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Puerto Rico

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Displacement of traditional business centers, influenced by commercial agreements and by the trend of freeing international commerce, has given to the international community a new verve, as well as, added challenges and opportunities. Parallel to this new situation, Puerto Rico has an advanced infrastructure, comparable to the best worldwide, that provides it with competitive advantages inside the global economy.

A complex cargo services network, both by sea and by air, makes the island be an international fundamental support to Europe and the Americas’ commerce. Luis Muñoz Marín International Airport in San Juan has 1,804 flights going in and out weekly from 20 different airlines and is number 37 among the highest passenger flow airports in the US, also it is number 26 in cargo transportation worldwide.

San Juan Port is fourth in traffic in the western hemisphere and is one of the 17 most important container transporting ports in the world. It is also the main cruise ship port in the region. Soon a Transshipment Port for value-added activities will be established, strengthening the island’s competitive position as a bridge to the Americas and also as the best investment jurisdiction worldwide.

Also, we operate in Puerto Rico the largest Duty Free Zone in the US, allowing businesses located in this area to reduce their operational costs by not being charged any federal excise taxes when importing raw materials, components, and foreign goods.

Goods coming into the zone are exempt from paying customs duties and excise taxes. Once the goods are on the island, they can again be labeled, processed, mixed, assembled, and packed. When these goods are exported from inside the zone to another foreign market, all scheduled custom duties and excise taxes reimbursement processes are eliminated. Still, if the merchandise is introduced to Puerto Rico or exported to the United States businesses have to pay both duties and excise taxes, but these payments can be adjourned to the actual moment of sale or delivery.

The availability of more than 24,000 kilometers of roads and highways, and 11 regional airports place business enterprises and manufacturers two hours from the nearest seaport or airport. For cargo transported by road exists more than 7,000 cargo transportation companies.

The traffic system was expanded in 2003 when the construction of a modern mass transportation system began. A heavy rail train called Tren Urbano, is still being constructed costing more than 1.6 billion, it will run 10.2 miles from Bayamón city to San Juan city. It is projected to transport a total of 129,000 passengers a day and to annually save, up to 3.9 billion liters of gasoline and 1.16 million USD in the consumption of that fuel.

A solid electrification system managed by the government’s Puerto Rico Electric Power Authority, has 4,922 megawatts (MW) daily power capacity which supports the island’s commercial and manufacturing activities. In 2000 co-generating company EcoEléctrica began commercial operations generating 507 MW using natural gas. AES, another co- generating company, started operations in 2002, adding 454 MW to the system using Coal Technology.

The water and drains services is provided by Puerto Rico Aqueducts and Sewer Authority (AAA), it has a piping system of 16,000 km for distributing water and 3,200 km of drains.

A modern telecommunication technology network provides full access to global markets and the US. GTE recently acquired from the government of Puerto Rico majority share of Puerto Rico Telephone Co., number 13 among similar US telephone companies. There are also other larger long distance services and wireless phone suppliers, such as: AT&T, MCI, Sprint, Cingular Wireless, and Centennial, among others.

Columbus II submarine cable interconnects with Americas I cable and to other optical fibre submarine systems from the American hemisphere with those of Europe, through two interconnection points located in Spain and Portugal, and it can process some 20,000 transatlantic calls simultaneously. This submarine cable is owned by more than 60 global companies, including Telefónica from Spain, Sprint and MCI, among others. The submarine cable known as Americas II, satisfies the United States, the Caribbean, and South America communication services demand. While Arco I (Americas Region Caribbean System), a new optical fibre cable, interconnects the United States and Puerto Rico with 13 Latin American countries.   

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Puerto Rico has several environmental pollution issues, such as water supplies and soil contamination, one of the main reasons for this contamination is solid waste disposal. It actually causes pollution in Puerto Rico. Studies revealed that 8,100 tons of solid waste were being produced daily on the island in 1994, at a growing rate of 1% annually.

As in every developing modern society, wastes produced by human activity increases at such a high rate that it challenges its ability to find feasible methods of disposal with minimum environmental impact. Waste disposal has become a major problem, and worsens as waste production continues to increase.

