American Tax Shelter Location

[admin]

It looks like Puerto Rico is in line to become a good tax shelter and a good real estate and lifestyle destination.

I saw Donald Trump on TV who said that Florida is booming thanks to money from Latin America (I usually take what the Donald says with skepticism).

But what about Puerto Rico? Maybe it’s time to move there.

government officials and real estate brokers in Puerto Rico hope to sell other wealthy mainland Americans on what they hope will become the next Singapore or Ireland as a favored low-tax destination. Puerto Rico is closer and, compared with Ireland, decidedly warmer. And unlike in Switzerland or other havens, in Puerto Rico, Americans do not give up their citizenship.

[spdrun]

Problem is that it still has DC’s noose around its throat, for better or for worse. Wonder if Cuba will return to its old habits once the Castro dynasty is castrated.

[SK in CV]

Its a little unclear to me what the big shelter is. The top tax rate there is slightly lower than the US. Cap gains exclusion for assets held when you arrive and not sold for 10 years after you get there. So you have to live in PR for 10 years to get the big benefit.

[FlyerInHi]

After more reading:

Top rate on ordinary income is 34.65 %. 33% + 5% surcharge on tax liability if income is above $100,000.

I think that capital gains on assets acquired during residency would be exempt.

It gets complicated. Business owners could create companies domiciled in Puerto Rico to lower their taxes.

Not a bad deal if you want to live on a tropical island and have lots of capital gains.

[Jazzman]

I thought you still have to file returns in the US on world-wide income, even if no longer resident. It’s probably more aimed at businesses.

[SK in CV]

[quote=Jazzman]I thought you still have to file returns in the US on world-wide income, even if no longer resident. It’s probably more aimed at businesses.[/quote]

Generally true. PR is a US protectorate, the rules are a bit different.

[FlyerInHi]

The way I read it is that, Puerto Rico, as a US territory, has local taxes in lieu of Federal income taxes.

In Puerto Rico, you have to pay Federal taxes on your worldwide income only on income sourced outside of Puerto Rico.

So if you live in Puerto Rico, your salary would be sourced in Puerto Rico and only local taxes would apply.

As a pilot, my salary would be locally sourced and my airline would withhold Puerto Rico taxes, but not Federal income taxes.

Capital gains would be exempt (because PR capital gains is 0%). And capital gains on assets acquired before residency would be exempt after 10 years of residency.

Business owners could relocate to Puerto Rico. They would sell their companies later, realize all the capital gains and pay zero.

[Jazzman]

It may be so, but if you are paying withholding to PR, and not federal tax that sounds like a dual taxation convention coming into play. Are you also saying the IRS waives CGT if you are non-resident? I’d think, either you don’t report everything to the IRS (you get about an $80k exemption anyway), or you have to give up your citizenship, if you want to avoid/evade taxes. If you do that of course you’ll get hammered with an exit tax. They’ve pretty much got you by the short and curlies.

[FlyerInHi]

Puerto Rico has a special deal with the US which the other states don’t because they are states whereas PR is a territory.

I believe that residents for Puerto Rico pay PR taxes instead of Federal income tax, so it’s not dual taxation.

If you have $100k income sourced in PR, you would pay 33% tax to PR. If in addition you have another $50,000 sourced outside of PR, you would pay Federal income tax on that.

PR residency can work out well with proper estate planning.

Suppose I have shares in a company that my dad founded. I know that he will retire and sell the company in 10 years. I could move to PR now and wait 10 years until he sells the company.

PR might be a good place to setup a startup and sell it later for capital gains.

If someone can telecommute, is a successful trader, he can work out of Puerto Rico (maybe instead of Miami) and save on taxes.

There are much better tax havens in the world but in PR, you don’t have to give up US citizenship.

I’ve never lived in Puerto Rico, but the new tax treatment sound intriguing.

The 183 day presence requirement might be a little hard for some people who don’t want to be stuck on the island too long. I think that for me, the days that I’m working and flying for work would meet the bonafide residence text.

[Author]

Posts