Puerto Rico as legal tax Haven?

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Leesbro63
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Puerto Rico as legal tax Haven?

Post by Leesbro63 » Wed Sep 19, 2018 6:19 am

Can this be true? And if so, why hasn’t it been widely reported?

https://www.gq.com/story/how-puerto-ric ... super-rich


“Act 22 goes much further: It makes Puerto Rico the only place on U.S. soil where personal income, capital gains, interest, and dividends are untaxed.”

AlohaJoe
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Re: Puerto Rico as legal tax Haven?

Post by AlohaJoe » Wed Sep 19, 2018 6:28 am

Leesbro63 wrote:
Wed Sep 19, 2018 6:19 am
Can this be true? And if so, why hasn’t it been widely reported?
It was widely reported.

NY Times 2015: https://www.nytimes.com/2015/12/20/us/p ... -debt.html
NY Times 2015: https://www.nytimes.com/roomfordebate/2 ... -tax-haven
NY Times 2013: https://dealbook.nytimes.com/2013/03/25 ... -the-rich/
NY Times 2014: https://www.nytimes.com/2014/09/07/real ... reaks.html
Bloomberg 2017: https://www.bloomberg.com/news/articles ... -tax-haven
Bloomberg 2014: https://www.bloomberg.com/news/articles ... eing-taxes

Etc.

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JoMoney
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Re: Puerto Rico as legal tax Haven?

Post by JoMoney » Wed Sep 19, 2018 6:39 am

If you're earning the money in Puerto Rico maybe... if you're earning money from elsewhere in the U.S. (i.e. from stocks, bonds, retirement account ... a decent job) then you've got income taxable to the Feds.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

motorcyclesarecool
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Re: Puerto Rico as legal tax Haven?

Post by motorcyclesarecool » Wed Sep 19, 2018 6:58 am

Can’t do it the Boglehead way. Income from off the island gets taxed federally.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

GeoffD
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Re: Puerto Rico as legal tax Haven?

Post by GeoffD » Wed Sep 19, 2018 7:15 am

JoMoney wrote:
Wed Sep 19, 2018 6:39 am
If you're earning the money in Puerto Rico maybe... if you're earning money from elsewhere in the U.S. (i.e. from stocks, bonds, retirement account ... a decent job) then you've got income taxable to the Feds.
Maybe read the article? If you get your 180-something Puerto Rico days, you dodge Federal income taxes and keep your US passport. Just expect to get audited frequently.

farnsy
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Re: Puerto Rico as legal tax Haven?

Post by farnsy » Wed Sep 19, 2018 9:41 am

motorcyclesarecool wrote:
Wed Sep 19, 2018 6:58 am
Can’t do it the Boglehead way. Income from off the island gets taxed federally.
For many/most people this isn't a barrier. You just set up a business on the island that receives the money and pays you. I don't live in Puerto Rico but some other folks working for my company do, and they don't pay federal income tax. I think they have a little Puerto Rican subsidiary that facilitates it. Not sure the legal details but I know it wasn't that hard nor costly to set up.

skepticalobserver
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Re: Puerto Rico as legal tax Haven?

Post by skepticalobserver » Wed Sep 19, 2018 11:50 am

If Congress could see its way to exempt PR extraterritorial income from federal taxation that would be a wonderful economic development strategy! The island would sink with snow birders.

finite_difference
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Re: Puerto Rico as legal tax Haven?

Post by finite_difference » Wed Sep 19, 2018 4:29 pm

GeoffD wrote:
Wed Sep 19, 2018 7:15 am
JoMoney wrote:
Wed Sep 19, 2018 6:39 am
If you're earning the money in Puerto Rico maybe... if you're earning money from elsewhere in the U.S. (i.e. from stocks, bonds, retirement account ... a decent job) then you've got income taxable to the Feds.
Maybe read the article? If you get your 180-something Puerto Rico days, you dodge Federal income taxes and keep your US passport. Just expect to get audited frequently.
What about income from a retirement account (Trad 401k)?