In addition, as years go by, the locations for waste disposal in Municipal Solid Waste Landfills are less, due to space limitations characteristic of the island. On the other hand, the situation gets more complex because of the Resources Conservation Recovery Act, which implements new specific federal and local regulations for handling and disposing solid wastes. It demands stricter requirements for landfill design and location.

As a result of the increasing solid waste production, in the future, the few dumpsites currently operating will not suffice. Such an increase will significantly affect public health and the financial and social development of the island since this type of infrastructure is vital for the whole island community.

The Commonwealth of Puerto Rico has created a legal instrument to attend the solid wastes disposal problem, to comply with social interest, and to improve quality of life. Act 70 from September 18, 1992, Ley para la Reducción y Reciclaje de Desperdicios Sólidos (Solid Waste Reduction and Recycling Act), as amended on January 20,1995, commands Puerto Rico Solid Waste Authority to develop and implement a comprehensive program for handling solid wastes in Puerto Rico. The goal of this program is to reduce and recycle a substantial amount of the total waste volume deposited in dumpsites. Pursuant to the mandate, in 2000, the amount of solid wastes disposed of in dumpsite must be reduced at least 35 percent using the reduction and recycling method. This Act was recently amended because the initial goal of a 35% reduction could not be met. Right now the recycling percentage in Puerto Rico fluctuates between 18 and 20 percent.

The main reason for not meeting the goal established by law lies on the lack of recycling companies able to process and use the recovered solid wastes from recycling programs as raw material for manufacturing new products. It is necessary to promote the development of recycling companies that use recycled tires, oil, paper, crystal, aluminum, and plastic as raw material for manufacturing new products.

Due to the magnitude of the problem and to the priority given to solving it, the government of Puerto Rico has developed promotional strategies for establishing such industries, among which there is a comprehensive tax incentives program and a financial aid and technological assistance program.

The tax incentives program provides these industries with up to a 90% discount on their tax returns for a period of 20 years. It also provides for a tax credit of 50% from cash investment. This credit can be sold so that a 50% from the investment can be recuperated.

Financial Aid program provides for public and private companies in developing recycling activities. Among the assistance it provides there is also loan guarantees and the rented of equipment. The government of Puerto Rico has assumed a more active role in developing these companies through an investment program that allows it to establish close business relations with the private sector by purchasing stocks.

In conclusion, to attend the solid waste handling and disposal problem and facilitate the development of a recycling system in Puerto Rico, an integrating strategy in which the Solid Waste Reduction, Reuse, and Recycle Plan in Puerto Rico, the Infrastructure Plan for Recycling and Disposing of Solid Wastes, and the incentive programs of the government of Puerto Rico, converge on. The goal is to facilitate infrastructure development for the handling and disposing of solid wastes in Puerto Rico.

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Wholesalers and retailers combined shape one of the strongest sectors in Puerto Rico’s economy: the commercial sector.

Up to June 30, 2000 commercial sector activities had generated:

  • $ 7,876,000 USD in revenues, 13.1% of the Gross Domestic Product (GDP)
  • 19% of all jobs
  • A consistent growth in sales, a 4.55% range in the last eight years.

The total area occupied by shopping centers surpasses 7.3 million square meters, full of commercial chain branches from the United States, such as: Sears, JC Penneys, Kmart, Wal-mart, Home Depot, and Macy’s. Most of these branches generate higher sales than their counterparts in the continental United States.

Plaza las Américas, (meaning Mall of the Americas) the largest shopping center on the island and in the Caribbean (640 thousand square meters of commercial space), had an increased its rates 6% annually in the 90’s. Retail sales produced $13,534,000 USD. A total of 215,000 people were employed in the retail trade sector in 2000.

The wholesale sector mainly imports consumption products, mostly from the US. In this kind of competitive industry the existence of exclusive rights for some commercial brands and products is common, these are protected by local statutes. And, each day there are more wholesalers distributing goods and services to the Caribbean region, using the island’s modern port infrastructure to distribute them to neighboring islands, and to Central and South America.

