I moved to Puerto Rico in mid-2016.
Not for the tax advantages (at first), but to be closer to my vacation house on Culebra (a Puerto Rican Virgin Island) and to have a high-end beach-front lifestyle for one quarter the cost of moving back to South Beach, Miami.
Puerto Ricans are U.S. citizens and have free movement to and from the U.S. The truth is that it’s always been more of a one-way street from Puerto Rico. The chart below shows the trends of net migration to the U.S. since the 1950s.
Such constant outmigration hurts the Puerto Rican economy. But it gives incentives for policies that attract people and U.S. businesses from the mainland.
The pharmaceutical-oriented tax incentives from 1976 to 2006 transformed Puerto Rico by creating high-wage jobs that tripled the cost-of-living-adjusted standard of living here.
Since those were discontinued in 2006, Puerto Rico has been in a long recession that has worsened due to the destruction of Hurricane Maria.
In 2012, Puerto Rico initiated Acts 20 and 22, which offered very attractive tax incentives to financial, investment, and service businesses.
After I moved to Puerto Rico, I found out I could qualify for those tax advantages that I didn’t expect to qualify for. I finally applied for and acquired Act 20/22 status, and became a Puerto Rican resident, yet still a U.S. citizen.
Here’s a quick summary of what that involves:
- You don’t give up your U.S. citizenship or passport.
- You must physically live in Puerto Rico for six months a year just to qualify.
- You pay normal U.S. taxes on U.S. – or global-sourced income outside of Puerto Rico.
- On Puerto Rican-sourced income you pay a fair salary at their maximum rate of up to 33%, and then after that you pay 4%… That’s 4%, not 39.6% plus state income taxes. Wake up California and New York!
- Even better, on short-term trading and long-term capital gains you pay ZERO… This is a much greater advantage for short-term traders than even long-term investors.
- Early qualifiers will get grandfathered in even if this gets cut off later, so act sooner than later.
- Act 20 for business taxes at 4% is likely to be extended longer than the zero capital gains for short-term traders and investors under Act 22.
- You must be in this program for three tax years. If you move back to the U.S. before that, you must pay back all your tax savings.
The best tax advantages go to investment managers and traders, or newsletter writers and publishers like myself.
For people like me who speak around the world, but research and write here, the advantage is a bit less because the income from appearances is sourced in the U.S. and globally.
The lifestyle in Puerto Rico has improved dramatically over the 25 years I’ve been coming down here. But the real advantage is lower costs for real estate: 60% lower on average, and as much as 75% lower on the high end.
The beach areas here are safe, even though crime is still higher than in the U.S. in the outer areas.
That also creates an advantage for retirees in the U.S. to move here as well.
Your nest-egg will go much further here while the weak economy only keeps real estate and the cost of living lower. And your income typically does not depend on the Puerto Rican economy if you are retiring here and living off your savings or retirement plan.
There’s also a move in progress to extend similar tax advantages to wage and salary earners that move here from the U.S. I’ve heard from a few officials that it’s coming.
It’s obviously not for everyone, but I’m happy I moved here. I say more U.S. businesses should consider Act 20/22 advantages, as well as lower wages and real estate costs to export back to the U.S. more profitably.
The first step is to take a week or more vacation here and really see the island. It has a vibrant urban culture to add to the beaches, mountains, waterfalls and two Virgin Islands.
Retirees, keep Puerto Rico in mind.
For a more in-depth look at the paradoxes and attractions of Puerto Rico, check out the latest issue of The Leading Edge.
Follow Me on Twitter @harrydentjr