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New to this? Puerto Rico's Economy: Pharma, Tourism, and Recovery

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Background

Puerto Rico's Economy: Pharma, Tourism, and Recovery

Puerto Rico's economy is shaped by several overlapping forces: a large pharmaceutical and medical device manufacturing sector, a growing tourism industry, and the long shadow of a decade-long fiscal and debt crisis that culminated in a 2017 Title III bankruptcy filing under the federal PROMESA law. The PROMESA Financial Oversight and Management Board has supervised fiscal plans and a complex debt restructuring that formally resolved a substantial portion of the roughly $70 billion in debt. Hurricane María (2017) caused severe economic disruption on top of an already-contracting economy; post-storm, Act 60 tax incentives have attracted new businesses and remote workers, with mixed effects on local housing and labor markets.

  • Pharmaceuticals and medical devices are the backbone of Puerto Rico's manufacturing economy: the island makes a large share of the prescription drugs sold in the U.S.
  • Tourism has grown significantly, and San Juan is a major cruise port.
  • PROMESA (2016) and La Junta oversaw restructuring of ~$70 billion in debt; a confirmed debt plan reduced obligations substantially.
  • Act 60 incentives have attracted tech entrepreneurs, crypto investors, and remote workers, boosting some sectors while pressuring housing supply and affordability.
  • Puerto Rico's GDP and population have both declined over the past two decades, driven by emigration, fiscal austerity, and hurricane recovery challenges.
Official sources (3)

Did You Know?

  1. As a U.S. territory, Puerto Rico has its own separate tax system: residents generally do not pay U.S. federal income tax on Puerto Rico-sourced income.

    Puerto Rico's tax code is administered by Hacienda (the Treasury Department of Puerto Rico), not the IRS, for income earned on the island. This distinct status forms the legal basis for incentive programs like Act 60. Puerto Ricans do pay Social Security and Medicare taxes, and federal income tax applies to income from U.S. sources.

    Source

  2. Bacardí has made rum in Puerto Rico since 1936, when it opened a plant in San Juan to save on U.S. import duty after Prohibition ended.

    Its distillery in Cataño, across the bay from Old San Juan, opened in 1958 and is the largest premium rum distillery in the world.

    Source
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Background

Puerto Rico's Act 60 Incentive Code

Act 60 of 2019, formally the "Puerto Rico Incentives Code" (Ley 60-2019), is an omnibus law that consolidated dozens of prior tax incentive statutes, most notably Act 20 of 2012 (export services) and Act 22 of 2012 (individual investors). Its two headline programs offer an Export Services decree (a fixed 4% income tax on qualifying export-services income) and an Individual Resident Investor decree (0% Puerto Rico tax on capital gains, interest, and dividends accrued after an individual establishes bona fide residency, for decrees applied for by the end of 2026; Act 38-2026 sets 4% for decrees applied for from 2027 and extends the program to 2055). The law is administered by DDEC, Puerto Rico's Department of Economic Development and Commerce, and requires applicants to meet IRS-defined residency and presence tests, purchase a home on the island, and make annual charitable donations to Puerto Rican nonprofits. Act 60 has been praised for attracting outside investment and criticized for contributing to rising housing costs and displacement of long-term residents; the IRS has also increased scrutiny of compliance with the bona fide residency requirements.

  • Export Services decree: ~4% corporate income tax on qualifying revenues from services exported outside Puerto Rico.
  • Individual Resident Investor decree: 0% Puerto Rico tax on capital gains, interest, and dividends accrued after becoming a bona fide PR resident, for decrees applied for by December 31, 2026; a flat 4% for decrees applied for from January 1, 2027, through 2055 (Act 38-2026, signed March 10, 2026).
  • Residency requirements include an IRS presence test (183+ days/year in PR), purchasing a home on the island, and an annual charitable donation to Puerto Rican nonprofits.
  • Controversial: critics link Act 60 migration to housing cost increases and displacement; the IRS has targeted non-compliant filers.
Official sources (3)