Tag Archives: Puerto Rico

From a Caribbean Business interview with Puerto Rico’s Secretary of Economic Development and Commerce Alberto Bacó:

“We are attracting high-income, well-educated residents,” he said during a forum with University of Puerto Rico business school alumni. The official said the government fielded roughly two dozen petitions in both April and May from rich people seeking to tap incentives for relocating to Puerto Rico. “I have met with billionaires. These aren’t people who go to a bank seeking a loan. These people have their own capital to invest,” Bacó said according to media reports. Bacó cited Nicholas Prouty, president of Putnam Bridge Investments, who is relocating to Puerto Rico …

Law 22 is designed to primarily attract to Puerto Rico high-net-worth individuals, empty nesters, retirees who currently relocate to other states and individual investors from the U.S. and other countries, by eliminating all taxes on passive income that accrues after they relocate to the island. While dividends and interest income earned by Puerto Rico residents on U.S. securities are generally taxed by the federal government, capital gains taxes on their sales are based on residence.

So if you lived your whole life in the Homeland and have millions of dollars in unrealised capital gains from U.S. investments, the U.S. Congress and the Puerto Rican government will cooperate to make sure you don’t have to pay a penny of tax. But if you’re an Australian with an American mother and a Superannuation plan, the U.S. will make you waste 55 hours per year filling out a form even accountants have trouble understanding to tax you on retirement savings which the Australian Parliament voted should be tax-free.

The reason for this, of course, is that All Americans (besides the ones who move to Puerto Rico) Must Pay Their Fair Share for the Benefits of Citizenship in the Greatest Country on Earth, and if you decide that you don’t want those Great Benefits, then you’ll be exiled permanently. I guess because there’s no U.S. embassy in Puerto Rico, those poor deprived Homelanders living there don’t get any of those Great Embassy Services like us U.S. Persons abroad.

As you’ve probably seen on Bloomberg or elsewhere by now, billionaire investor John Paulson is reportedly considering a move from New York to Puerto Rico in order to save on taxes. As Business Insider helpfully summarises, unlike U.S. persons abroad not only will he be able to avoid U.S. federal taxes entirely, but Puerto Rico will not charge him any local income tax on his investment gains either — making Puerto Rico the only place in the Solar System where a U.S. citizen can move and owe no tax whatsoever.

Puerto Ricans deflect the criticism of their plucky little island’s unique tax status by claiming that they have to pay U.S. federal taxes on income from the mainland. But, as Business Insider fails to make clear, “income from the mainland” is determined under the rules of 26 CFR 1.937-2(f) — which means that a U.S. citizen who has lived in Puerto Rico for 10 years and sells the stock of a mainland corporation is deemed to have “income from sources within a possession” and not from within the mainland United States — and thus thanks to 26 USC § 933, owes no U.S. federal capital gains tax. (See IRS Publication 1321 if you’d like an official non-legalese summary of the regulations.) This is a far better deal than the so-called “foreign earned income loophole” that Americans abroad get, which only allows exclusion of wage income — not investments, pensions, local unemployment benefits, nor childrens’ disability benefits.

The other common excuse given by Puerto Ricans for their enormous tax breaks is that they get far less benefit from U.S. federal spending than any of the fifty states — for example, with regards to Medicaid or educational funding. Of course, Americans abroad pay both U.S. and foreign taxes on all our income with more complicated forms than any Homelander or Puerto Rican has ever seen, and we get squat from Medicaid or Medicare or U.S. educational funding — instead we get those “great embassy services” and a vague promise that the U.S. Navy will come save us when we get into trouble. Apparently Puerto Rico has no puertos at which the Navy can dock in the event of a disaster, unlike landlocked Paraguay.