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Tired of Paying Taxes? Move Your Business to Puerto Rico

Tom.V

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Are you living in the US?
Sick and tired of paying obscene corporate, dividend, capital gains, and personal taxes?
Do you like warm weather, beautiful beaches, and beautiful women?



You might want to look into Puerto Rico.

IMG_20190407_154622.jpg

But let’s back up.


It was about a year or so ago I really started getting serious about tax strategies for my business as I have some pretty big goals and wanted to ensure I’m getting the most bang for my buck if I’m committing several years to a venture. After a conversation with @GlobalWealth at the 2018 Fastlane Summit I was introduced to the idea of Panama.


So I started researching. I read all that I could on Panama and other nations out there with favorable tax laws in terms of crypto since at the time I was trading pretty heavily. I also came across Andrew Henderson’s book Nomad Capitalist which was eye-opening to the potential strategies one could utilize by getting passports in different countries around the world.


At the time I was just getting my agency off the ground and had a few clients, but was still a long way off from really being able to benefit from any of these long term strategies that required renouncing US citizenship and the Foreign Earned Income Exclusion (FEIE) was only good up to $100k. I was left with the burning question:


What can I do right now to either completely eliminate or significantly reduce my tax burden on my rapidly growing company?


About a year ago I was on a call with @million$$$smile when I started talking about my plan to move to Panama which would still take 5-10 years to get a passport, but could still qualify for FEIE during that time. He had mentioned Act 20 & Act 22 and I had looked into it, but for some reason it didn’t quite click. Maybe I was too dumb at the time to realize just how valuable that little nugget of insight really was.


Continuing on the path of my original plan to move to Panama, I was supposed to take the leap back in October, just in time for my 29th birthday. I wussed out. I ended up blowing a ton of money getting a 3bd townhouse setup in Raleigh to run my business out of. Then the employee that I orchestrated that setup for bailed. Then I was just paying $1900/mo for an empty place. Granted, it was a nice place. But WTF was I really thinking?


Fast forward to around February of 2019. I owed taxes and I just made it out of a brutal bought of seasonal depression. Something about the cold weather and darkness don’t mix well with me. It was time. I was going to move to Panama, through hell or high water.



It was also around this time I had the chance to see a bunch of my Fastlane friends. After many drunken and sober conversations I believe it was @GIlman who had mentioned Puerto Rico again in passing. But it stuck this time. I immediately started pouring through the articles and of course, my business was a perfect fit for Act 20. And I’ll get to the specifics of it here in a moment.


The original plan was to move to Medellin with @RayAndré & @UnrealCreative for 60 days or so until our visas ran out, then make my maiden voyage to Panama. After discovering the incredible incentives in Puerto Rico, that plan changed a bit. Instead, the 3 of us all moved straight to Puerto Rico in early March.


And would I do it again? In a heartbeat.


The other Act 20/22 people here say we’re still in the honeymoon phase, but it has been nothing but adventure and fun times since arriving. At this point in time, I feel like I’m exactly where I need to be both on a personal and business level.


Now, let’s start getting into the specifics of Act 20/22 and why people REALLY move here. Don’t get me wrong, the beaches, the lifestyle, the people, the island vibe, it’s all amazing. It’s literally the icing on the cake. But the tax incentives, that’s something special.


Move a business to the island and pay only 4% in tax, move yourself to Puerto Rico and pay zero in capital gains, set up a bank or hedge fund and pay only 4% tax, etc. The list of tax incentives in Puerto Rico has become very impressive.


If you run an online service business or have a high net-worth, there is no better place to be if you’re a US citizen. And only Puerto Rico can offer you these tax incentives. We US citizens are taxed on our worldwide income. The ONLY exception to this is residents of the US territory of Puerto Rico.




Act 20/22 Summary:

Act 20 Benefits:

  • 4% corporate tax

  • Tax credit for hiring Puerto Rico residents

  • You can pay yourself in dividends at a 0% tax rate.

  • Exempt from Federal taxes.

  • You get to live in Puerto Rico

Act 20 Requirements:
  • You must maintain Closer Connection in PR which essentially means ditching ties to the mainland.
    • This translates to closing US business bank accounts, setting up PR bank accounts, among a long laundry list of other criteria which must be met.

    • Rent or own property here.

    • Get PR Drivers license

    • Get registered to vote
  • You must pass the physical presence test and be on the island for half of the year.

  • Create a new entity in PR and have all of your income sourced outside of PR.

  • There is no employee requirement currently for Act 20 companies, however if you leave the island you will want to have an employee on the island to “source” the income.

  • You must pay yourself a reasonable salary from your company which is taxed at normal Puerto Rico tax rate (pretty high)


Act 22 Benefits:
  • 0% capital gains tax

Act 22 Requirements:

  • $5000 to Puerto Rico gov’t.

  • $5000 annual donation to charity in Puerto Rico.

  • Basically the same requirements as Act 20 as far as closer connection and being a bona fide PR resident.


