Puerto Rico is the tax haven for Americans in 2016. If you can operate a business, or move a division of your US company, with at least 5 employees to the island, or you’re willing to spend at least 183 days a year in Puerto Rico, you can achieve a tax rate of somewhere between 4% and 0%.
4% on active business profits earned by a business in Puerto Rico ( Act 20) and 0% on capital gains for a resident of Puerto Rico ( Act 22) are the lowest rate available to US citizens. If your business is netting over $500,000, Puerto Rico is a much better deal than the Foreign Earned Income Exclusion and allows you to spend more time in the United States. If your business nets $100,000 to $200,000, then stick with the FEIE.
- Here’s an article comparing the Foreign Earned Income Exclusion to the Puerto Rico Tax Deal.
If you’ve been reading my posts for a while now, you know that I’m a big fan of Puerto Rico. In fact, we’re in the process of moving our operations from Panama to the US territory. This tax opportunity is just too good to pass up.
You also know that I’ve been covering Puerto Rico from the very beginning. My first articles were posted in October of 2013, with Puerto Rico Tax Deals for Corporations and Move to Puerto Rico and Pay Zero in Capital Gains Tax.
But why am I moving my business to Puerto Rico now? Because the infrastructure and services requires for a smooth transition are now in place. We can set up shop in a low cost executive suite specially designed for the 5 employee model.
Also, because we now have the staff and trainers to source local talent for Act 20 businesses (internet marketing, import / export, and any other service that can be offered from Puerto Rico to persons and companies outside of Puerto Rico).
Basically, we’ve built the pipeline to support Act 20 companies in a cost effective manner.
Also, Acts 20 and 22 have been thoroughly vetted by a number of professionals. Back in 2013, I was one of the very few talking about Puerto Rico. Now, it’s big news (see below). As a result, attorneys and tax professionals have researched every aspect of these laws. While it’s good to be the leader, it gives one confidence to have professional support when considering a move to mitigate US taxes.
Finally, the political winds of change are blowing around the world - nowhere more strongly than in Panama. With Panama under constant attack, making the move to a US territory, a politically correct offshore tax inversion if you will, is the thing to do.
Speaking of these winds of change, Puerto Rico’s Act 20 comes with a 20 guarantee. Move your business to the island and, so long as you employ at least 5 persons, you are guaranteed the 4% rate. The only way this could be lost is if Puerto Rico becomes a State… something most agree is extremely unlikely.
Let me conclude by describing recent events in Puerto Rico and providing links to a few articles on Acts 20 and 22 to help you with your research.
In February of this year, hedge fund manager John Paulson put on a conference in San Juan to present the tax benefits of living and doing business on Puerto Rico. He's a big supporter of Acts 20 and 22, having invested billions into Puerto Rico over the last year, including $1 billion of his personal savings.
The event brought in 400 high net-worth individuals, many of them fund managers (such as Michael Tennenbaum who manages $60b and moved to PR 2 months ago), internet marketers (such as JR and Loren Ridinger of Market America and Shop.com), and big time investors (such as Toby Neugebauer, the fundraiser behind Ted Cruz's super-PAC).
Tennenbaum, who spoke at the event along with Paulson and NY Mayor Rudy Giuliani, had this to say about Puerto Rico's debt problems: "One of the reasons I came here is because I thought you'd hit bottom. When you run out of cash, I think that brings change." This is quite similar to my reasoning in: Blood in the Streets Tax Planning (December 2015).
Puerto Rico’s governor, Alejandro García Padilla, said this at the investment summit: “This is truly a historic moment full of opportunities. We are truly convinced of our unparalleled incentives … to boost your profits.”
These are the articles I suggest you review for background on the Puerto Rico tax deal.
- Here's an article published before the event in the NY Post.
- Here's what the Garidian said about the event: (the most fair and balanced post I've seen).
- Here's CNN's take on the event.
- And here's what LatinOne had to say.
- Here's a post from 2015 explaining why these laws were passed.
I hope you have found this information helpful. If you would like more information on moving you or your business to Puerto Rico, please contact me at email@example.com or call (619) 550-2743 for a free and confidential consultation.