Roth IRA is obviously not taxed anywhere.

Still, for a taxable brokerage account no dividends/capital gains adds about 0.5% annual return right?

Also, no capital gains is an added 15% return when you sell.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

jacoavlu
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Re: Puerto Rico as legal tax Haven?

Post by jacoavlu » Wed Sep 19, 2018 10:53 pm

Attractive for folks who can live on the island, at least half the year, and provide a service to mainlanders. Think digital type services. Lots of hedge fund folks going there. And bitcoin people.

Of course many fled after the hurricane. But because it was declared an emergency, those people are actually getting/got credit for lots of PR days even while on the mainland.

randomguy
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Re: Puerto Rico as legal tax Haven?

Post by randomguy » Wed Sep 19, 2018 11:23 pm

finite_difference wrote:
Wed Sep 19, 2018 4:29 pm
GeoffD wrote:
Wed Sep 19, 2018 7:15 am
JoMoney wrote:
Wed Sep 19, 2018 6:39 am
If you're earning the money in Puerto Rico maybe... if you're earning money from elsewhere in the U.S. (i.e. from stocks, bonds, retirement account ... a decent job) then you've got income taxable to the Feds.
Maybe read the article? If you get your 180-something Puerto Rico days, you dodge Federal income taxes and keep your US passport. Just expect to get audited frequently.
What about income from a retirement account (Trad 401k)?

Roth IRA is obviously not taxed anywhere.

Still, for a taxable brokerage account no dividends/capital gains adds about 0.5% annual return right?

Also, no capital gains is an added 15% return when you sell.
I don't think it works that way. IRA (including ROTH) distributions are taxed as US based income and aren't covered by Act 22 in everything I have read. You cant move to PR with you 1 million dollars in LTGC and sell it and pay 0%. You end up paying taxes on the US gains and it is only the ones from when you live in PR that are tax free. https://ustax.bz/puerto-rico/ gives a slightly less rosey view of some of the tax benefits.

There is definitely a niche where it makes a ton of sense. I am not sure if the average rich boglehead (say 2.5 million taxable another 2.5 in tax deferred) falls into that niche. Hedge fund manager making 20 million a year? That is a different story:)

finite_difference
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Re: Puerto Rico as legal tax Haven?

Post by finite_difference » Thu Sep 20, 2018 5:42 pm

randomguy wrote:
Wed Sep 19, 2018 11:23 pm
finite_difference wrote:
Wed Sep 19, 2018 4:29 pm
GeoffD wrote:
Wed Sep 19, 2018 7:15 am
JoMoney wrote:
Wed Sep 19, 2018 6:39 am
If you're earning the money in Puerto Rico maybe... if you're earning money from elsewhere in the U.S. (i.e. from stocks, bonds, retirement account ... a decent job) then you've got income taxable to the Feds.
Maybe read the article? If you get your 180-something Puerto Rico days, you dodge Federal income taxes and keep your US passport. Just expect to get audited frequently.
What about income from a retirement account (Trad 401k)?

Roth IRA is obviously not taxed anywhere.

Still, for a taxable brokerage account no dividends/capital gains adds about 0.5% annual return right?

Also, no capital gains is an added 15% return when you sell.
I don't think it works that way. IRA (including ROTH) distributions are taxed as US based income and aren't covered by Act 22 in everything I have read. You cant move to PR with you 1 million dollars in LTGC and sell it and pay 0%. You end up paying taxes on the US gains and it is only the ones from when you live in PR that are tax free. https://ustax.bz/puerto-rico/ gives a slightly less rosey view of some of the tax benefits.

There is definitely a niche where it makes a ton of sense. I am not sure if the average rich boglehead (say 2.5 million taxable another 2.5 in tax deferred) falls into that niche. Hedge fund manager making 20 million a year? That is a different story:)
random_guy you are absolutely correct. Wow that poured a lot of cold water onto retiring to Puerto Rico.

