Proposed Legislation Targets Crypto Tax Haven Status in Puerto Rico

According to Cointelegraph, a new legislative proposal aims to address the use of Puerto Rico as a tax haven for cryptocurrency investors. New York Representative Nydia Velázquez has introduced the Fair Taxation of Digital Assets in Puerto Rico Act, which seeks to amend existing laws to ensure that certain investors pay both local and federal taxes on capital gains, including those from digital assets. This proposed legislation would modify Puerto Rico’s Internal Revenue Code to align income from cryptocurrencies with federal tax regulations. Rep. Velázquez expressed concerns that the influx of crypto investors has not contributed positively to Puerto Rico’s economic recovery or local economy. Instead, she argues, it has led to increased housing costs, displacement of local residents, and added financial strain on an island where nearly 40% of the population lives in poverty. Additionally, the federal government is reportedly losing billions in tax revenue due to these tax incentives. Puerto Rico has been a popular destination for crypto investors since 2012, when the territory began offering tax exemptions under Act 20 and Act 22, later consolidated as Act 60. This has attracted notable figures in the crypto industry, including Pantera Capital founder Dan Morehead, venture capitalist Brock Pierce, and influencer Logan Paul. The office of Rep. Velázquez estimates that Puerto Rico could lose approximately $4.5 billion in revenue from 2020 to 2026 due to these tax incentives. In contrast, Puerto Rico Governor Jenniffer González-Colón has proposed extending Act 60, which is set to expire in 2035, to 2055. Her proposal includes a 4% capital gains tax rate for applicants, significantly lower than the typical U.S. rate of up to 37%. However, it remains uncertain whether Rep. Velázquez’s proposed legislation will garner sufficient political support to pass in the Republican-controlled House or Senate. Both chambers are expected to consider votes on stablecoin legislation and a broader crypto regulatory framework in the coming months.