THE BEST PLACE IN THE UNITED STATES TO START A COMPANY
On the surface, Puerto Rico hardly sounds like the ideal place to grow your business, much less move to, but you know what they say about judging a book by its cover. The Puerto Rican government hopes to solve its economic problems by reinventing it as a knowledge-based economy, like Singapore has done over the past decade. Their offer to entrepreneurs, some of the friendliest tax laws on the planet and a growing market of skilled scientists and engineers.
The United States is one of the few countries on earth that continues to tax its citizens regardless of where they reside. Puerto Rico offers a unique solution to that issue. As a US commonwealth nation, Puerto Rican citizens are exempt from US federal taxes. But, they’re allowed to retain their US citizenship and the legal protection it provides. One important note, PR must be your primary place of residence, you must live there for 183 days of the year, to be considered exempt from US federal taxes.
Puerto Rico offers a fixed 4% personal income tax rate. US federal and state taxes can reach up to 50 or 60% of a successful entrepreneur’s income in places like California and New York. Income tax aside, Acts 20 and 22, signed in 2012 offer a 90% personal property tax exemption to entrepreneurs in the manufacturing and export services sectors. Additionally, there is no tax on dividend income or capital gains.
Businesses in the export services and manufacturing sectors are eligible for a fixed 4% income tax rate. They enjoy a 100% tax exemption on distributions from earnings and profits, and a 90% real property tax exemption in some cases. As an added bonus, some startups will receive a 100% property tax exemption for their first 5 years. Finally, businesses can qualify for a 60-90% municipal tax exemption. The potential savings are simply staggering.
Getting back to the push to make Puerto Rico a knowledge-based economy. Companies are offered a 50% tax credit on research and development expenditures. According to the Puerto Rico Science, Technology and Research Trust, 22,000 STEM graduates roll out of Puerto Rican schools every year and 60-70% of them leave the country. The Puerto Rican government hopes act 73 will help to keep PR’s skilled workforce in the country.
