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Puerto Rico Luring Buyers With Tax Breaks

Puerto Rico Luring Buyers With Tax Breaks

Posted by Shanelle Weir on September 05, 2014

Alex Lemond is among a new wave of New Yorkers trading in their Manhattan condominiums for beachside villas in Puerto Rico. The former hedge fund honcho moved to San Juan from New York last year, and his company, the Encanto Group, is investing hundreds of millions of dollars in developing luxury real estate on the Caribbean island.

Puerto Rico, a commonwealth of the United States, passed legislation in 2012 that shields new residents from paying most federal income taxes. After a slow start, Puerto Rico’s status as a tax haven is beginning to catch on, and some are betting big bucks that the trickle of buyers moving there will soon become a stream. Local officials hope that new investment will help turn around an economy battered by several years of recession.

“I take at least five calls a day from new people considering moving here,” said Gabriel Hernandez, a tax partner with the San Juan office of BDO Puerto Rico. When the law was first passed, Mr. Hernandez advised two people who relocated to Puerto Rico from the mainland United States; last year that number rose to about 15, and so far this year, he has helped more than 80 people make the move and is advising another 60 who are considering it.

 

Marc Grossman bought a home at the St. Regis Bahia Beach Resort and is considering relocating full-time to Puerto Rico. CreditKathy Kmonicek for The New York Times

Under the tax law, known as Act 22, you can pay minimal or possibly no taxes on interest and dividends, as well as capital gains. You must, of course, fulfill certain criteria, including living on the island for at least 183 days a year, although unlike many other tax havens, you don’t have to turn in your passport. The island also passed a companion law that provides tax incentives to certain companies that relocate to Puerto Rico.

As of July, 115 people — nearly all of them United States citizens — have applied and been granted the tax exemption, with another 135 forecast to make the move before the end of the year, according to Puerto Rico’s Department of Economic Development and Commerce. Last year, 151 people were granted the tax-exempt status.

“Our investment speaks for itself,” said Mr. Lemond, the chief executive of Encanto. This year, the company acquired the Solarea Beach Resort, a four-building condo development, along with a 24-acre adjacent beach property and the Yacht Club marina, with 158 boat slips and a 30,000-square-foot commercial building. Encanto said in a news release in March that it plans to spend more than $200 million on the properties, including the construction of a hotel and additional beachfront homes.

“Puerto Rico is basically the 51st state — there is no immigration, you don’t have to spend millions of dollars on lawyers to figure it all out. All the infrastructure is already in place,” said Neal Sroka, a broker at Douglas Elliman Real Estate who is working with Encanto.

The turning point for Puerto Rico’s standing as a tax haven can be traced to last year, when the billionaire financier John Paulson began investing in the island. His hedge fund, Paulson & Company, acquired the St. Regis Bahia Beach Resort, where he is building a vacation home. In March, the firm acquired two beachfront hotels in San Juan — La Concha Renaissance Hotel and the Condado Vanderbilt — and is spending more than $500 million on renovations and expansion plans. Perhaps Mr. Paulson’s biggest contribution to the island’s reputation as a tax haven, however, was his dubbing the island “the Singapore of the Caribbean,” a catch phrase that is now oft-repeated by seemingly everyone in the business of promoting Puerto Rico.

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