Puerto Rico Industrial Report, H1 2021
Puerto Rico real estate prices are on the rise, and the demand for Class A industrial properties has been one of the primary drivers of that growth. Puerto Rico has a highly skilled workforce, with the island already hosting numerous pharmaceutical, technology, and engineering companies. This is a result of Puerto Rico’s robust university system, with each of the 11 campuses offering a specialty. The island also has some of the best logistical capabilities in the Caribbean including multiple high-capacity airports and seaports. In addition, the island’s energy grid is expected to become significantly more reliable over the next few years with the help from LUMA, a private company that will now manage the island’s energy grid. These factors and the tax incentives have become significant pull factors for industrial and manufacturing companies to the island.
Pharmaceutical and medical device manufacturing accounts for 51 percent of Puerto Rico’s GDP. The island is the world’s fifth largest pharmaceutical manufacturing hub by volume, comprising more than 80 manufacturing facilities. The industry on the island has grown significantly in the past decades and has the potential to turn the island into a jewel in the Caribbean rather than a federal fiscal liability in the United States. Despite past challenges, Puerto Rico is home to 12 of the world’s 20 top-grossing pharmaceutical companies. While companies now must pay taxes on their products, manufacturing in Puerto Rico still comes at a massive discount in comparison with the mainland. It should also be noted that manufacturing drugs and medical devices offshore has become a national security liability. The island’s existing infrastructure, talent base, rule of law, and reliability in the face of extreme challenges make Puerto Rico a prime candidate for new and additional manufacturing. JLL is ready to help manufacturers achieve their ambitions in Puerto Rico.
Puerto Rico is home to some of the most attractive tax incentives in the United States. In 2020, many of the previous incentives such as Act 20 and Act 22 were consolidated into a single incentives code called Act 60. This incentive established a 4 percent corporate income tax, 0 percent rate on dividends distribution, 75 percent property tax exemption, 75 percent construction tax exemption, 50 percent municipal tax exemption, and 50 percent exemption on other municipal taxes. Eligible activities include manufacturing, R&D, and exports of goods and services among others.
The island has positioned itself as a territory with the best of both worlds: being a part of the United States while maintaining sovereign status. Since Puerto Rico is not a state, however, Puerto Ricans do not qualify to participate in federal elections or pay federal taxes since the IRS has no authority over Puerto Rico. Unlike other Caribbean or Latin American markets, Puerto Rico utilizes the U.S. Dollar, and businesses are under U.S. legal jurisdiction, meaning they use GAAP accounting procedures and rule of law by the Federal Bureau of Investigation.