There are other acts that you may be able to benefit from, take a look here for a comprehensive overview: A Detailed Analysis of Puerto Rico’s Tax Incentive Programs - Premier Offshore Company Services


I had someone that came highly recommended to me setup my structure and guide me in the right direction for my business, but happy to answer any other questions outside of the filing of the paperwork as best I can.
 

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Scot

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Very cool write up! I saw you moved to PR, but didn't know much on the reasons. Now it makes sense why guys like John Lee Dumas from EOFire moved to PR.

And @UnrealCreative I had no idea you bounced to PR too.
 

million$$$smile

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@Tom.V, great writeup. Now that you're down there, is the hourly pay scale similar to most of the US or ?

And are you going to create your own charity?
I mean, if you are going to donate anyhow, why not create your own?
 

rogainer

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Thanks for sharing Tom. Me and the girl are wondering where to live next. Beach would be nice. Tempting!
 
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Tom.V

Tom.V

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Very cool write up! I saw you moved to PR, but didn't know much on the reasons. Now it makes sense why guys like John Lee Dumas from EOFire moved to PR.

And @UnrealCreative I had no idea you bounced to PR too.
Yeah, the incentives are pretty incredible. There's a flood of new people coming to the island almost all the time from what I have heard on multiple fronts.

@Tom.V, great writeup. Now that you're down there, is the hourly pay scale similar to most of the US or ?

And are you going to create your own charity?
I mean, if you are going to donate anyhow, why not create your own?
Here you do have minimum wage. But from what I've been told from several people here is it's around 30% less than what you would expect to pay on the mainland. I've heard mixed reviews about the labor force here, but my first hire on the island has been amazing. Working on getting some office space here soon.

On the charity front, it is on my list. I actually recently found out about a unique business structure that is essentially a for-profit/non-profit hybrid that I'll be getting more info on, but I don't think it's eligible for Act 20. I've wanted to open up a non-profit for some time, and this may just be a good enough reason to do so. I have some friends that have gone through the process here so I have a wealth of information all around.

I haven't done my Act 22 setup yet either, but I may be doing it sooner than anticipated after a phone call tomorrow.
 

lludwig

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I've considered doing this as my next venture.

Can you tell me any pitfalls or issues you've had doing this? Where did you move from in the US? What are things you like about PR? What do you hate about PR?
 

Kak

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Thread watched. Very cool @Tom.V rep to you.
 

El_Johnson23

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Great thread; it's nice to have a purely business-perspective of Puerto Rico. I hear many high-rolling businessmen 'live' there while having offices in other States.

Word of caution though, do not get involved with the local government in any way, shape or form apart from what is essentially necessary for you business. I'm a PR expat who left in 2011 and have been invited several times to go back and work on projects but have declined. Bet the DMV (CESCO) day trips are still a blast.
 
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Tom.V

Tom.V

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I've considered doing this as my next venture.

Can you tell me any pitfalls or issues you've had doing this? Where did you move from in the US? What are things you like about PR? What do you hate about PR?
Puerto Rico is just a different place.

I moved from Raleigh, NC. From the south to el Caribe. It was a welcomed culture shock IMO. I had been practicing my Spanish for some time prior and heavily researched the area before jumping. Now I feel perfectly at home.

I love the networking down here. Everyone I meet is either someone making moves, or knows people who are. I've made more valuable connections here in the past 30 days than I ever have in my life. From a business perspective, it's a game changer. And most of them are my neighbors. San Juan isn't that big of a place and here in Condado, everyone knows everyone.

The list of things I like about this place goes on and on. The fact I get to wake up every morning to nice 80-90 degree weather with perpetual sunshine and get to look out across the Caribbean ocean just kicks a$$. Everyone here is super friendly, both the locals and expats. It's just a cool place to live and work.

IMG_20190317_134001.jpg


As for the cons:

Everything is slow, people drive like shit, San Juan can be pretty sketch at times, everything is expensive (except drinks if you avoid the tourist traps), and everything is overly complicated for the most part. Just this morning about a block away from our place a guy was robbed at gunpoint for his watch and ring at 5:30 in the morning when he was walking his dog. I had run across that same spot just a few hours prior.

A few weeks back a guy was carjacked around 6 in the morning by a guy with a freaking axe. How that actually happened is still beyond my comprehension. This place is wild, but it just adds to the character if you ask me. Every day is exciting which makes getting bored quite difficult.

That said, I'll be here for a while so long as there are no natural disasters that change that plan.

Great thread; it's nice to have a purely business-perspective of Puerto Rico. I hear many high-rolling businessmen 'live' there while having offices in other States.

Word of caution though, do not get involved with the local government in any way, shape or form apart from what is essentially necessary for you business. I'm a PR expat who left in 2011 and have been invited several times to go back and work on projects but have declined. Bet the DMV (CESCO) day trips are still a blast.
On the business side, there is more that I learn literally every day. The more Act 20/22 people I speak with, or the lawyers, or the law makers, the more I learn about all of it.

