Practical Techie: Crypto boom in Puerto Rico shaken by ups and downs
It’s a decade since the enactment of tax incentive rules for cryptocurrency investors in Puerto Rico and the influx of mainlanders setting up shop in town does not wane.
As the boom for investors seeking capital gains relief builds up, resentment from activists gets more vocal. They complain the new crypto economy is not benefiting the locals.
Is Puerto Rico becoming a tax haven for crypto investors and companies?
It seems so. The lateral incentives are too tempting for the venturous crypto-rich to stay away.
One such is the year-long tropical climate as a backdrop for island living. Also, different from foreign countries, US entrepreneurs interested in the Commonwealth territory’s crypto-friendly tax structure don’t need to deal with visas and complicated migration laws when reaping the benefits of the decade-old tax laws.
As we know, the primary tax benefit is that if an investor stays on the island for at least 183 days a year, the entrepreneur is not subject to capital gains taxing. In comparison, US short-term capital gains are taxed up to 37%, while long-term capital gains are up to 20%, according to beincrypto.com.
MECHANICS — The total world market cap of cryptocurrency reached $3 trillion in 2021, says a report by PitchBook Data.
There’s a massive bubble at present, but it’s all about speed for crypto investments. Already there are 120 different alternative coins exchanges in the virtual currency markets, with values morphing on a fast pace daily.
Technically, tax exemptions for investors in Puerto Rico begin only after establishing residence on the island, and most also generate a minimum set of jobs. Once on the island, many investors then create portfolios in the emerging markets of Non-fungible Tokens, crypto games, and token-swapping, which in practice can be managed from any spot in the globe.
Others have set up shop in full earnest with their own office buildings to run five or six crypto firms under different corporations and purposes. Under the Puerto Rico arrangement, if an entrepreneur runs their own company, the corporate tax rates drop from 21% to 4%. The latter is conditioned to corporate services exported out of the region.
In 2021, applications for the crypto tax break tripled in the Commonwealth’s State Department, totaling 1,200 investors seeking to establish virtual companies locally. Other unofficial estimates say that since 2015, the crypto business on the island has generated 40,00 news jobs, many of them indirectly.
PLAYERS — The Puerto Rico crypto boom has attracted big players. The website coinspeaker.com identifies the most notable investors as 36-year-old Texan crypto billionaire David Johnston, Facebook whistleblower Frances Haugen, NFT buff Logan Paul, crypto investor George Burke and Alpha Crypto founder Theodore Agranat. Also, Brock Pierce, a child actor of “Mighty Ducks” fame.
Most investors come from New York, Texas, and from California’s Silicon Valley universe. Many, like Johnston, specialize in pooled bitcoin mining operations. Johnston, who pays his children in digital allowances for house chores, preferred a post-pandemic Puerto Rico over other regions like Florida because of the actual tax savings offered by the Commonwealth.
Interestingly, Miami hosted an important cryptocurrency conference in the world on Jan. 16, the North American Bitcoin Conference, which spiked even more interest in Puerto Rico as a digital coin hub. Miami has minted its own virtual money: the Miami Bitcoin.
See here a list of the wealthiest cryptocurrency people worldwide described as a menagerie of geeks, freaks, and visionaries.
GRIEVANCE — As crypto entrepreneurs build a community centered around digital dynamics on the island, not everyone is happy.
Critics say that long-time residents do not benefit from the so-called Act 60, known as the Individual Investors Act, put together in 2012 when Puerto Rico fell into bankruptcy and ill repute with foreign capital.
Activists say that entrepreneurs may rent a room on the island and establish instant residence. Those who buy a house hire a nanny, a landscaper, maybe a homeschool teacher, and a driver and say they have created jobs. More flack comes from a local real-estate sector.
Complaints are that wherever crypto investors land, property prices and the cost of living go up immediately. In Dorado, houses have been sold for $30 million.
Meanwhile, the Puerto Rican government has not figured out how to benefit from crypto investment because the coins are volatile in world markets.
Another factor mentioned by critics is that US federal the IRS is enacting laws and regulations for crypto tax assets accountability, and this could bring a bubble bust.
One of the new entrepreneurs, Keiko Yoshino has in good faith set up the Puerto Rico Blockchain Trade Association to train the crypto-curious. He says he wants to close the gap between the outside investors and the locals.