The SPREDD region, and all of Puerto Rico, enjoys all of the advantages provided by U.S. rule of law; however, it is still considered to be a foreign jurisdiction for income tax purposes. In general, this means foreign subsidiaries of U.S. companies operating in Puerto Rico will generally have their earnings taxed in the U.S. at the reduced rate of 10.5%, as opposed to the standard U.S. tax rate of 21%.
After Section 936 was completely phased out in 2006, many U.S. based pharmaceutical and medical device companies choosing to maintain operations in Puerto Rico converted their Puerto Rico subsidiaries to Controlled Foreign Corporations (CFCs).18 CFC’s were a key target of the TCJA in late 2017; however, the effective tax rates of many CFCs conducting substantially all of their foreign operations in Puerto Rico, such as Amgen, were actually lowered as a result of TCJA from 15.7% in 2016 to 12.1% in 2018.19 Manufacturing jobs in Puerto Rico subsequently increased.
Infrastructure is in place to further development and connectivity to the global economy. However, stakeholders note that these assets are extremely underutilized, especially Mercedita International Airport in Ponce. According to stakeholders, ports in the region are also thought to be underutilized; however, alternative strategies may need to be developed for enhanced utilization due to regulations and market timing, as discussed in Opportunities. Portions of the transportation infrastructure are also within Foreign Trade Zone # 163.
Potential for development of the “Blue” or “Ocean” Economy. The World Bank defines Blue Economy as “the sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of the ocean ecosystem.” Ocean economy initiatives have been identified as a key area where the region can thrive without incentives, which may not always be present. Some of Puerto Rico’s economic issues are rooted in the elimination of certain incentives that had been in place for many years.
“Puerto Rico is historically known for graduating exceptional tech and engineering talent. However, top candidates consistently find attractive job opportunities abroad and not locally. Few entrepreneurs remain on the island, where they confront limited resources, lack of incentives and scant financial support.
We want to create an environment that provides knowledge, access and capital to help leaders start local tech businesses that can thrive and improve economic conditions for their families, communities and the people of Puerto Rico.”
Managing Partner – Thoma Bravo
More than 30,000 students are enrolled in six universities in the SPREDD region. Stakeholders claim that we need to turn these individuals into “developed resources” as opposed to “exporting” them.
There are vast amounts of fertile land in the region. The SPREDD region represents the epicenter of Puerto Rico’s agriculture sector. Agriculture is an industry that can thrive in Puerto Rico absent of incentives; however, there are notable challenges in realizing this strength, primarily unskilled labor, as noted in Weaknesses. And for example, despite recent excellent efforts to consolidate and grow the coffee industry in the municipality of Yauco, much remains to be done for this and other large agricultural industries in the rest of the municipalities of the SPREDD Region.
The region has beaches, fertile lands and other elements necessary for agricultural and agrotourism development. These natural and cultural assets may also be leveraged for film production; however, the current industry model appears to be driven by incentives.
The region has tremendous healthcare and healthcare-education assets. Although healthcare is a prominent industry in the region, it does not register as a traded sector (LQ > 1.0). Based on stakeholder interviews and analysis of the assets, the healthcare sector; especially in Ponce, has key assets that can bring additional prosperity to the region. Key hospitals in the region are listed in Table 6.
Med Centro Healthcare System is another example of a southern health institution that is expanding. Their clinical services and special programs are impacting several southern municipalities, including Ponce, Peñuelas, and Juana Díaz. As of 2020 the institution serves more than 55,000 people.
Another notable regional healthcare asset is Ponce Health Sciences University (PHSU). PHSU has recently announced a $172 million expansion plan for its campus in Ponce. Upon completion, PHSU will almost double the size of the institution and considerably expand its economic and social development footprint in the region. Also prominent in the region is the Ponce Research Institute (PRI). In 2020, PRI conducted over 300 clinical trials with more than 200 patients participating in those trials. It also employed over 45 full-time staff and 100 students from the PHSU to aid in their research efforts.
Even though driven by U.S. tax incentives, there is a substantial presence of ophthalmic goods manufacturing in the region. CooperVision, which is one of the top five companies engaged in designing and manufacturing contact lenses, has its second-largest global production facility in Juana Díaz. The LQ (establishments) for the NAICS Code 339115-Ophthalmic Goods Manufacturing for Juana Díaz is 53.07. According to company documents, the Juana Díaz facility is leased from the Puerto Rico Industrial Development Company (PRIDCO).
18. A controlled foreign corporation is any foreign corporation in which more than 50% of the total combined voting power of all classes of stock entitled to vote is owned directly, indirectly, or constructively by U.S. shareholders.
19. Amgen 2018 Annual Report