Puerto Rico Moves to Extend its Tax on Device Firms

Puerto Rico—or “Rich Port” in English—is trying to hold onto some of its riches, at least a little longer anyway. The government of the Caribbean island and U.S. territory wants to extend a medical device tax that originally had been intended to shrink over the next few years.

The 4 percent tax, imposed in 2010, originally was slated to decrease to 1 percent by 2016. Now, however, Puerto Rico’s treasury recently announced that it intends to raise the duty back to 4 percent through 2017.

This is a significant issue for medical device companies in Puerto Rico. According to Pridco, the island’s economic development group—which actively has been working to increase the device industry’s presence there following a slide earlier in the 2000s—there are more than 30 medical device companies in Puerto Rico employing more than 15,000 people.

There are more than 60 medical device plants, and the medical device industry accounts for 10 percent of Puerto Rico’s jobs and 5 percent of the island’s gross domestic product. Large device makers have invested heavily in Puerto Rico. Medtronic is investing $50 million into expanding its Puerto Rico operations over the next three years, which will add more than 200 new jobs. In June 2012, C.R. Bard announced plans to spend more than $40 million on an expansion of its device manufacturing operations there.

The Advanced Medical Technology Association (AdvaMed) was quick to “strongly oppose” the move.

“Raising taxes on a key manufacturing partner will not improve Puerto Rico’s economic recovery,” said Stephen J. Ubl, president and CEO of AdvaMed. “Device manufacturers are already struggling to address a challenging international business climate, significant cuts to Medicare programs and, of course, the U.S. medical device tax, which went to in effect in January. This additional burden will force companies to make tough choices about cuts in R&D, employment and possible significant delays in capital improvements. We urge the governor to reconsider this damaging tax increase and to work collaboratively to improve the overall business climate in Puerto Rico.”