1. If you move to Puerto Rico, your Roth IRA distributions are taxed!!
2. Capital gains that accrued after moving to Puerto Rico do not have tax. So I think it means you could liquidate your Roth IRA to cash, move to Puerto Rico, then buy the same stocks and you’d effectively have a “Roth IRA” in taxable in that you wouldn’t pay capital gains, but you would still be taxed on dividends. So not that great.
3. If you are a PR resident for 10 years before selling, you can avoid the earlier capital gains as well and just pay 5%.
4. No real change to Trad IRA/401k distributions compared to staying in mainland US.
5. Not sure about the estate tax situation.

Seems like a pretty crappy tax haven unless you have a lot of capital gains.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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JoMoney
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Re: Puerto Rico as legal tax Haven?

Post by JoMoney » Thu Sep 20, 2018 5:50 pm

finite_difference wrote:
Thu Sep 20, 2018 5:42 pm
...
Seems like a pretty crappy tax haven unless you have a lot of capital gains.
It's good for traders, and for businesses that legitimately want to move operations to PR and employ people and improve the economy there (which was the intent of the policy).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

randomguy
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Re: Puerto Rico as legal tax Haven?

Post by randomguy » Thu Sep 20, 2018 7:51 pm

JoMoney wrote:
Thu Sep 20, 2018 5:50 pm
finite_difference wrote:
Thu Sep 20, 2018 5:42 pm
...
Seems like a pretty crappy tax haven unless you have a lot of capital gains.
It's good for traders, and for businesses that legitimately want to move operations to PR and employ people and improve the economy there (which was the intent of the policy).
yeah if you are making money and qualify, the tax benefits are huge. What it doesn't provide is for a way to tax the money you made (unrealized capital gains, ira) and get them out tax free. So if you can run our company out of PR, you do well. Or if you expect to have large capital gains/dividends going forward (say you have 100 million and are living off the dividends). What it doesn't seem to do is to help the retiree avoid taxes.

Or at least that is the impression I got when I researched it a bit as a potential early retirement place. The idea of spending 250 days they and 100 traveling sounded appealing for 10 years or so sounded appealing but it didn't look like there would be any tax benefits.

mouses
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Re: Puerto Rico as legal tax Haven?

Post by mouses » Thu Sep 20, 2018 8:19 pm

I thought Roths got taxed nowhere...

Peppergrass
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Re: Puerto Rico as legal tax Haven?

Post by Peppergrass » Thu Sep 20, 2018 11:53 pm

Leesbro63 wrote:
Wed Sep 19, 2018 6:19 am
Can this be true? And if so, why hasn’t it been widely reported?

https://www.gq.com/story/how-puerto-ric ... super-rich


“Act 22 goes much further: It makes Puerto Rico the only place on U.S. soil where personal income, capital gains, interest, and dividends are untaxed.”
because it's Puerto Rico.... try Hawaii even, Hawaii is bad enough with drugs and violence and Hawaii houses on the beach costs 10-40 million.

I have never been there myself to be honest.. my friend told me growing up there police would grab someone ( a criminal , not a average citizen, and throw them in the back of the trunk of the car handcuffed.. ) not a place you really want to be in my mind

appealing, VERY MUCH, but for the average person it won't make a dent to relocate to a place most would not be able to adjust to, second most on here are not making million or tens of millions to worry about taxes to the extent of moving because of taxes.. when I see all the celebrities moving there, then I will reconsider. think how much it would cost to relocate there ( selling house with real estate agent fees ) shipping, time, energy, moving in, plane flights... you would most likely lose more moving then ever saving to the average person

finite_difference
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Re: Puerto Rico as legal tax Haven?

Post by finite_difference » Fri Sep 21, 2018 9:14 pm

JoMoney wrote:
Thu Sep 20, 2018 5:50 pm
finite_difference wrote:
Thu Sep 20, 2018 5:42 pm
...
Seems like a pretty crappy tax haven unless you have a lot of capital gains.
It's good for traders, and for businesses that legitimately want to move operations to PR and employ people and improve the economy there (which was the intent of the policy).
Hmm I dunno, maybe for traders. I think that the fact that Puerto Rico is not a state, with all the protections that brings — for example good infrastructure — really hurts business much more than these tax benefits might help. The recent hurricane and power loss decimated businesses. And since they can’t vote / don’t have representation, nobody really cares that much. Also, since it’s a relatively remote island, unless they are produced locally goods cost more since they need to be shipped. Finally, many states in the continental US offer competitive taxes/tax breaks for businesses as well.