In relation to foreign trade, Puerto Rico since the turn of the century has obtain a profit balance. Registered exports added up to $55.2 billions f.o.b. (2003) and imports added up to $33.7 billions c.i.f. (2003), resulting in an advantageous commercial balance of $21.5 billions.

Although most of the foreign trade in Puerto Rico is done with the US, Western European Union countries are gradually becoming important suppliers of goods for the Puerto Rican economy. Some Hispanic countries, such as Dominican Republic, Venezuela, and Spain, are important business partners of Puerto Rico.

Banking and Insurance Systems
Puerto Rico’s Banking and Insurance System overlaps with the North American Banking and Monetary System. There is no Central Bank in Puerto Rico, it is the US Federal Reserve Bank which acts as a Central Bank, determining the receivable interest over loans for the banks which are members and regulates Monetary and Credit Policy. Bank deposits in Puerto Rico are guaranteed up to $100,000 USD by the Federal Deposit Insurance Corporation.

Today, there are 15 Commercial Banks operating in Puerto Rico, among these there are two Spanish banks that stand out (Santander Bank and Banco Bilbao Vizcaya [BBV]) and some Canadian banks. There are more than 500 branches in total, their assets by September 2004 had surpasses more than $47 billion USD in deposits. The largest and oldest bank in PR is Banco Popular of PR. Established in 1893, Banco Popular of Puerto Rico has more than 200 branches, including several branch offices in the US. The bank district is located in what is known as “milla de oro” (or golden mile, in English) in Hato Rey, where the main banks have their central offices.

In addition to Commercial Banking in Puerto Rico there is an active market for Mortgage Banking and financing institutions for small loans. Mortgage loans added up to $7.6 billion USD in September 2004.

To operate in Puerto Rico, foreign banks must apply for an authorization from the Office of the Commissioner of Financial Institutions of Puerto Rico, which controls and supervises Financial Institutions established on the island.

Not so long ago, in PR existed an insurmountable gap between the Banking and Insurance Systems. But new federal laws have changed this situation and already banks are starting to sell insurances, mostly personal insurances. The Insurance Industry in Puerto Rico has shown a constant growth during the last 10 years. Today they subscribe more than $4 billion USD in primiums and generate 30 thousand direct and indirect employments. Even as local insurance companies subscribe 80% of total primiums, there are international companies such as AXA, Scandia, SunAlliance, and SuissRe in Puerto Rico dealing insurances and reinsurances.

Even if the most recent catastrophic loss- hurricane Georges in 1998- generated some 50 thousand complaints and $920,000,000 USD in payments, there is a growth potential for property and casualty insurance, including reinsurance companies.

Insurance activity in Puerto Rico is supervised by the Office of the Commissioner of Insurances of Puerto Rico.

Tax Incentives Act
For those companies that want to establish themselves in Puerto Rico, the government offers important incentives which substantially reduce taxes. Qualifying companies may benefit from:

  • Invariable corporation income tax with a fix rate at 2% minimum and at 7% maximum.
  • Extraordinary deductions extended to competitive companies, that may add up to 200%, applicable to costs related to creating new jobs, research work, and developing the company.
  • Total local and private tax exemption during initial phase, first year of commercial activity, and a 90% exemption in the following years.
  • Tax deduction on investments in factories, real state, and equipment during the first year of commercial activity.

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The industrial sector is the main contributor to the Gross Domestic Product (GDP) of Puerto Rico and represents a fundamental link with technological and global market trends.

At present, there are almost 2,000 manufacturing plants operating on the island under local and US government incentives. Many of these plants are managed by companies listed on the Fortune 500 list. The names of some of these companies established in Puerto Rico signify quality worldwide: Allergen, Baxter, General Electric, Hewlett-Packard, Johnson & Johnson, Pfizer, Procter & Gamble. They produce an extensive range of products, from electronic components, pharmaceutical products, and medical equipment, up to clothes and food.

In 2004 Puerto Rico’s industrial sector contributed approximately 42.1% of the GDP, resulting in some $20 billions USD. This sector is responsible for some 125 thousand jobs. The payroll growth rate for this sector after 2000 has been 3.79%. (Because of their financial dynamism, manufacturing has been one of the boosters for other productive sectors modernization and is partly responsible for the standard of life lived by 3.8 million inhabitants of the island.

