In early February, the New York Times reported on a movement that has the potential to turn Puerto Rico into a “crypto utopia” for the dozens of entrepreneurs who have found new wealth from blockchain and cryptocurrencies. “They are selling their homes and cars in California and establishing residency on the Caribbean island in hopes of avoiding what they see as onerous state and federal taxes on their growing fortunes, some of which now reach into the billions of dollars.”
The entrepreneurs say that they are “close to getting the local government [of Puerto Rico] to allow them to have the first cryptocurrency bank.” And the founder of the news site CNET told the Times that he intends to move his new blockchain company, Videocoin, from the Cayman Islands to Puerto Rico.
The entrepreneurs’ goal is to “build a crypto utopia, a new city where the money is virtual and the contracts are all public, to show the rest of the world what a crypto future could look like,” explained the Times. Puerto Rico’s government is helping out; in mid-March, government officials participated in Blockchain Unbound, a conference focusing on how digital currency can transform the Puerto Rican economy, accelerate the island’s recovery from Hurricane Maria, and deploy its social influence for the greater good.
In addition, in mid-March, the secretary of Puerto Rico’s Department of Economic Development and Commerce (DDEC) announced that his agency will be forming an advisory council to promote blockchain use for businesses, reported Cointelegraph. The council will act “‘unofficially as a kind of filter’” to determine [which] projects will help solve legitimate needs on the island with Blockchain, as opposed to companies that just mention Blockchain because of the term’s rising popularity.”
Puerto Rico’s tax climate
All of this excitement stems, at least in part, from the U.S. territory’s offer of “an unparalleled tax incentive: no federal personal income taxes, no capital gains tax and favorable business taxes—all without having to renounce your American citizenship,” explained the Times.
Key among these incentives are the following:
- The Economic Incentives for the Development of Puerto Rico Act, Act 73 of 2008, which provides economic incentives, tax exemptions and tax credits to businesses engaged in eligible activities, generally relating to industrial development.
- The Export Services Act, Act 20 of Jan. 17, 2012, as amended, which provides tax exemptions and tax credits to businesses exporting services from Puerto Rico, including services in the areas of research and development, advertising and public relations, consulting, and investment banking, among many others.
- The Individual Investors Act, Act 22, also of Jan. 17, 2012, as amended, which provides tax exemptions on dividends, interest, and certain capital gains to individuals who relocate to become residents of Puerto Rico.
- The International Financial Center Regulatory Act, Act 273 of Sept. 25, 2012, which provides tax exemptions to businesses engaged in eligible activities in Puerto Rico that qualify as “international financial entities.”
These incentives can be combined, which would further benefit blockchain and cryptocurrency investors.
CNBC quoted a Blockchain Unbound conference attendee, who gushed that Puerto Rico is “one of the best places to put a start-up company. The tax incentives are incredible for a start-up. The talent down here is incredible. . . . Some of the most prominent names in blockchain are here. It’s a really exciting time here in Puerto Rico.” He estimated that about 30 blockchain companies have moved there. On the other hand, CNBC reported that banks have been proceeding cautiously, and that the DDEC secretary wants to make sure that the legal and regulatory processes are “done right [to] protect the name of Puerto Rico.”
Update on Vermont’s proposal to regulate cryptocurrency
The last time we wrote about digital currency, we observed that while few U.S. jurisdictions have done much to regulate or tax Bitcoin and other cryptocurrencies, lawmakers in Vermont were seeking to do so through S 269, which would legalize the formation of “digital currency limited liability companies,” and require them to maintain a physical presence, or conduct some or all of their activities, within Vermont. These companies would be subject to a transaction tax equivalent to $0.01 per transaction for each unit of currency mined or otherwise created, and each sale or other transfer of one or more units of currency.
S 269 is proceeding along with some speed. It was introduced in early January, and as of late March, it had passed the Senate. Now it is in the House Committee on Commerce and Economic Development.