A few weeks ago, Alberto Baco Bague arrived in New York for a roadshow of sorts. In just 48 hours, Baco, Puerto Rico's secretary of economic development and commerce, met with more than 30 hedge fund managers, investors and others who could be classified as very well-off.
His mission might seem quixotic at best: trying to convince these well-heeled New Yorkers to uproot themselves from Manhattan and relocate to Puerto Rico. But he says they are starting to come.
For Baco and the Puerto Rican government, the benefits of injecting more rich people into the island are clear. "We are a poor island, and this is our way of developing [and] developing employment in Puerto Rico. We are very serious about that," he says.
Baco has an enticing carrot for the investors. Under laws enacted in 2012, when someone moves to the island, all of that person's investment income, like capital gains, dividends and the like — is completely tax-free. Plus, service income — say, a hedge fund's management fees, is taxed at just 4 percent. And, as it is for all Puerto Rico residents, there's no federal income tax.
Occasional Visitors Need Not Apply
The catch is that you can't just set up a post office box and call yourself a resident. You have to move for real. Like Damon Vickers has.
"I love it. I love Puerto Rico, I love the climate, I love the people, I love the energy of the place," Vickers says, sitting by the pool at the La Concha resort in Puerto Rico's capital, San Juan.
Vickers moved his hedge fund and his family here from Seattle earlier this year. He had been eyeing the U.S. Virgin Islands for a move, but then caught wind of Puerto Rico's new tax benefits. For him, it's about simple math.
"I like making money. And we want to go to a place where our money is treated the best, so we might benefit ourselves, and we might also benefit our investors," he says.
His friends in the investing world are watching closely to see how he fares. Many are unaware the island even has a financial district, much less modern highways and shopping malls. Once they learn more, many worry about the crime, including a murder rate six times the U.S. average.
And, given its gritty reputation, word hasn't gotten out that the wealthy can live well in Puerto Rico.
Paco Diaz, with Trillion Realty Group, the local affiliate of Christie's, is among those trying to convince them. Picking them up in his late-model BMW SUV, he takes investors around tony neighborhoods like Condado on the San Juan beachfront, pointing out homes selling for millions.
He shows off resort hotels, new condo buildings and high-end stores along a segment he says many call "the Puerto Rican version of Fifth Avenue." New York's storied shopping strip doesn't have anything to worry about, but one block here does feature Louis Vuitton and Cartier.
To take advantage of the tax breaks, the rules say you must live in Puerto Rico at least 183 days a year and prove that you're really part of the community. Your spouse must live with you, and your kids must go to local schools. Some of the best, like the private Saint John's School, are just feet from the ocean, which Diaz uses as a selling point. He points out students attending a surfing school behind him. "They just go across the street with their surfing boards to catch some waves," he says.
If the city life is not to the investors' liking, Diaz takes them to the suburb of Dorado. It's a gated community on steroids. Past its guards, you'll find lush palm trees, golf courses, private beach clubs and a water park. A few nights at the Ritz Carlton resort here costs about what the average Puerto Rican makes in a year. Singer Ricky Martin lives around the corner.
Diaz's colleague Coco Millares says the tax incentives are already boosting her business. "We have had, since they passed the law, much more interest in Dorado than we had before," she says.
Hoping To Boost A Weak Economy
But back in San Juan, few residents had even heard of these tax breaks. When told the details, their reactions were mixed. One thought it could bring some much-needed money to the island. But others, like restaurant worker Estefania Colon, were resentful that locals pay taxes while the newcomers are exempt from many of them.
"They're already rich, and they're making more money from us?" she says.
Tax incentives are nothing new to Puerto Rico. For decades, tax breaks brought manufacturing and pharmaceutical firms to the island. But many incentives have been phased out, and some officials believe that's one reason the island's recession has been so deep. Unemployment is nearly 14 percent, and the average income is about half that of Mississippi.
The hope is that a few super-rich people will help turn some of that around and beef up the service and financial sectors, while also buying real estate, eating at restaurants, hiring locals and, eventually, maybe even invest their own money in big projects on the island.
The zero percent tax on investment income, and the 4 percent corporate tax, went into effect at the start of 2012. The goal is for 500 wealthy investors to come in the next four years. So far, 77 have applied.