The sector’s vitality is also evident in the island’s foreign trade, exporting, pharmaceuticals, electronic products, medical equipment, rums, and clothing, among others.

Standing up to the new challenges confronted by the manufacturing sector, the Commonwealth of Puerto Rico has initiated a series of incentives, facilitating and presenting a more competitive system for establishing manufacturing companies on the island. There are several financial and tax incentives available for the industry to choose from, but the most comprehensive of all is the Tax Incentives Act of 1998, granting drastic discounts in tax payments (up to 7%) and discounts for constructing and importing materials.

Other incentives include special discounts of up to 200% on research and development, and job training costs. Exempt companies under the Tax Incentives Act, producing high technology products, that became available for the first time after January 1st, 2000, will be able to expand operations under higher competitive conditions than in other places of the world. Facilitating this, a partial credit of royalties, rent, and license rights payments will be granted.

The government of Puerto Rico is working on the formulation of an additional incentive package, which they hope will promote foreign investments as well as local business. This includes seeking US Congress to approve for new financial incentives (g.h. Section 956 of the US Internal Revenue Code) and make them applicable to companies wanting to establish themselves on the island. At the same time, the government is trying to include a federal tax credit for researching and developing activities (R&D).

One of the most important manufacturing sectors of Puerto Rico, the medicine and pharmaceutical industry, is annually strengthen by a powerful contribution from highly specialized manpower, numerous tax incentives, and favorable wage conditions, in addition to a sophisticated communication and transportation system.

Pharmaceutical products and medicines manufactured in Puerto Rico include medical products based on synthesis and also plants, pharmaceutical preparations, in vitro and diagnostic substances, as well as biological products.

Did you know that…

  • More than 18% of US pharmaceutical products total production is elaborated in Puerto Rico.
  • Over $31 billion USD worth of pharmaceutical products were shipped from Puerto Rico in 2003. In fact, Puerto Rico was the world’s largest international shipper of pharmaceutical products in 2003 with a 24.5% share of total shipments.
  • Numerous pharmaceutical companies run more than one processing facility on the island: Johnson & Johnson runs eight plants, American Home Products six plants, and Bristol-Myers Squibb four plants.
  • The hourly wage applied in pharmaceutical companies in Puerto Rico is substantially lower than wages applied in the US: $12.70 USD an hour in PR compared to $17.03 USD an hour in the rest of the US.
  • Eight out of ten of the most prescribed medicines in the US are elaborated in Puerto Rico.

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Highly Qualified Manpower
The success of Puerto Rico’s pharmaceutical industry is mainly due to it’s committed, high quality, highly educated, bilingual and solid manpower, consisting of more than 22,700 employees (equal to 15.5% of all local manpower) spread out in more than 61 facilities. 75% of Puerto Rico’s population working in manufacturing has a BA, while 49% of the working manpower studied one or several years in a qualified High School.

Puerto Rico is home to eight factories, which are classified as class A Oliver Wright MRP II, a renown prize for production resources planning excellence that has been given to only 250 factories worldwide.

Human Resources
As an active participant of new global financial trends, a fundamental dimension of our financial infrastructure are our human resources.

Our human resources are educated, skillful, productive, and are fluent in both the Spanish and English language. Their productivity has been consistently recognized by businessmen of multinational corporations which have been working on the island since such companies commenced operations in 1940’s. At present, 75% of all management positions are occupied by Puerto Ricans. The island is ranked 37 in the US high tech industry, employing 21,300 in about 400 high tech industries.

More than 65% of the 3.8 million people that live on the island have graduated from High School, 15% have some kind of higher education. The Public education system has 600,000 students in some 1,500 schools, from kindergarten up to senior year in High School. Another 149,000 youngsters study at about a thousand existing private schools, (also from kindergarten up to senior year).

From approximately half a million young adults, 18-24 years old, a 40% is enrolled in a local university. It is a fact that Puerto Rico has one of this hemisphere’s high rates of people enrolled in universities. The University of Puerto Rico (UPR), state managed, is the main local university. It has eleven campuses and is responsible for one third of all local university enrollments. The rest of the students go to several private universities, among them are: Interamerican University of Puerto Rico, Ana G. Méndez University System, and Pontifical Catholic University of Puerto Rico.

