Working in Puerto Rico?
Working in Puerto Rico
At a Glance:
- Pharmaceuticals make up a large part of the manufacturing industry and are mostly produced for export.
- Puerto Rico has experienced a serious recession ever since tax exemptions for US investors ended in 2006.
- The tourism industry is a big contributor to the island’s GDP — more than 10 million visitors came to the island in 2016.
- Residents of Puerto Rico are subject to most federal tax laws with the exemption of federal income tax.
- Despite full social security contributions, residents do not receive the same Medicare funding in Puerto Rico as on the US mainland.
In September 2017, Puerto Rico, along with other Caribbean islands, was hit by a series of hurricanes, one of which caused severe destruction to the infrastructure, as well as destroyed 80% of the island’s crops. At the end of 2017, large parts of the island are still without electricity and running water, leading to a severe healthcare crisis as a result. It is unclear how long it will take the island to recover.
Puerto Rico’s status as an unincorporated territory of the United States means that people working here enjoy similar benefits as US employees, but they also face many challenges which people working on the mainland need not worry about.
A Brief Economic History
Up until the second half of the 20th century, Puerto Rico’s economy was mainly driven by agriculture. Most people working in the agricultural sector were involved in the sugar cane production for the American market, which dominated the whole country. However, constant urban expansion claimed more and more flat land, while at the same time prices for sugar cane remained low.
As working in the country’s sugar cane production was no longer profitable, coffee became the most important crop and is still a viable source of income for a number of people in Puerto Rico today.
In the late 1940s, the government launched an ambitious industrialization program — “Operation Bootstrap” was planned to develop Puerto Rico into an industrialized economy. In order to create jobs and improve the living condition of its people, the island’s economy now focused on manufacturing for export to the wealthy mainland, instead of producing for local purposes only. The program also involved tax incentives for foreign investors and depended heavily on foreign resources. Initially successful in giving Puerto Rico’s economy a boost and helping it develop into the modern island it is today, “Operation Bootstrap” also plays a role in the economic struggle which Puerto Rico faces today.
Working in Puerto Rico Today
Today, manufacturing still accounts for over 40% of the GDP. However, the emphasis has shifted from labor-intensive to more capital-intensive industries. Most people working in Puerto Rico’s manufacturing industries are now involved in the production of chemicals, machinery, and electronics. Pharmaceuticals are also manufactured on the island, mostly for the mainland: 725% of exported goods are manufactured in one of the pharmaceutical plants. This sector accounts for about 90,000 jobs alone.
At less than 1%, agriculture today holds an insignificant share of the country’s GDP and just a little over 2% of the workforce is employed in the agricultural sector. Still, coffee and plantains, among other agricultural products, remain an important source of income in Puerto Rico and the sector experienced a renaissance with modest growth in recent years.
Hurricane Maria, which hit the island in September 2017, has unfortunately affected about 80% of the crops and flattened or stripped most trees. It might take the agriculture sector a while to recover from this natural disaster and the island will have to rely on food imports even more than usual.
Although Puerto Rico is classified as a high-income economy, the territory’s median household income has been in decline for close to a decade. Its GDP per capita of some 37,700 USD in 2016 still compares favorably to that of other Caribbean nations, at least.
Nevertheless, working in Puerto Rico entails a lot of challenges, both for expats and for locals. As an expat, you’ll have to get past the strict US immigration laws. For more information on visas and work permits, please refer to our guide on moving to the USA.
On top of that, most of the incentives for foreign companies and employees working in Puerto Rico have been revoked. Tax exemptions for US companies under section 936 have contributed significantly to the economic development of the island. When these tax exemptions finally ended in 2006, the commonwealth experienced the beginning of a serious recession, as foreign companies started to leave Puerto Rico, looking for more favorable destinations.
Attempts to attract investors with income tax breaks for specific industries have not had the desired effects and Puerto Rico experienced quite a loss in tax revenue. The island had to borrow heavily from the mainland to make up for this, leaving Puerto Rico about 70 billion USD in debt. The current economic situation and the high unemployment rate of 12%, together with the devastating effects of the 2017 hurricane, are bound to also significantly reduce opportunities for expats.
Another challenge faced by consumers as well as businesses is economic discrimination. Many US companies do not offer the same services and products to people in Puerto Rico as to the US mainland. This is mostly due to the Jones Act which requires ships carrying cargo between US ports to be manufactured in the United States, and for the ships to be owned and largely staffed with US citizens. This monopoly is heavily defended by the US shipping industry and causes goods in Puerto Rico (as well as other US territories and states like Hawaii and Alaska) to be significantly more expensive due to the higher freight rates. That is why ordering supplies from a company on the mainland is often simply not an option for a small business in Puerto Rico. This limited access to products or discounts can be a serious obstacle to doing business and working in Puerto Rico.
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