The St Regis Bahia Beach Resort in Puerto Rico has a golf course and oceanfront residences in a 195-hectare nature reserve, set along azure waters and lush rainforest. But what is perhaps most appealing to those who are now rushing to this property is the section on its website explaining tax benefits for island residents.
That was the case for Anthony Emtman, who left Los Angeles behind and bought an apartment at the resort in March. The chief executive of Ikigai Asset Management is now a part of a burgeoning cryptocurrency community along Puerto Rico’s north shore, where the tropical weather is a bonus.
Mr Emtman and his cryptocurrency peers are taking a page out of hedge funds’ books and seeking residence on the island to reap huge tax savings.
High-earning investors in the US pay up to 20 per cent in capital gains tax and as much as 37 per cent on short-term gains. In Puerto Rico, they pay nothing.
Companies based on the American mainland pay 21 per cent in federal corporate tax plus an individual state tax, compared with only 4 per cent on the island. That makes the move a no-brainer for some investors, especially as the cryptocurrency market’s spectacular growth continues and Democrats push for higher taxes on the rich.
The presence of digital currency enthusiasts is already palpable on the small island, where chance encounters and networking opportunities abound: run-ins at taco stands, dinner at luxury apartments and “Crypto Monday” gatherings at hotels and restaurants across San Juan.
Cryptocurrency funds Pantera Capital and Redwood City Ventures are among those that have established offices on the island. Facebook product manager-turned-whistle-blower Frances Haugen recently told The New York Times she is living in Puerto Rico in part to be with her “crypto friends”.
New York City’s mayor-elect Eric Adams even flew there in November with cryptocurrency billionaire Brock Pierce for dinner with Puerto Rico’s governor Pedro Pierluisi.
Now, “it is not just, ‘Move to Puerto Rico to save tax’,” says Giovanni Mendez, a corporate and tax lawyer advising those who relocate. “It is ‘Move to Puerto Rico because everybody is there’.”
The Puerto Rican government created the tax breaks in 2012 with the hope of infusing the island’s struggling economy with cash and diversifying its job pool.
Hedge funds gradually began seeking a toehold on the island but what has really supercharged the flurry of arrivals is the Covid-19 pandemic – which drove a shift away from big cities and popularised remote work – and the recent explosion in cryptocurrency markets.
Proponents of the tax breaks describe it as not only a boost for an island that has been mired in bankruptcy for more than four years – prolonged by hurricanes, earthquakes, a political scandal and the pandemic – but an opportunity for reinvention.
Still, the idea has its detractors: some of the laws only apply to new residents, so lifelong islanders are ineligible. It has made some hesitant to welcome the new crop of wealthy denizens, fearful that the flow of income will exacerbate inequality and create social tension. As it is, property prices are already rising to “absurd” levels.
During the last big cryptocurrency bull run in 2017, many investors tried to move to Puerto Rico before the market peaked and then collapsed, says Mr Mendez.
This year, Puerto Rico has received more than 1,200 applications – a record – through its Individual Investors Act, which exempts new residents from paying taxes on capital gains, according to the island’s Department of Economic Development and Commerce. The number of US mainlanders seeking Puerto Rico’s tax breaks has tripled this year.