From all UPR’s campuses, the Mayaguez Campus, specializing in engineering, stands out because of the quality of it’s graduate students. More than 50 US companies and agencies, including NASA, visit UPR-Mayaguez every year and recruit engineers. Approximately, 10% of about 2,000 students graduating annually from this campus are employed by these companies, according to university data.

Today, most of the professionals working in medicine, law, accounting, engineering, and other professions are a result of local universities. Still, a significant number of Puerto Ricans study abroad, mainly in the US. Puerto Rico’s human resources include: 10,510 engineers and surveyors, 4,000 Certified Public Accountants, 11,072 practicing lawyers, and 8,000 doctors.

Congresses, conventions, fairs, and exhibitions. Puerto Rico has up to date welcoming facilities that allow businessmen to hold every kind of special activity and/or business meetings.

For many years Puerto Rico has been a land of reunions and the door to the Americas because of it’s geography and history. It’s privileged location in the Caribbean, makes it accessible both by air and by sea for tourists coming in from any place in Europe, the United States, South America or from here, in the Caribbean.

To enjoy Puerto Rico’s historic heritage, views, and modern lifestyle, thousands of visitors from all over the world come to the island in different seasons.

The island has a premier industry and also important tourist facilities and world renown hotels, some being: the Ritz-Carlton, the Hilton, the Marriott, the Wyndham, the Westin, and beautiful local inns. Visitors can experience in Puerto Rico a perfect combination of fun, relaxation, and business meetings.

According to statistics, in 2003 Puerto Rico received about 5.5 million visitors. This tendency has increased in recent years.

Not only beautiful green mountains, breath taking beaches, it’s history, and Puerto Rican hospitality attract visitors but also the significant development of the island’s infrastructure also is an essential component. Ten airports with more than 14 international airlines, many roads and highways, help to shorten distances between coastal cities, central mountains, the island of Vieques and Culebra, and also between the islands of the Caribbean and the rest of America.

To facilitate transportation around the island for visitors, there are international and local car rentals, tourist guides, and busses specially designed for their comfort. The whole island has water and electric services, along with communication services that include telephones wireless phones, faxes, and internet. Visitor will always be able to communicate with any place in the world from any place on the island.

Business travelers will find in Puerto Rico 12,000 hotel rooms and many comfortable business meeting rooms in major hotels. Actually, right now a giant Convention Center is being constructed in San Juan, similar to one in the World Trade Center business districts. It will be an up to date visitors facility, specially designed for important conventions, congresses, and exhibitions. Located in the heart of the metropolitan area, it will also have hotels, an extensive parking lot, restaurants, telecommunication stations, and translation cabins. It will cover a 182 thousand square meters, from which 46 thousand meters will be available for exhibitions.

The official languages are Spanish and English, but more people speak Spanish than English. Close to 80% speak Spanish, while only 20% speak English. English is considered a second language in this territory.

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Real Estate Guidelines and Practices At A Glance

Types of ownership Fee simple estate
Who represents the parties Brokers represent buyers, sellers, landlords and/or tenants
Method of measurement Useable area in sq. ft. and payment in US $/sq. ft. (annual)
Unit of measurement US$/sq. ft./year for buidling and US$/sq. m/year for land
Lease duration Office: 3-5 years with 1-2 terms renewal. Typical industrial: 3-5 years
Rent reviews At renewal typically a 3%-4% increase per year
Subletting and assignment Subject to lessor's consent
Rental payment Monthly in advance
Additional costs of Rental Service charge for office rental $2-4 psf/year
Agency/acquisition/disposal fees 6%
Additional costs of acquisition Legal fees up to 1% of sales price, (.005 times the purchase price is typical)
Cost of letting property 5% of total lease contract
Valuation fees Dependent on appraiser, typically $15,000 - 20,000 for a substantial property
Property Taxation .6% tax on 20-30% of the real estate's value
Taxation (general) Capital Gains tax 20%