Tax incentives create a problem

  • As demand has increased in Puerto Rico’s tourism sector, investors have become interested in short-term rentals on the island.
  • For mainlanders, buying property adjacent to the beach seems like a good deal, considering the tax advantages offered by Puerto Rico.
  • Gentrification is taking its toll across the island, with rising prices for existing homes making it harder for Puerto Rican residents to afford homes.

Jennifer Márquez can spot a home renovation in Puerto Rico by an investor who isn’t from the island right away.

“When you drive, you see this,” she said. “You can tell when it’s a local person or a foreigner.”

The giveaway is the style choice these investors make; the layout and finishes are nothing like the homes she grew up in Puerto Rico.

It’s Marquez’s job to notice the details. Márquez, who was born and raised in Puerto Rico, is the founder of The Reserve LLC, a hotel management company that, among other things, manages vacation rental properties on the island. His clients are landowners, both American and local.

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His business is growing alongside the record growth of Puerto Rico’s tourism industry. Tourism growth in Puerto Rico has been aided by visa-free travel and short flights for U.S. citizens living in the states, coupled with high COVID-19 vaccination rates among Puerto Rico’s local population.

As demand has increased in Puerto Rico’s tourism sector, investors have been keen to increase supply, especially among the island’s short-term rentals. Some Puerto Ricans believe that state investors have received unfair advantages in their home country.

“Every home you see is being renovated, getting ready for Airbnb. It’s not preparing to be a (long-term) rental house,” Márquez said. “So you have the locals, and then you have the international, you know, the travelers who saw the potential because of Act 20 and Act 22.”

For mainlanders considering property in Puerto Rico, buying beach-adjacent property as a second home or for a short-term rental business (or a combination of the two) seems like a luxurious affair, especially considering the tax advantages that Puerto Rico offers them.

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Why is it so attractive for American continentals to buy property in Puerto Rico?

Law 20 and Law 22 (now known as Law 60) are tax incentives for people in the continental United States to encourage them to invest and settle in Puerto Rico. Americans who move or establish qualifying businesses or investments in Puerto Rico can reduce their federal income tax rate up to 37% in the states to zero on income earned in Puerto Rico.

According to public records from the Department of Economic Development and Commerce (DEDC), more than 4,500 people have taken advantage of tax code incentives since its inception a decade ago, despite protests from Puerto Ricans.

The DEDC reports from 2015-2019 estimates, beneficiaries of Laws 20 and 22 invested $2.5 billion in Puerto Rico’s economy while directly and indirectly creating approximately 36,200 jobs. It indicates that 68% of Law 22 beneficiaries have purchased property in Puerto Rico. These properties are valued at just over $1.3 billion.

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According to data from AirDNA, a market research firm that studies local Airbnb markets, Airbnb listings for “whole house” short-term rentals in Puerto Rico increased 32% each year from 2018 to 2020. The announcements have remained relatively the same between 2020 and 2021.

AirDNA isn’t tracking the owner’s information, but Márquez notices a split between Puerto Ricans and outside investors, including those from his own clientele.

“You have a bit of everything,” she said. “It’s kind of like 50/50.”

Gentrification is taking its toll across the island, with rising prices for existing homes making it harder for Puerto Rican residents to afford homes, and prices for long-term rents are also rising. The median price of homes for sale in San Juan, a popular tourist area, is listed at nearly $260,000 in June, about 42% higher than June 2021, according to

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disturb the inhabitants

Xavier Ramírez, general manager of Combate Beach Resort and president of the Paradores and Small Inns Association of Puerto Rico, sees a similar split between Puerto Rican investors and mainlanders enjoying the tax benefits of Law 60 on short-term rental property.

“We invite people from outside, non-residents, to come and participate in our tourism industry. They are more than welcome because we need investments. We need new inventory because we are competing with other Caribbean islands that have more inventory than us,” Ramírez said. “We just want them to be on the same level and play fair. .”

Ramírez calls for stricter regulations so that these short-term rentals are inspected like other hotels and vacation properties. He says that’s important because these properties are often embedded in communities with long-term residents and the tourism industry needs to ensure the owners are good neighbours.

“These new properties, they’re not registered properly, so they don’t pay municipal taxes and garbage or garbage removal service. They are not paying a pittance for a municipal business,” he said.

Data presented to Puerto Rico’s House of Representatives showed 25,000 short-term rentals operating on the island in 2021, but only about 4,000 of those were properly registered and paying room occupancy taxes. .

The local government begins to work on stricter regulations. In Dorado, the local government recently passed requirements for owners of short-term rental businesses to obtain additional licensing to operate in the area. The Puerto Rico House of Representatives is holding hearings to better understand the current reality in order to draft new legislation regarding short-term rentals.

In the meantime, Ramírez recommends visitors to Puerto Rico get lodging recommendations from the Puerto Rico Tourism Board, as it ensures all properties are up to date on current regulations.

Sheeka Sanahori is a freelance travel journalist and founder of Inherited Travel, a newsletter for travelers who want to make more socially responsible travel choices. You can follow her on Instagram @sheeka.sanahori.