Inflation may be running rampant in the mainland, but there is one island that is offering huge investment tax breaks even to new citizens…
It was March 2021 when crypto entrepreneur and investor David Johnston decided to make the bold move to take his parents, wife, three daughters, and his company to Puerto Rico. This 36-year-old has been involved in the crypto ecosystem since its early beginnings in 2012, says the decision to uproot his whole previous life back in Austin, Texas was a no-brainer.
You might think, “Puerto Rico? Heck yeah! Who wouldn’t want to go to Puerto Rico?” but it goes far beyond the fact that Puerto Rico has a year-round tropical backdrop with beautiful beaches, this U.S. territory also has crypto-friendly policies, including huge tax breaks for those who live in Puerto Rico at least 183 days per year or more. Puerto Rico is a U.S. territory, so there is no need for a passport or a visa, just pack up and go. Moreover, for Johnston, it also had the added benefit of helping him still stay up-to-date with his friends in the crypto-trading industry.
“That’s where all my friends are. I don’t have one friend left in New York, and maybe the pandemic accelerated this, but every single one of them has moved to Puerto Rico,” he said, noting that many of his California friends have also made the move.
Johnston also said that Puerto Rico reminds him a lot of Austin in 2012 before Tesla, Samsung, and Apple turned the Texas capital into a huge tech hub, and back then the city felt small. However, similar to Puerto Rico today, Austin had some great energy and a lot of passionate people moving there. Thus, for Johnston, moving to Puerto Rico was kind of like getting in on the ground floor.
“That’s where my community is. That’s where the people I know and love are going, and they’re going there to build something cool. Something that helps everyday people, and that’s what I love about open source. That’s what I love about blockchain. It’s open to everybody,” he said.
The perks of island living
There is no question that Puerto Rico has become the new hot destination for the crypto crowd.
Some of these well-known names would include Facebook whistleblower Frances Haugen, who claims that she bought crypto at just “the right time” and made the move from San Francisco to Puerto Rico last year. YouTube star and NFT investor set up shop there, as did independent Presidential Candidate and former child actor Brock Pierce.
Meanwhile, Johnston says his whole office building is filling up with start-ups and crypto companies.
“Pantera Capital (a crypto fund) is on the fifth floor and then there’s a co-working space on the sixth floor. My company, DLTx, we took over the eighth floor, and NFT.com took over the twelfth floor. That’s all happened in the last 12 months,” Johnston tells CNBC.
Redwood City Ventures is a fund that invests in bitcoin and blockchain companies and they too have opened an office in the American territory.
Perhaps one of the main draws for many to this island would have to be Act 60, which reduces the capital gains taxes down to zero if certain conditions are met.
Business owners will have a great tax incentive for coming to Puerto Rico. In the mainland, they are subject to a tax rate of at least 21%, but if their firm exports their services out of Puerto Rico, they only pay a corporate tax rate of 4%.
If you build it, they will come.
Just like the movie “Field of Dreams”, Puerto Rico adopted the mantra of “if you build it, they will come” and in this case, they meant creating a place where innovative investors would love to settle. At the time that Puerto Rico adopted these incredibly generous tax rules, they were hemorrhaging residents and money.
That is because Puerto Rico seems to be interested in investing in people and innovation. There is no question that in the past couple of years that Puerto Rico has gone through a spell of bad luck. They’ve had earthquakes, hurricanes, bankruptcy and the global pandemic to contend with among other things. However, due to their generous investment tax breaks, investors are pouring in at a record pace.
Giovanni Mendez is a corporate and tax attorney who specializes in onboarding new Puerto Ricans, and he is very vocal about the fact that almost half of his clients are either crypto companies or crypto investors, a number that has increased exponentially over the last six years.
Mendez was raised in a town two hours west of the Puerto Rican capital of San Juan, and he said that it was in March 2020 right when the COVID-19 pandemic began shutting down countries around the world that he was speaking with clients about whether they should move to Puerto Rico or Florida (another tax-free state).
“I really wasn’t expecting a lot of people to move with everything going on with the pandemic, but to the contrary, a lot of people actually just decided to pull the trigger,” said Mendez. “That’s certainly coupled with an increase in the value of crypto assets.”
Crypto investor George Burke has been thinking about moving to Puerto Rico since 2018, and he finally decided to go for it early last year.
“With the performance of how 2021 was going with bitcoin, and the performance of my company, I knew I needed to make a change, so Puerto Rico became a really good option,” said Burke.
Though Burke wouldn’t share an exact dollar figure, he did say that his crypto holdings rise to the mid-seven figure range.
“I was in the crowd sale of ethereum…There were only like 6,000 people who were able to do that,” said Burke, who tells CNBC that he also worked on the first bitcoin debit card back in 2013.
As for the move itself, Burke said the process was straightforward.
“I got on a plane, I established my residency the same day that I got off the plane just by renting a room at my friend’s house, and I started the clock,” he said.
The icing on the cake for Burke was that he didn’t have to apply before he arrived on the island. In order to take advantage of the investment tax breaks of Puerto Rico, he put in an app for the investor’s exemption, paying an attorney $15,000 to help with the business exemption.
The experience was similar for Mr. Johnston, who said that it took six to nine months to go through all of the perfunctory reviews, but it “didn’t take a huge amount of effort.”
“I mean, it’s America,” said Johnston. “You don’t need a visa. You don’t have to apply for residency. You don’t need a passport. You can just grab a domestic flight and show up in San Juan, grab a driver’s license, buy a house, and open an office downtown.”
“It was pretty smooth,” he added.
“My kids have had crypto wallets since they were born,” Johnston told CNBC. “When they did chores for grandma, grandma tried to pay them in cash once, and they said, ‘No thanks, grandma. I prefer bitcoin.’”
Outside of the suburbs of San Juan, there are many in the investment community that gathers for Crypto Mondays, which is a weekly meet-up held at nice hotels and restaurants in the capital, as well as Crypto Curious, which draws those who are new to the space and covers topics such as NFTS, DEFI, and how to open your very own Crypto Wallet. Hundreds of locals are starting to partake in these gatherings, and they are also offered in Spanish!
Burke said that his friends and Crypto colleagues have been moving to Puerto Rico since the last bull run of bitcoin in 2017, and he doesn’t see that letting up any time soon. What with the tax-and-spend liberals in D.C., it’s definitely up to entrepreneurs to take advantage of all of the investment tax breaks that they can!