This is awesome, Brain. Answered a lot of questions I had. Didn't know about the rules about staying international to lower the amount of days from 183, but that's a plus.
Thanks for the overview. Heads up, there are all sorts of interesting things you can do with a Puerto Rican corporation and a bona fide PR residency. You can be excluded from the nasty controlled foreign corporation (CFC) rules and Subpart F reporting that regular (non-Puerto Rican) US citizens have to do with their foreign corporations, which force "distributions" and thus force taxation each year instead of tax-free compounding offshore before profit repatriation.
I found the following article helpful in explaining how you might structure a PR corporation with European pass-through LLCs (disregarded entities) holding the corporation's intellectual property to minimize tax, something that wouldn't be possible if you weren't a PR resident with a PR corp:
Zika virus is endemic in Puerto Rico. That's especially an issue for pregnant women (high potential for birth defects if infected while pregnant). It also persists in semen for quite a while. In mice, it negatively impacts sperm levels.
Thanks for the post. 10 years ago PR was on the verge of bankruptcy and Congressional bailouts were being discussed. How are the government finances currently and what are the risks of raising taxes to pay any financial obligations? How would Congress bail out PR if it is being used as a tax haven?
No idea being honest. The bet being made is that the US is too busy with covid/russia/ukraine and tons of other stuff to worry about a small island with a tax program. Most cities/states all have issues with their finances.
The last item is historically everyone in a program is grandfathered in. There are not many people here so the tax revenue they would get is likely peanuts as well, most can't set up here
As someone who's spent time on the island considering Act 22, I can cosign that everything here is on point.
My one suggestion is to please please please spend 3-4 months on the island before making the decision. A weekend getaway or even a few weeks in PR will feel like a honeymoon. It's after the first month that reality sets in. I know too many people who spent six months in PR and left because they hated it and the maths didn't add up.
It definitely isn't for everyone! The math and the adjustment has to be meaningful enough to change your life from a financial perspective. Without the benefits it would be hard to see the island attracting many well off people
Do not know as this post is about PR and Dubai is not an option for US citizens. Also didn't want to give up citizenship so singapore didn't make sense
One quick thing - its not a 24h rule for travel (within the US) its any day you spend at least a minute in PR is a PR day. The 24 transit rule applies if you were going between international destinations.
Does anyone on this stack know if you can pull this off with a tech company job? (IE salary + large component of stock grants) Converting to a different type of employee works for the salary side, but I am unclear as to what is possible for the stock/RSU side.
You state that we should expect to be there for at least 3-5 years. After this period, could one return to the US while maintaining PR residency and thus the tax benefits (either business or individual) associated, particularly capital gains? What would this look like, if possible, in terms of how many days out of the year you'd have to be in PR/USA, bank accounts, properties, etc.
No it works like this approximately three year commitment. If you leave before three years all the taxes for those three years need to be paid. If you show up to PR for 2 years make $2M in capital gains and then go back, you owe full tax on it. If you show up to PR for 3+ years and make $2M in capital gains that is tax free and you can leave
If you leave and are no longer 183 days in PR you will owe cap gains on future investment gains
So then, you would not be able to leave PR after 5 years then live in the US while still collecting tax free capital gains in a PR bank account? As in, is it possible to maintain PR residency status for tax purposes while living in the US assuming you've been in PR for the past 5 years?
Thats only true if you are using the year of the move exemption. You could come in Dec 31st and stay for 1 year. It might be less defensible with the closer connection test.
In your opinion, do you think an American looking to grow a $2M passive investment portfolio (currently 90% broad market ETF, 10% crypto) over 5 years would benefit from this move? $90k/yr remote W-2 income (does that disqualify if income comes from continental US entity?)
You would likely qualify, so the question is if you think your investment gains will be significant or not. $90K doesn't matter you will spend more than that (post tax) to live a good life in Puerto Rico
You have to triple $2M to $6M in order for that to make sense math wise,
Push comes to shove probably not worth it in your case. Your savings are only 15% on the incremental gains so if you made $3M in gains you'd save $450K in tax over 5 years which does not seem worth it from such a big move
thanks for guidance on 'young kids vs teenagers'; any clue what the quality of Elementary Schools/Pre-K is?
got a 3 year old, a 2 year old, and two twins due in May....but also firmly in that 'multiple wifi biz that could justify a 3-5 year Island stay to dramatically level up' bucket. plus, my kids/wife already habla Espanol.
This is awesome, Brain. Answered a lot of questions I had. Didn't know about the rules about staying international to lower the amount of days from 183, but that's a plus.
Thanks for the overview. Heads up, there are all sorts of interesting things you can do with a Puerto Rican corporation and a bona fide PR residency. You can be excluded from the nasty controlled foreign corporation (CFC) rules and Subpart F reporting that regular (non-Puerto Rican) US citizens have to do with their foreign corporations, which force "distributions" and thus force taxation each year instead of tax-free compounding offshore before profit repatriation.
