Why International Banks in Puerto Rico Are Dominating the International Banking Industry

In the competitive arena of international banking, Puerto Rico has emerged as a powerhouse, attracting global clients and reshaping the landscape once dominated by traditional offshore havens like the Cayman Islands. As of August 18, 2025, International Financial Entities (IFEs) and International Banking Entities (IBEs) licensed under Puerto Rico’s Act 273 are leading the charge, offering a unique blend of U.S. regulatory stability, tax efficiency, and privacy protections. These institutions provide international clients with access to a U.S. bank account, Fedwire capabilities, a mere 4% tax rate, and the flexibility to serve both non-U.S. persons and U.S. residents—without the burdensome reporting requirements that have crippled competitors elsewhere. Meanwhile, the Foreign Account Tax Compliance Act (FATCA) has decimated offshore banking in jurisdictions like the Cayman Islands, imposing high compliance costs that rendered many operations unprofitable and led to widespread closures. This article explores the key factors driving Puerto Rico’s dominance and why savvy clients are flocking to its shores.

Access to a U.S. Bank in a Tax-Efficient Haven

At the heart of Puerto Rico’s appeal is its status as a U.S. territory, which grants IFEs and IBEs the privileges of operating within the American financial system without the full weight of mainland regulations. Clients gain access to a bona fide U.S. bank account, complete with dollar-denominated stability and seamless integration into global markets. Unlike pure offshore entities, Puerto Rican international banks can leverage the Federal Reserve’s infrastructure, including Fedwire for real-time, high-value wire transfers. This capability is a game-changer for international trade, remittances, and investment management, allowing swift settlements that rival mainland U.S. banks.

What sets these institutions apart is the 4% flat corporate tax rate on net income derived from eligible international activities, as stipulated under Act 273. This low rate, combined with 100% exemptions on dividends to non-residents and property taxes, makes Puerto Rico far more attractive than high-tax jurisdictions. Recent reforms in 2024 and 2025, including doubled capital requirements to $10 million, have bolstered credibility and regulatory oversight, ensuring these banks meet stringent standards while remaining agile.

Inclusive Account Opening for Global Clients

Puerto Rico’s international banks excel in accessibility, allowing account openings for non-U.S. persons—such as Europeans, Latin Americans, or Asians—alongside U.S. residents (provided they are not Puerto Rican locals, per Act 273 restrictions). This inclusivity is rare in the U.S., where many domestic banks shun non-residents due to compliance hurdles. For non-U.S. clients, it means easy access to USD accounts without the need for physical presence or complex visa requirements, facilitating everything from wealth management to cryptocurrency custody.

U.S. residents, particularly those on the mainland, benefit from the same low-tax environment for international dealings, making Puerto Rico a preferred hub for expats and high-net-worth individuals diversifying their portfolios. This broad client base has fueled growth, with nearly 50 IFEs licensed by mid-2025, serving a diverse array of global needs.

Exemption from FATCA Reporting Burdens and CRS

A pivotal advantage is Puerto Rico’s unique position regarding international reporting standards. While FATCA requires U.S. banks to report accounts held by U.S. persons to the IRS, Puerto Rican international banks are treated as domestic U.S. institutions for this purpose, simplifying compliance for non-U.S. clients. More crucially, these banks are exempt from full FATCA obligations on non-U.S. accounts, reducing administrative overhead.

Even more compelling is the non-applicability of the Common Reporting Standard (CRS), the OECD’s global information exchange framework. As a U.S. territory, Puerto Rico does not participate in CRS, meaning international banks here are not required to automatically share client data with foreign tax authorities. This privacy shield is a magnet for clients seeking discretion, contrasting sharply with jurisdictions bound by CRS.

The FATCA Fallout: Lessons from the Cayman Islands

To understand Puerto Rico’s rise, consider the decline of traditional offshore centers like the Cayman Islands. Enacted in 2010, FATCA imposed stringent reporting requirements on foreign financial institutions (FFIs), mandating disclosure of U.S. account holders or facing 30% withholding taxes on U.S.-sourced income. The Cayman Islands, once a banking mecca with over 200 institutions, signed an intergovernmental agreement (IGA) with the U.S. in 2013, committing to FATCA compliance.

The result? Soaring compliance costs—from enhanced due diligence to annual filings—eroded profitability. Many smaller banks shuttered, unable to absorb the expenses, while larger ones passed costs to clients or restricted U.S. business. By 2025, the Cayman’s banking sector has contracted significantly, with FATCA and subsequent CRS adoption (since 2017) accelerating the exodus. Penalties for non-compliance, including fines and reputational damage, further deterred operations.

Puerto Rico, exempt from these full burdens due to its U.S. ties, avoids such pitfalls. Banks here report under domestic rules for U.S. persons but shield non-U.S. clients from invasive global exchanges, maintaining competitiveness without the “FATCA fatigue” that plagued the Caymans.

Broader Implications: Innovation and Economic Growth

Puerto Rico’s model isn’t just about survival—it’s about thriving. With access to Fedwire, IFEs enable efficient global transactions, supporting fintech innovations like digital asset custody and cross-border payments. The island’s bilingual workforce, proximity to the U.S., and post-2024 reforms enhance appeal, drawing institutions like FV Bank and Stern International.

Economically, this dominance boosts Puerto Rico, creating jobs and attracting capital amid recovery efforts. For clients, it means secure, low-cost banking without sacrificing privacy or efficiency.

Conclusion

International banks in Puerto Rico are dominating because they offer the best of both worlds: U.S. banking perks with offshore-like tax and privacy benefits. As FATCA continues to erode traditional havens like the Cayman Islands, Puerto Rico’s exemptions from excessive reporting position it as the future of international finance. For global clients seeking dominance in their own financial strategies, looking to San Juan is no longer optional—it’s essential.