The investment tax breaks are guaranteed until 2036. Only congressional action — or granting Puerto Rico statehood — would put a stop to them. But while some say this is just Puerto Rico becoming the latest tax haven, there has been little serious opposition.
Mauro Guillen, a professor of international management at the University of Pennsylvania's Wharton School, says Puerto Rico officials are being a bit optimistic about the direct effects.
"It is not going to create a major migration to Puerto Rico," Guillen says. The biggest boon could be indirect, he explains. Even if just a few people move, it could change the conversation about the island.
"Puerto Rico will be making the headlines. It will be perceived as a location where you should do business in," Guillen says.
Lawyer Fernando Goyco, who advises many of the investors, says in his practice, it's millionaires, not billionaires, who are showing the most interest in moving for the tax deal. That could be a good thing for Puerto Rico, he says — too many super-rich moving here to avoid taxes could draw congressional scrutiny.
And he's not surprised big honchos aren't flocking to his island. "Moving somebody from New York to Puerto Rico, that's very difficult, that's very difficult. Moving somebody from Kansas to Puerto Rico [or] from North Carolina to Puerto Rico — it's a different story," he says, chuckling.
But as the word spreads, he says, millionaires are calling his office.
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Transcript
ROBERT SIEGEL, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
AUDIE CORNISH, HOST:
And I'm Audie Cornish.
Puerto Rico is pitching itself as a land of opportunity for the wealthy. The Caribbean island is a U.S. territory but not a state. It follows many of the same laws as the mainland but not when it comes to taxes. Puerto Rico makes its own tax rules. And it's trying to attract investors with this offer: remain a U.S. citizen but pay next to nothing in taxes. NPR's Dan Bobkoff went to Puerto Rico to learn about it.
DAN BOBKOFF, BYLINE: A few weeks ago, Puerto Rico's secretary of economic development came to New York for an ambitious 48-hour road show of sorts. Alberto Baco Bague met with hedge fund managers, bankers.
ALBERTO BACO BAGUE: We will have (unintelligible) meetings.
BOBKOFF: Trying to convince the wealthy New Yorkers that they should uproot themselves from Manhattan and relocate to Puerto Rico. For him, this is about getting some more money into his island.
BAGUE: We are a poor island, and this is our way of developing employment in Puerto Rico. We are very serious about that.
BOBKOFF: And he has a pretty enticing carrot. Once you moved to the island, all of your investment income - capital gains, dividends and the like - is completely tax-free. Plus, service income, say a hedge fund's management fees, is taxed at just 4 percent. And as it is for all Puerto Rico residents, no federal income tax. But the catch is you really have to live there.
Hi there. Dan Bobkoff. Nice to meet you.
UNIDENTIFIED MAN: Hey. How are you? Nice to meet you.
BOBKOFF: How are you?
So I came to Puerto Rico to find out if this plan has a chance of working, both for the island and the new residents. Real estate agent Paco Diaz picked me up in his late-model BMW to simulate the perspective investor experience.
What are the homes' costs in an area like this?
PACO DIAZ: They are expensive. There is a house from here, the asking price is $3.2 million.
BOBKOFF: Diaz is driving me around one of the island's toniest neighborhoods. Condado is prime oceanfront property in the capital of San Juan. Diaz is with Trillion Realty Group, the local affiliate of Christie's. This is high-end stuff, and people thinking of moving for the tax deals often end up in his car. We pass resort hotels, new condo buildings and high-end stores.
DIAZ: This segment here is what we call the Puerto Rican version of the Fifth Avenue.
BOBKOFF: Fifth Avenue doesn't have anything to worry about. But one block does feature Louis Vuitton and Cartier. The rules say, to take advantage of the tax breaks, you have to live in Puerto Rico at least 183 days a year. You have to prove you're really part of the community. Your spouse must live with you. Your kids must go to local schools. Some of the best, like the private Saint John's School, are just feet from the ocean.
DIAZ: They just go across the street and - with their surfing boards to catch some waves.
BOBKOFF: Some of the students were spending the afternoon at a surfing school.
