United States legal framework and highly skilled workforce are two of the main components of Puerto Rico’s Business Star Proposition for the Finance & Insurance sector. Add to that a package of attractive incentives specifically tailored for financial activities and you’ll know why bringing your business to Puerto Rico is the smartest move.
The Puerto Rico International Banking Center Act, Act 52-1989, allows for the creation of international banking entities (IBEs), which are essentially banks located in Puerto Rico that provide financial services to clients outside of Puerto Rico.
Puerto Rico is considered a foreign jurisdiction under the U.S. International Banking Act of 1978; therefore, all IBEs in Puerto Rico are exempt from International Banking Association requirements for domestic financial institutions. International Banking Entities incentives include:Tax & Rate
In addition, they are not required to file tax returns, and the revenues to non-residents are also tax exempt. Applicants for new IBEs would have to file their application under Act 273-2012, described on Section 2.1.3.B
For more information on International Banking Entities, please contact the Commissioner of Financial Institutions of Puerto Rico.
The recently enacted Puerto Rico International Financial Center Act, Act 273-2012, provides for certain benefits to apply to Puerto Rico entities engaged in traditional banking or financial services for non-Puerto Rico clients. Similar to an IBE, IFEs are under the supervision of the Office of the Commissioner of Financial Institutions.
IFEs are also exempt from the IBA’s requirements for domestic financial institutions and the U.S. Bank Holding Company Act (BHCA) and thus may be affiliated with commercial institutions. However, if the IFE accepts demand deposits and issues commercial loans, it will be considered a Bank under the BHCA. In addition, all IFEs must ensure that they comply with any applicable U.S. federal laws and regulations, such as the Bank Secrecy Act, the US Patriot Act, and the Office of Foreign Asset Control (OFAC) of the United States Department of the Treasury.
International Financial Entities incentives include:Tax & Rate
IFEs must have at least $5 million in capital, of which at least $250,000 must be completely paid-in. Commissioner of Financial Institutions may lower the capital requirements to as low as $500,000 for IFEs performing limited activities. IFEs must maintain at least 4 full-time employees working at its offices located in Puerto Rico.
IFEs are authorized to engage in traditional banking and financial transactions with clients outside of Puerto Rico, including transactions related to:
IFEs are generally not permitted to do transactions with local Puerto Rico counterparties, except in certain cases such as these:
Any entity may apply for a permit with the Office of the Commissioner of Financial Institutions to organize an IFE. To enjoy the tax benefits under Act 273-2012, IFEs must request and obtain a tax exemption decree by submitting a copy of its IFE license to the Secretary of the Department of Economic Development and Commerce of Puerto Rico. The decree will have term of 15 years, renewable for two additional 15 year periods, subject to certain conditions.
For more information on International Financial Entities, please contact the Commissioner of Financial Institutions of Puerto Rico.
Due to its many advantages, including direct access to the U.S. and other international markets, Puerto Rico is a sound gateway for insurers and reinsurers wishing to enter the Latin American insurance and financial market. The international insurers and reinsurers division of the Office of the Commissioner of Insurance of Puerto Rico (OCI) has sought to promote Puerto Rico as an important member of the international insurance arena.
Puerto Rico’s economy enjoys both fiscal and tax autonomy with respect to the US Tax Code, with special distinctions made in several areas. The companies already taking advantage of Puerto Rico’s favorable conditions can attest to this fact. According to Kenneth Kotch, a principal within Ryan LLC, and the national practice leader for Ryan’s captive insurance division: “I have had a favorable experience with respect to all of these elements. I would encourage any captive insurance participant to consider Puerto Rico as a domicile which consistently addresses the needs for creative and efficient regulatory solutions within the alternative risk solution market.”
The OCI’s long history of regulatory expertise is further reason for Puerto Rico to be considered a viable alternative when considering where to transact insurance business. The OCI regulates 52 domestic insurers and 343 foreign re/insurers and reinsurers writing $11 billion of premium for 2011. Puerto Rico constitutes the third largest insurance market in Latin America.
In March 2012, Puerto Rico became an accredited member of the National Association of Insurance Commissioners (NAIC). The OCI is also a participating member of the Association of Insurance Superintendents of Latin America (ASSAL). The regulatory basis of the center calls for prudent but expedient regulation.
Act No. 399 and Act No. 400 in Chapter 61 of the Puerto Rico Insurance Code were adopted in order to establish the basis for the International Insurance Center (IIC), which provides a competitive environment for reinsurers to cover risks in and out of Puerto Rico under a secure and flexible regulatory system, with attractive tax benefits. In June 2011, Act No. 98 was passed to provide long-term tax status that will guarantee the tax treatment for an initial period of 15 years, renewable for two additional 15-year periods. International insurance entities have various alternative ways to organize and operate within the IIC. These options include operating as an international insurance holding company, as an international insurer or a branch of an international insurer, and protected cell arrangements.
The recently enacted Act No. 98 of 2011 facilitates the establishment of entities that export insurance and reinsurance services, allowing Puerto Rico to compete with jurisdictions such as Bermuda, the Cayman Islands and Vermont, which for years have successfully engaged in promoting this type of activity.
Tax exemptions conferred under the International Insurers and Reinsurers Act of Puerto Rico includes:
International Insurers are also subject to an annual contribution based on premium level.