March and purchased a condo. The CEO of Ikigai Asset Management has joined a budding crypto community on Puerto Rico’s north shore, where the beautiful weather is merely a bonus.
Emtman and his crypto counterparts are following in the footsteps of hedge funds by relocating to the island in order to benefit from significant tax savings. In the United States, high-earning investors face capital gains taxes of up to 20% and short-term gains of up to 37%. They don’t have to pay anything in Puerto Rico. In addition, enterprises based on the American mainland pay a federal corporate tax of 21% plus an individual state tax of 4%, compared to 4% on the island. For some investors, this makes the move a no-brainer, especially as the crypto market continues to soar and Democrats push for more taxes on the wealthy.
Run-ins at taco stands; unplanned cocktails and dinner at luxury condos; “Crypto Mondays” meetings at hotels and restaurants across San Juan: the presence of digital currency enthusiasts is evident on the small island, where unexpected meets and networking opportunities abound.
Pantera Capital and Redwood City Ventures are two crypto funds that have set up shop on the island. Frances Haugen, a former Facebook product manager who became a whistleblower, recently told the New York Times that she is staying in Puerto Rico partly to be among her “crypto buddies.” Eric Adams, the mayor-elect of New York City, travelled there in November with crypto-billionaire Brock Pierce for dinner with Governor Pedro Pierluisi of Puerto Rico.
“Move to Puerto Rico to save tax,” said Giovanni Mendez, a corporate and tax attorney who advises clients who relocate. “It’s, ‘Move to Puerto Rico because everyone is there,'” says the narrator.
The tax exemptions were developed by the Puerto Rican government in 2012 with the aim of injecting cash into the island’s faltering economy and broadening its labour pool. Hedge funds eventually began to seek a foothold on the island, but the epidemic — which prompted a shift away from big cities and popularised remote work — and the recent explosion in crypto markets have greatly accelerated the flurry of visitors.
The tax incentives, according to proponents, are not merely a boost for an island that has been in bankruptcy for more than four years — a period that has been prolonged by hurricanes, earthquakes, a political scandal, and the pandemic — but also a chance for reinvention. Nonetheless, the concept has its critics: Some of the laws only apply to newcomers, therefore inhabitants who have lived on the island their entire lives are disqualified. Some residents are cautious to accept the new influx of wealthy residents, concerned that the income flow will worsen.
Many investors tried to move to Puerto Rico during the last big crypto bull run in 2017, but the market peaked and then crashed, according to Mendez. According to the island’s Department of Economic Development and Commerce, Puerto Rico has received more than 1,200 applications – a new high — through its Individual Investors Act, which exempts new residents from paying capital gains taxes. This year, the number of Americans from the mainland who want to take advantage of Puerto Rico’s tax benefits has increased.
The Exports Services Act, which provides a 4% corporate tax rate and a 100% dividend exemption, was approved for another 274 corporations, LLCs, partnerships, and other entities. Both are covered by Puerto Rico’s Act 60, a collection of tax benefits enacted in 2019 to promote investment from a variety of industries, including crypto, banking, technology, and others.
Living in Paradise
The crypto community has gathered mostly in three regions along the seashore.
There are isolated hideaways such as Bahia, 26 miles east of San Juan, and the Ritz-Carlton-branded Dorado Beach resort, 23 miles west of the capital. Condado, a high-end neighbourhood and commercial district in San Juan, where apartment and hotel towers line the oceanfront, has attracted those wanting a more urban lifestyle.
“There are restaurants, coffee shops, and a mall,” said Brent Johnson, CEO of investment management firm Santiago Capital, who relocated to Condado in May from San Francisco. “It’s like a miniature Miami.”
Johnson was able to connect with wealth management, private equity, and crypto firms, as well as people in the real estate, pharmaceutical, energy, and agricultural sectors, during his stay in Puerto Rico.
“I felt like I could come here and do my job while still being connected to the financial sector, much more so than if I went to Hawaii or Mexico,” he added.
“It’s like living in a rain forest,” Ikigai’s Emtman remarked of life in Bahia. You can’t play tennis, basketball, golf, lift weights in the gym, or go kayaking in this rainforest. When the sun sets, the sports are replaced by cocktails.