(SOUNDBITE OF CHILDREN CHEERING)
BOBKOFF: Tax incentives are nothing new to Puerto Rico. For decades, tax breaks brought manufacturing and pharmaceutical firms to the island. But many have been phased out, and some officials believe that's one reason the island's recession has been so deep. Unemployment is nearly 14 percent. The average income is about half that of Mississippi. The hope is a few super-rich guys will help turn some of that around and beef up the service and financial sector.
DAMON VICKERS: I love it. I love Puerto Rico. I love the climate. I love the people. I love the energy of the place.
BOBKOFF: I found Damon Vickers sipping freshly squeezed juice by the pool at La Concha, a resort in the Condado area. Vickers runs a hedge fund and moved both himself and the fund from Seattle to Puerto Rico a couple of months ago. He says it was about simple math.
VICKERS: I like making money. And we want to go to a place where our money is treated the best, you know, so that we might benefit ourselves, and we might also benefit our investors.
BOBKOFF: At first, Puerto Rico wasn't even on his radar. He had been eyeing the U.S. Virgin Islands for its tax breaks before he learned of Puerto Rico's incentives. His family will join him here soon, and his friends in the investing world are watching closely to see how he fares. Many investors are unaware the island even has a financial district and modern highways and shopping malls. Once they learn more, many worry about the crime, a murder rate six times the U.S. average. And, given its gritty reputation, word hasn't gotten out that the wealthy can live so well here.
DIAZ: This is a - what is called a good rain.
BOBKOFF: Amid a tropical downpour, realtor Paco Diaz takes me outside San Juan to the lush suburb of Dorado. He hands me off to his colleague Coco Millares.
COCO MILLARES: This is Ricky Martin's house.
BOBKOFF: Many of the investors moving to Puerto Rico are opting to live here. It's a gated community on steroids. Past its guards: lush palm trees, golf courses, private beach clubs and a water park. A few nights at the Ritz Carlton Resort here will cost you about what the average Puerto Rican makes in a year. And the tax offer is already boosting her business.
MILLARES: We have had, since they passed the law, much more interest in Dorado than we had before.
BOBKOFF: But back in San Juan, where locals gather on Friday nights to sing and dance by the port, I was surprised so few residents had even heard of these tax breaks. When I told them, their reactions were mixed. One thought it could bring some much-needed money to the island. But others were resentful.
ESTEFANIA COLON: I don't think it's a good idea at all.
BOBKOFF: Estefania Colon works in a restaurant and thinks it's unfair for locals to pay taxes while the newcomers do not.
COLON: They're already rich, and they're making more money from us?
BOBKOFF: The zero percent tax on investment income and the 4 percent corporate tax went into effect at the start of 2012. The goal is for 500 wealthy investors to come in the next four years. So far, 77 have applied. The investment tax breaks are guaranteed until 2036.
Only congressional action or granting Puerto Rico statehood would put a stop to them. With neither looking likely in the short term, the hope is the wealthy newcomers will buy real estate, eat at restaurants, hire locals and eventually maybe even invest their own money in big projects on the island. But Mauro Guillen of the University of Pennsylvania's Wharton School thinks Puerto Rico officials are being a bit optimistic about the direct effects.
MAURO GUILLEN: It is not going to create a major migration to Puerto Rico.
BOBKOFF: He says the biggest boom could be indirect. Even if just a few people move, it could change the conversation about the island.
GUILLEN: Puerto Rico will be making the headlines. It will be perceived as a location where you should do business in.
BOBKOFF: Lawyer Fernando Goyco, who advises many of the investors, says it's millionaires, not billionaires, who are showing the most interest. And that could be a good thing for Puerto Rico, he says. Too many super-rich moving to avoid taxes could draw congressional scrutiny. So far, he says, it's not the big honchos coming to his island.
FERNANDO GOYCO: Moving somebody from New York to Puerto Rico, that's very difficult. That's very difficult. Moving somebody from Kansas to Puerto Rico, from North Carolina to Puerto Rico is a different story.
(LAUGHTER)
BOBKOFF: But as the word spreads, he says millionaires are calling. Dan Bobkoff, NPR News. Transcript provided by NPR, Copyright NPR.
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