How About Puerto Rico And The Virgin Islands?

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Puerto Rico may be the perfect choice for companies who have reached the expansion stage, and are now deciding where to locate that new manufacturing plant. Over 30 INC. 200 companies would agree, that's how many have chosen the Puerto Rico option. Agressively pursuing the manufacturing industry (especially in high technology), this tropical island has put together a package of incentives that is hard to beat. Highlights of this package include a complete exemption from U.S. corporate income taxes along with a 90% exemption from Puerto Rican corporate income and property taxes. Another important benefit of operating in Puerto Rico is its low labor costs: less than half of the U.S. average. One of the many interesting programs that Puerto Rico offers is its twin plant concept. This involves sub-assembly work in foreign islands, elsewhere in the Caribbean, at dirt-cheap labor costs. The parts are then shipped back to Puerto Rico (U.S. tariff laws do not require taxation on re-imported parts), and final assembly work done.

These advantages led Puerto Rico located plants to achieve a profit-to-sales ratio of 22.6% compared to 5.7% of their counterparts on the mainland.

The major drawbacks of locating on the island are high shipping costs and management problems because of cultural shock. The high shipping cost can be turned into an advantage if you are interested in servicing the booming economies of Venezuela and Mexico. The culture shock is not really a problem anymore because close to 90% of all industrial plants in Puerto Rico are run by managers who are natives. This means there really isn't a need to send your own vice-president down there.

The Virgin Islands is attempting to lure manufacturing companies with a package of tax incentives consisting of a 100% exemption on real-property and gross-receipts taxes along with a similar exemption from excise taxes on plant-construction expenses. There are also subsidies on federal and local income taxes. Perhaps the major attractions are relatively low labor and shipping costs. The low labor cost is gained from operating in a depressed economy like that of the Virgin Islands. And shipping costs less because the islands are exempt from the Jones Act and do not have to ship their goods to the mainland via expensive. American-flagged shipping. The problems in doing business in the islands include high operating costs due to expensive land, utilities, and other such factors. You also have to have a large inventory, since it takes a while to have items shipped from the mainland.