He says that when he arrived in San Juan he found a community so active on the subject of blockchain that he decided to return to California, talk to his wife and move with his family to Puerto Rico.
“It’s been pretty amazing how it ‘the blockchain community]grows almost every week. I have a friend who called me to say, ‘Hey, I’m going to be your neighbor.’ We decided to move to the suburbs, in Guaynabo, south of San Juan and it’s been great: we live in a beautiful American-style neighborhood,” he says.
For the tax benefits, Puerto Rico became an attractive destination for entrepreneurs from various sectors, but the arrival of those who work in the world of blockchain and cryptocurrencies has had more repercussions.
It was in 2018, after the passage a year before the devastating Hurricane Maria, when international media reported for the first time a boom of crypto-millionaires who moved to the archipelago. At the time, newcomers said they would turn cyclone-ravaged Puerto Rico into “Puertopia,” a technological utopia.
This caught the attention of entrepreneurs like Johnston, who at the time was working in California. In 2020, moving Puerto Rico became a real option.
“Especially because of the pandemic, a lot of the friends I have who are young entrepreneurs, people who do blockchain protocols, started moving (to Puerto Rico) and that was a signal to me to say, ‘Well, I have to look at this,'” he explains.
According to a study conducted by Puerto Rico’s Department of Economic Development, at least 31 crypto entrepreneurs arrived on the island in 2021. However, by the number of service exporting companies in the area of technology that have been registered under Law 60, the government estimates that there are more than 100.
Some of these investors are not especially discreet.
This is the case of Brock Pierce, who made his fortune in the technology industry, and in 2018 was the one who coined the term “Puertopía”.
Pierce is listed as the owner of more than 20 corporations on U.S. soil. It has purchased million-dollar residences in various Puerto Rican locations, as well as several historic buildings in the Old San Juan area.
Its most recent acquisition was a hotel in the small municipality of Vieques, located on an island east of Puerto Rico, for about $18 million.
The YouTuber Logan Paul is another of the famous billionaires who has moved to the archipelago.
The image of both appears on the protest posters of the locals who denounce the gentrification that expels them from the neighborhoods in which they have lived all their lives.
The tax benefits that attract billionaires to Puerto Rico were approved in 2012. The legislation was amended in 2019, and is now part of an “Incentive Code” known as Law 60.
In essence, it exempts from tax long-term capital gains accrued after an investor becomes a resident of the U.S. territory.
It also offers tax exemptions on interest income and dividends. Locals do not qualify for exemptions.
According to The New York Times, in 2021 more than 1,300 people applied to become resident investors in Puerto Rico under Law 60, and about 900 received government approval.
In defense of the law, Carlos Fontán Meléndez, director of Puerto Rico’s Office of Incentives, told BBC Mundo that a study conducted in 2019 revealed that, thanks to tax exemptions, the real estate sector had registered purchases worth US$1.3 billion, which translated into some US$8.8 million in revenue for the public coffers.
“There is a misperception that beneficiaries do not pay taxes in Puerto Rico,” Fontan Melendez said. “They don’t pay taxes as much as they generate in dividends and sometimes, what they generate in capital gains, but for everything else they have to pay taxes.”
“If someone who has taken advantage of Law 22 [ahora Ley 60] you sell a property and that property generates a capital gain, that capital gain is taxed completely. Because Law 22 does not offer exemptions regarding the sale of real estate.”
However, the government says it is aware that there must be changes. Legal For what society perceives the proceeds that these investors bring.
José Sánchez Acosta, general legal advisor of the Office of Incentives, explained to BBC Mundo that the government is looking to implement those changes.
“At this moment we are working together with the Legislature on a project that seeks to impose additional burdens on these investors so that the result and benefits for Puerto Rico are more marked,” he said.
Image of the beach in Vieques, Puerto Rico, where millionaire Brock Pierce bought a hotel.
Displaced
But for many locals, such as Kiana Figueroa Guadalupe, who has always lived in Vieques, the town where Pierce bought his hotel, Puerto Rico is not a newly discovered treasure.
She is 25 years old and a public school teacher.
He knows well the streets of Vieques, its black sand beaches and its bioluminescent bay. However, he cannot save enough money to buy a house and settle permanently with his partner.