I am interested in this topic because I kind of do want to retire to Puerto Rico. I really liked a vacation I had there, and the climate and atmosphere were amazing, but it looks like taxes will be more than many other places in the US. Especially since your Roth IRA is taxed!
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

finite_difference
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Re: Puerto Rico as legal tax Haven?

Post by finite_difference » Fri Sep 21, 2018 9:18 pm

mouses wrote:
Thu Sep 20, 2018 8:19 pm
I thought Roths got taxed nowhere...
That’s what I thought too, but since PR is not a state, it has its own tax code.

It’s ironic that PR can have its own tax code, but can’t file bankruptcy like states can.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

Tanelorn
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Re: Puerto Rico as legal tax Haven?

Post by Tanelorn » Sat Sep 22, 2018 1:59 am

My understanding was that the reason it was good for hedge funds was that their profits were mostly short term. The tax incentives only apply to holdings you make after moving there, so preexisting gains would still be US sourced and taxed, while new investments would get the better treatment.

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TimeRunner
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Re: Puerto Rico as legal tax Haven?

Post by TimeRunner » Sat Sep 22, 2018 9:34 am

finite_difference wrote:
Fri Sep 21, 2018 9:14 pm
Also, since it’s a relatively remote island, unless they are produced locally goods cost more since they need to be shipped. Finally, many states in the continental US offer competitive taxes/tax breaks for businesses as well.
All non-locally produced goods are subject to the Merchant Marine Act of 1920 (aka Jones Act), see Wikipedia article: https://en.wikipedia.org/wiki/Merchant_ ... ct_of_1920

From article: "The Jones Act prevents foreign-flagged ships from carrying cargo between the US mainland and certain noncontiguous parts of the US, such as Puerto Rico, Hawaii, Alaska, and Guam.[13] Foreign ships inbound with goods cannot stop at any of these four locations, offload goods, load mainland-bound goods, and continue to US mainland ports, although ships can offload cargo and proceed to the US mainland without picking up any additional cargo intended for delivery to another US location. Usually, they proceed directly to US mainland ports, where distributors break bulk and then send goods to US places off the mainland by US-flagged ships.[13]"
One cannot enlighten the unconscious.

finite_difference
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Re: Puerto Rico as legal tax Haven?

Post by finite_difference » Sat Sep 22, 2018 8:58 pm

TimeRunner wrote:
Sat Sep 22, 2018 9:34 am
finite_difference wrote:
Fri Sep 21, 2018 9:14 pm
Also, since it’s a relatively remote island, unless they are produced locally goods cost more since they need to be shipped. Finally, many states in the continental US offer competitive taxes/tax breaks for businesses as well.
All non-locally produced goods are subject to the Merchant Marine Act of 1920 (aka Jones Act), see Wikipedia article: https://en.wikipedia.org/wiki/Merchant_ ... ct_of_1920

From article: "The Jones Act prevents foreign-flagged ships from carrying cargo between the US mainland and certain noncontiguous parts of the US, such as Puerto Rico, Hawaii, Alaska, and Guam.[13] Foreign ships inbound with goods cannot stop at any of these four locations, offload goods, load mainland-bound goods, and continue to US mainland ports, although ships can offload cargo and proceed to the US mainland without picking up any additional cargo intended for delivery to another US location. Usually, they proceed directly to US mainland ports, where distributors break bulk and then send goods to US places off the mainland by US-flagged ships.[13]"
Yeah that law definitely sounds like it adds additional costs to bring goods to PR and from PR to the US mainland.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: Puerto Rico as legal tax Haven?

Post by LadyGeek » Sat Sep 22, 2018 9:10 pm

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