Viva Puerto Rico

In a sort of reverse “West Side Story,” Puerto Rico is hoping to lure back natives as well as attract U.S. retirees with a lush incentive: a 100% exemption from local taxes on all interest and dividend income.

The measure, approved in January, also gives a 100% exemption from Puerto Rican taxes on all long-term capital gains accrued while living on the island. Anyone who lives in Puerto Rico for 183 days is considered a resident.

Another measure guarantees a tax rate of 4% or lower on income generated from customers outside Puerto Rico for service firms that set up shop there. Distributions from earnings and profits would be tax-exempt.

The tax breaks expire in 2035.

“The group of people we’re shooting for is anyone who hasn’t been a Puerto Rican resident for the last 15 years,” said Jose Perez-Riera, secretary of economic development and commerce. The investment tax breaks “provide for a higher return on investment and more disposable income that would make Puerto Rico an attractive jurisdiction to consider.”

Part of Puerto Rico’s pitch is that it offers an international aura while being part of the U.S.

“It’s very much the same as moving from one state to another,” Mr. Perez-Riera said.

Hispanics of Puerto Rican origin living in the U.S. totaled 4.6 million in 2010, exceeding the island’s population of 3.7 million, according to the Pew Hispanic Center. The exodus was caused in part by high unemployment, crime and a 44% poverty rate.

“We’re looking to growth as opposed to recovering from the recession,” Mr. Perez-Riera said.