“You wind going over at someone’s apartment for a meal or a couple drinks because of the inviting demeanour, friendliness, and inclusiveness of people,” he said.
Brent James, a crypto investor who relocated to Puerto Rico from Atlanta in 2018, experienced this firsthand.
He saw Johnson bicycling while eating tacos with a friend in Condado around two months ago. Johnson was well-known on Twitter, and James recognised him.
“I called his name, and he came over, and we started talking and became friends,” James explained. Johnson invited him to a small gathering, which led to discussions about new business ventures and projects.
“On the island, there’s a thirst for knowledge and opportunities,” James remarked.
Boom in the Real Estate Market
The surge of newcomers is producing ripples in the real estate market, especially in vacation areas.
According to Priscilla Ferrer, a Puerto Rican realtor and appraiser, Dorado has witnessed the highest surge, with prices nearly tripling.
“It’s ridiculous,” she said. “These luxury residences are being purchased on an emotional level rather than a financial level.”
Property sales for more over $20 million are now routine, according to Francisco Diaz Fournier, a founding partner of Luxury Collection Real Estate.
“Right now, we’re selling a home in Dorado Beach for $27 million and another for $29 million,” says the agent.
According to Blanca Lopez, founder of Gramercy Real Estate Group and daughter-in-law of Governor Pierluisi, prices per square foot in Bahia have nearly doubled.
“We’re seeing prices north of $3,000 per square foot,” she said, adding that high-end home values in Condado are currently approximately $1,400 to $1,500 per square foot, up around 35% from a year ago.
Buyers are rushing to the island quicker than high-end properties can be developed, and there isn’t enough inventory to meet demand.
“We don’t have room,” Diaz Fournier stated, “at least not in Dorado, Bahia, or Condado.” “As the market expands, we’re seeing spillovers in parts like San Juan where people previously wouldn’t have looked.”
Puerto Rico as a whole’
So far, it appears that the incentives are creating jobs.
According to a research by Puerto Rican consulting firm Estudios Tecnicos, the Individual Investors Act added about 4,400 jobs between 2015 and 2019, while the Export Services Act added 36,222. The most positions were in call centres, followed by consulting, advertising, public relations, and tax and accounting services.
According to Carlos Fontan, head of incentives at the Department of Economic Development and Commerce, “doors are open” for the crypto community as long as employment are being created.
The tax breaks are working as intended, according to Alberto Baco-Bague, the former secretary of the department and a major driver behind Act 60.
He founded the Partnership for Modern Puerto Rico in 2017, an economic development think tank that brings together local industry leaders and incoming Act 60 members.According to Baco-Bague, its 100 members include John Paulson’s investment management firm, Grant Thornton, and Evertec, a technology company. Total assets under management exceed $50 billion.
“Ideally, we’d like to be able to construct one Puerto Rico,” he stated. “There isn’t a Puerto Rico for newcomers and a Puerto Rico for local business leaders.”
Still, persuading the local populace of the program’s economic benefits is one of the most difficult tasks. Non-Puerto Ricans are ineligible under the Individual Investors Act, generally known as Act 22, which solely applies to non-Puerto Ricans. Even though the Export Services Act is available to locals, many people believe it is just for foreigners because the tax reduction is frequently advertised alongside foreigner-only activities.
“In Puerto Rico, there is definitely a clamour for a more equal taxation system,” said Caroline Lopez, a tax attorney who has worked with incentives since 2011.
Puerto Rico isn’t the first country to try to entice cryptocurrency investors, and it won’t be the last. Bitcoin powers the economy of El Zonte, a surf hamlet on El Salvador’s Pacific coast. President of El Salvador, Nayib Bukele, was an early supporter of cryptocurrency before taking office in 2019. This year, the country declared Bitcoin to be its official currency and revealed plans for the world’s first sovereign Bitcoin bonds as well as a tax-free Bitcoin City. Portugal, too, does not tax the purchase or sale of cryptocurrencies unless it is a person’s primary source of income.
A Puerto Rican crypto entrepreneur, Juan Carlos Pedreira, believes the increased interest, particularly among young islanders, presents a unique opportunity.
“We are going to miss the potential to recreate the island” if it isn’t taken seriously.