Puerto Rico's Opportunity Zones: Manufacturing and Defense Potential

Puerto Rico presents a unique proposition for manufacturers and defense contractors: 863 designated Opportunity Zones combined with the island's own Act 60 tax incentives create what may be the most favorable tax environment for manufacturing investment anywhere in the United States. Add in an existing manufacturing infrastructure, skilled bilingual workforce, and strategic Caribbean location, and the case becomes compelling.

Puerto Rico's OZ Advantage

Scale of Opportunity

863 Opportunity Zones — More per capita than any U.S. jurisdiction

75% of the island — is covered by OZ designations

Diverse locations — Urban, suburban, and rural options

Existing infrastructure — Many OZs include former manufacturing sites

Stacking Incentives: OZ + Act 60

Puerto Rico's Act 60 (formerly Acts 20 and 22) provides additional incentives that stack on top of federal OZ benefits:

Act 60 Export Services:

4% corporate tax rate — on eligible export services

0% tax on dividends — from export services income

0% tax on capital gains — (for bona fide residents)

15-year decree term

Act 60 Individual Investor:

0% capital gains tax — for new PR residents

0% tax on dividends and interest

Must become bona fide PR resident

Minimum charitable contribution required

Combined OZ + Act 60 Benefits:

BenefitFederal OZAct 60Combined

|---------|-----------|--------|----------|

Capital gains deferralYesN/AYesCapital gains exclusion (10yr)YesYes (residents)Maximum benefitCorporate tax rateStandard4%4%Dividend taxStandard0%0%Property taxStandardPossible exemptionPossible exemption

Manufacturing in Puerto Rico

Existing Infrastructure

Puerto Rico has a long history of manufacturing:

Pharmaceutical manufacturing — Major hub for global pharma

Medical devices — Significant production capacity

Electronics — Circuit board and component manufacturing

Aerospace — Growing sector with established facilities

Food processing — Serving both local and export markets

Workforce Advantages

Bilingual workforce — English and Spanish

University system — UPR and private universities producing engineers and scientists

Technical training — Vocational schools and apprenticeship programs

U.S. citizens — No work visa requirements

Competitive wages — Lower than mainland but with U.S. labor protections

Strategic Location

Gateway to the Americas — Between North and South America

Caribbean hub — Central to Caribbean trade routes

Foreign Trade Zones — Multiple FTZs for import/export advantages

Port infrastructure — Major ports in San Juan, Ponce, and Mayaguez

Air connectivity — Direct flights to major U.S. and international cities

Defense Manufacturing Opportunities

Current Defense Presence

Fort Buchanan — U.S. Army installation

Roosevelt Roads — Former naval station with redevelopment potential

Coast Guard — Significant Caribbean operations

National Guard — Active manufacturing support

Defense Manufacturing Potential

Electronics and sensors — Leveraging existing electronics manufacturing base

Pharmaceutical and chemical — Defense-grade chemical production

Composite materials — Aerospace and defense applications

Precision machining — CNC manufacturing for defense components

Renewable energy systems — Military microgrids and energy resilience

Federal Contracting Advantages

HUBZone — Many PR locations qualify

8(a) eligibility — Significant disadvantaged business population

Buy American compliance — PR is U.S. territory

Set-aside opportunities — Full access to federal small business programs

Investment Case Studies

Case 1: Precision Manufacturing Facility

Investment: $5 million in OZ-designated industrial park

Operations: CNC machining for aerospace and defense

Benefits:

OZ: Zero tax on facility appreciation after 10 years

Act 60: 4% corporate tax on export manufacturing

HUBZone: Access to set-aside contracts

Workforce: Skilled machinists at competitive wages

Projected 10-year tax savings: $1.5-3 million

Case 2: Electronics Assembly Operation

Investment: $8 million in former pharmaceutical facility (OZ)

Operations: Printed circuit board assembly and testing

Benefits:

OZ: Substantial improvement of existing facility

Act 60: 4% tax rate on products shipped to mainland

CMMC: Secure facility for defense electronics

Projected 10-year tax savings: $2-4 million

Challenges and Considerations

Infrastructure

Power grid reliability (improving but still a concern)

Water system capacity

Broadband connectivity (improving)

Road conditions vary by location

Regulatory Environment

Puerto Rico-specific business regulations

Environmental permitting requirements

Labor laws (U.S. federal + PR-specific)

Tax compliance complexity (dual jurisdiction)

Natural Disaster Risk

Hurricane exposure (mitigation planning essential)

Earthquake risk (southern coast)

Insurance costs (higher than mainland)

Business continuity planning critical

Mitigation Strategies

Invest in resilient facility design

Install backup power generation

Develop comprehensive business continuity plans

Maintain adequate insurance coverage

Diversify operations across multiple locations

Getting Started

Research OZ locations using Treasury Department maps and PR economic development resources

Engage with PRIDCO (Puerto Rico Industrial Development Company) for site selection

Consult tax advisors experienced in both OZ and Act 60 incentives

Visit potential sites and meet with local officials

Develop a business plan incorporating all available incentives

Connect with KDM & Associates for defense contracting integration

Structure investment through a Qualified Opportunity Fund

Conclusion

Puerto Rico's combination of Opportunity Zones, Act 60 incentives, manufacturing infrastructure, and strategic location creates an unmatched environment for defense manufacturing investment. For investors and manufacturers willing to navigate the complexity, the potential returns—both financial and strategic—are exceptional.

Ready to Take the Next Step?

Whether you're a small manufacturer seeking defense contracts, a government buyer looking for qualified suppliers, or a business owner pursuing CMMC certification, KDM & Associates and the V+KDM Consortium are here to help.

Join the KDM Consortium Platform today:

Schedule a free introductory session to learn how we can accelerate your path to government contracting success.

Whether you're a small manufacturer seeking defense contracts, a government buyer looking for qualified suppliers, or a business owner pursuing CMMC certification, KDM & Associates and the V+KDM Consortium are here to help.

Join the KDM Consortium Platform today:

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*Schedule a free introductory session to learn how we can accelerate your path to government contracting success.*