Puerto Rico Crypto Tax Haven Targeted by New Bill

New York Representative Nydia Velázquez has introduced the Fair Taxation of Digital Assets in Puerto Rico Act, a bill aimed at targeting crypto investors who use Puerto Rico as a tax haven. This legislation seeks to address the growing concern over the use of Puerto Rico's tax incentives to avoid federal taxes on digital assets. The bill proposes to close loopholes that allow individuals to exploit Puerto Rico's tax laws for personal gain, ensuring that crypto investors pay their fair share of taxes.

The introduction of this bill comes at a time when Puerto Rico has become a popular destination for crypto investors due to its favorable tax policies. The region's Act 60, which offers significant tax exemptions to new residents, has attracted many high-net-worth individuals, including those in the crypto industry. However, this influx has raised questions about the fairness of the tax system and the potential for abuse.

The Fair Taxation of Digital Assets in Puerto Rico Act aims to level the playing field by requiring crypto investors to pay federal taxes on their digital assets, regardless of their residency status. The bill would also impose stricter reporting requirements on crypto transactions, making it more difficult for investors to hide their assets from tax authorities.

The legislation has garnered support from lawmakers who argue that it is essential to ensure that all taxpayers, including those in the crypto industry, contribute their fair share to the federal tax system. Critics, however, have raised concerns about the potential impact on Puerto Rico's economy, which has benefited from the influx of crypto investors.

The bill is currently under review by the House Ways and Means Committee, which will determine its fate in the coming months. If passed, it could have significant implications for the crypto industry and the broader tax landscape in the United States. The legislation underscores the ongoing debate over the regulation of digital assets and the need for a fair and transparent tax system that benefits all taxpayers.

Puerto Rico is well known as a tax haven for many people in the crypto industry since the territory began allowing exemptions in 2012 under Act 20 and Act 22 of the Tax Incentives Code — later consolidated as Act 60. The island has attracted investors, including Pantera Capital founder Dan Morehead, venture capitalist Brock Pierce, and online influencer Logan Paul.

Rep. Velázquez’s office reportedly said Puerto Rico could lose roughly $4.5 billion in revenue from 2020 to 2026 due to the tax incentives in place. In contrast, Puerto Rico Governor Jenniffer González-Colón proposed extending Act 60, set to expire in 2035, to the end of 2055, but requiring applicants to be subject to a 4% capital gains tax rate, smaller than the typical range up to 37% in the US.

It’s unclear whether the legislation proposed by Rep. Velázquez, a Democrat, would have enough political support to pass in the Republican-controlled House or Senate. Both chambers will likely consider floor votes for stablecoin legislation and a crypto regulatory framework in the coming months.