“They arrive with much more money than we could have, they come to buy at an extra price and they keep the houses in the mountains, facing the beach. They stay con the grounds and even make their own Parking (parking lots)“He told BBC Mundo.
Elda Guadalupe and her daughter Kiana Figueroa.
Kiana receives a monthly salary close to $1,500. The home prices he’s seen over the past few weeks are well above $100.00; in some cases they reach US$200,000.
His mother, Elda Guadalupe, a former municipal legislator from Vieques, says these numbers are conservative, as land in the small town can even reach $500,000.
In 2018, the average annual salary in this locality was US$15,531.
According to Elda, many have left the town in the face of the problem of not finding affordable housing. For her, the change is noticeable even in the classroom where , like her daughter – she has been teaching for 16 years.
“When I arrived, there were more than 400 students. The space was not enough. There were two teams of teachers. On a day like today, we have only 157 students,” he said.
Elda also explains that several Vieques residents have had to abandon their rental homes after being bought by investors, something that is happening in other towns.
In Quebradillas, northeastern Puerto Rico, neighbors of an apartment building received news that they will be evicted after a tax exemption beneficiary from Rhode Island bought it.
The new owner will develop a hotel project on the site, according to a report by independent journalist Bianca Graulau.
Meanwhile, in Rincon, western Puerto Rico, Israel Matos, a sound engineer, had to leave his home after someone bought in cash (for about $200,000) the residence he intended to acquire through a mortgage.
Israel Matos (left) with his father. They had to leave their rented house after it was bought for a value they could not afford.
“This is happening to a lot of people. We are being kicked out of our homes. Right now my family is up in the air, we don’t know what we’re going to do. It’s very hard. The two girls telling me they don’t want to move and me holding back tears,” she told BBC Mundo.
Together with his two daughters, wife and father he looks for a new house, but still does not find anything he can afford. “I’m going to have to rent something from two rooms and I don’t know, that the girls have a room and sleep together, and make a room in the living room for my dad.”
A new problem
In the demonstrations many demand the exit of investors. But Elda, as well as Kiana, talk about other types of solutions to curb the displacement of local communities.
They do not detail specific actions, but they believe that the government could do something. They talk about controls at the municipal level or perhaps some tax for whoever arrives.
What they do have certainty is that Vieques, in recent years, has changed a lot.
On the island municipality, businesses near a famous pier called La Esperanza are now operated by merchants who are not locals, Kiana says.
Even now there are few employees “who know Spanish”.
In Old San Juan, Margarita Gandía, a real estate broker with 40 years of experience, who has also lived all her life in the area, comments that the residents of the historic center “are very few.”
Most of the residences sold in Old San Juan in 2021 were acquired by people who were not residents of Puerto Rico.
“And it was seen not only after Hurricane Maria, but after the earthquake. [de 2020], because of loneliness after events,” he says. It adds that except for one, all of the family residences sold there in 2021 were acquired by newcomers to Puerto Rico.
In the case of Vieques, Elda said residents have tried to organize to make their grievances heard.
The people who live there are used to demonstrating. They did so in the late 1990s and early 2000s when they managed to get the U.S. Navy to cease its military practices following the death of a resident by a bomb.
But currently the problems in Puerto Rico are many, as the reality of this small island-town shows.
Barges to reach Vieques are constantly damaged, leaving hundreds of residents stranded.
Since the 2017 hurricane there is no hospital. Medical emergencies are transferred by air ambulance to the “big island”.
Protests in Vieques 2003 calling for the departure of the U.S. Navy.
Puerto Rico must also implement a controversial plan to emerge from bankruptcy, after accumulating unsustainable levels of debt in the years leading up to 2017, when it filed for bankruptcy.
“We are so loaded. […] It’s hard to focus on a single issue, but there are a lot of people interested in cooperating,” Elda tells BBC Mundo.
However, for newcomers to the archipelago the tax policies currently pushed by the government are part of the solution.
“I think they should be proud of the tax policies that Puerto Rico has adopted. They are giving results with this immense wave of people coming to the island who are very motivated, they have a lot of passion,” says David Johnston, the crypto millionaire who moved to the territory during the pandemic.
“What has changed (compared to the first wave of crypto millionaires who moved in 2018) is that people (arriving) are more interested in becoming part of Puerto Rico,” he says.
Time will tell if that “Puertopía” that some yearn for ends up materializing.