I found the following article helpful in explaining how you might structure a PR corporation with European pass-through LLCs (disregarded entities) holding the corporation's intellectual property to minimize tax, something that wouldn't be possible if you weren't a PR resident with a PR corp:
https://www.floridabar.org/the-florida-bar-journal/u-s-international-tax-planning-for-bona-fide-residents-of-puerto-rico/
Zika virus is endemic in Puerto Rico. That's especially an issue for pregnant women (high potential for birth defects if infected while pregnant). It also persists in semen for quite a while. In mice, it negatively impacts sperm levels.
Great article. Thanks!
This is spectacular Brain! Thank you.
What's transportation like? Is most stuff within walking distance if you're in a good part of town, or do you need a car or use public transport?
If you're in condado you can get by without a car, everything is walking distance or a short cab. If you're in Dorado you probably need a car
Thanks for the post. 10 years ago PR was on the verge of bankruptcy and Congressional bailouts were being discussed. How are the government finances currently and what are the risks of raising taxes to pay any financial obligations? How would Congress bail out PR if it is being used as a tax haven?
No idea being honest. The bet being made is that the US is too busy with covid/russia/ukraine and tons of other stuff to worry about a small island with a tax program. Most cities/states all have issues with their finances.
The last item is historically everyone in a program is grandfathered in. There are not many people here so the tax revenue they would get is likely peanuts as well, most can't set up here
As someone who's spent time on the island considering Act 22, I can cosign that everything here is on point.
My one suggestion is to please please please spend 3-4 months on the island before making the decision. A weekend getaway or even a few weeks in PR will feel like a honeymoon. It's after the first month that reality sets in. I know too many people who spent six months in PR and left because they hated it and the maths didn't add up.
It definitely isn't for everyone! The math and the adjustment has to be meaningful enough to change your life from a financial perspective. Without the benefits it would be hard to see the island attracting many well off people
Any tips for Canadians moving to Dubai or Asian Degen Island (SG)?
Do not know as this post is about PR and Dubai is not an option for US citizens. Also didn't want to give up citizenship so singapore didn't make sense
Do you have any PR based law firms you would recommend using?
One quick thing - its not a 24h rule for travel (within the US) its any day you spend at least a minute in PR is a PR day. The 24 transit rule applies if you were going between international destinations.
Additional info is here - https://www.irs.gov/publications/p570#:~:text=obligations%20under%20MSRRA.-,Presence%20Test,-If%20you%20are
Excellent post Brain, very much appreciated.
Does anyone on this stack know if you can pull this off with a tech company job? (IE salary + large component of stock grants) Converting to a different type of employee works for the salary side, but I am unclear as to what is possible for the stock/RSU side.
Thanks for all the info. Have you found a welcoming expat community of Americans? Any tips on plugging into that?
You state that we should expect to be there for at least 3-5 years. After this period, could one return to the US while maintaining PR residency and thus the tax benefits (either business or individual) associated, particularly capital gains? What would this look like, if possible, in terms of how many days out of the year you'd have to be in PR/USA, bank accounts, properties, etc.
No it works like this approximately three year commitment. If you leave before three years all the taxes for those three years need to be paid. If you show up to PR for 2 years make $2M in capital gains and then go back, you owe full tax on it. If you show up to PR for 3+ years and make $2M in capital gains that is tax free and you can leave
If you leave and are no longer 183 days in PR you will owe cap gains on future investment gains
From this the ideal situation is you start a biz in puerto rico and sell it before you leave.
If you start a $10M business in PR and sell it before you leave you can get all of the money tax free legally.
So then, you would not be able to leave PR after 5 years then live in the US while still collecting tax free capital gains in a PR bank account? As in, is it possible to maintain PR residency status for tax purposes while living in the US assuming you've been in PR for the past 5 years?
Nope. 183 days or else you're paying full tax.
Thats only true if you are using the year of the move exemption. You could come in Dec 31st and stay for 1 year. It might be less defensible with the closer connection test.
In your opinion, do you think an American looking to grow a $2M passive investment portfolio (currently 90% broad market ETF, 10% crypto) over 5 years would benefit from this move? $90k/yr remote W-2 income (does that disqualify if income comes from continental US entity?)
You would likely qualify, so the question is if you think your investment gains will be significant or not. $90K doesn't matter you will spend more than that (post tax) to live a good life in Puerto Rico
You have to triple $2M to $6M in order for that to make sense math wise,
Push comes to shove probably not worth it in your case. Your savings are only 15% on the incremental gains so if you made $3M in gains you'd save $450K in tax over 5 years which does not seem worth it from such a big move
thanks for guidance on 'young kids vs teenagers'; any clue what the quality of Elementary Schools/Pre-K is?
got a 3 year old, a 2 year old, and two twins due in May....but also firmly in that 'multiple wifi biz that could justify a 3-5 year Island stay to dramatically level up' bucket. plus, my kids/wife already habla Espanol.
Do not know the quality, there are private schools etc but probably best to look up the schools/visit and decide based on your standards.
Uejong is trash. I recommend Tako! in Guaynabo, way more authentic. Enjoy!
Hahaha! Thanks! Don't eat a lot of Asian food though, maybe check it out later!