I have no intentions of getting involved with the government at this point in time outside of networking. I haven't gone to the DMV nor will I have to. There's an expedited service here in Condado where you can skip that step :)

There are many concierge services to skip the waits and time expense of sitting around in line if you've got the dough to grease some palms. If anyone decides to make the jump, just let me know and I'll point you in the right direction.
 

El_Johnson23

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Puerto Rico is just a different place.

I moved from Raleigh, NC. From the south to el Caribe. It was a welcomed culture shock IMO. I had been practicing my Spanish for some time prior and heavily researched the area before jumping. Now I feel perfectly at home.

I love the networking down here. Everyone I meet is either someone making moves, or knows people who are. I've made more valuable connections here in the past 30 days than I ever have in my life. From a business perspective, it's a game changer. And most of them are my neighbors. San Juan isn't that big of a place and here in Condado, everyone knows everyone.

The list of things I like about this place goes on and on. The fact I get to wake up every morning to nice 80-90 degree weather with perpetual sunshine and get to look out across the Caribbean ocean just kicks a$$. Everyone here is super friendly, both the locals and expats. It's just a cool place to live and work.

View attachment 24558


As for the cons:

Everything is slow, people drive like shit, San Juan can be pretty sketch at times, everything is expensive (except drinks if you avoid the tourist traps), and everything is overly complicated for the most part. Just this morning about a block away from our place a guy was robbed at gunpoint for his watch and ring at 5:30 in the morning when he was walking his dog. I had run across that same spot just a few hours prior.

A few weeks back a guy was carjacked around 6 in the morning by a guy with a freaking axe. How that actually happened is still beyond my comprehension. This place is wild, but it just adds to the character if you ask me. Every day is exciting which makes getting bored quite difficult.

That said, I'll be here for a while so long as there are no natural disasters that change that plan.


On the business side, there is more that I learn literally every day. The more Act 20/22 people I speak with, or the lawyers, or the law makers, the more I learn about all of it.

I have no intentions of getting involved with the government at this point in time outside of networking. I haven't gone to the DMV nor will I have to. There's an expedited service here in Condado where you can skip that step :)

There are many concierge services to skip the waits and time expense of sitting around in line if you've got the dough to grease some palms. If anyone decides to make the jump, just let me know and I'll point you in the right direction.
Nice! Having as many buffers you can between yourself and the local grind is excellent. Last time I went back (early 2018), there was an ever-growing concentration of US CEO's establishing themselves on the west side of the island (Rincon). This has been the case for decades, but the numbers have skyrocketed since they passed laws 20 & 22.
Keep it up and best of luck, I'll be following your progress thread on the Inside :thumbsup:
 

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Jake R

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Hey I appreciate this thread!
Let me throw this out there and see if anyone has some ideas. I do Ecommerce and am about to sell the biz. The business -S corp, was started in the US but since I have other LLCs my accountant said I should make a limited partnership and put the S corp and myself as limited partners and all the LLCs underneath. Moving the biz/myself to Puerto Rico is a good option for me, especially in the next few years since I'd like to buy up small ecommerce businesses and grow & sell them which would have quite a bit of capital gains.

My question is this: if I form the partnership in PR am i still allowed to have LLCs under it that are based in the US? There would only be one tax filing at the parent level.
Second question: if I form the PR biz before I sell my current ecommerce biz and the S corp is under the PR biz (parent) then would I have to pay capital gains? Of course, I'd have to follow the PR regulations of living in PR and all that.
I'm going to consult with an attorney and accountant but I'd love to hear others' experience with PR and how it's going regardless.
 
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Tom.V

Tom.V

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Hey I appreciate this thread!
Let me throw this out there and see if anyone has some ideas. I do Ecommerce and am about to sell the biz. The business -S corp, was started in the US but since I have other LLCs my accountant said I should make a limited partnership and put the S corp and myself as limited partners and all the LLCs underneath. Moving the biz/myself to Puerto Rico is a good option for me, especially in the next few years since I'd like to buy up small ecommerce businesses and grow & sell them which would have quite a bit of capital gains.

My question is this: if I form the partnership in PR am i still allowed to have LLCs under it that are based in the US? There would only be one tax filing at the parent level.
Second question: if I form the PR biz before I sell my current ecommerce biz and the S corp is under the PR biz (parent) then would I have to pay capital gains? Of course, I'd have to follow the PR regulations of living in PR and all that.
I'm going to consult with an attorney and accountant but I'd love to hear others' experience with PR and how it's going regardless.
For the first part as an Act 20, hard to say as your setup would have to be in line with the language on the decree. Sounds messy and may not be doable. I'd consult with a pro.

For the second part yes you would still pay capital gains based on pro-rata. How long the business existed and operated prior to being moved to PR. So not much benefit on that business. But for any new ventures or ones you plan to move to the island then sell after some time the benefit is massive.

Also worth noting is there is a tax code overhaul occurring right now that is about 550 pages and will have significant changes to act 20 and 22. Changes such as reinstatement of employee requirements for act 20 and higher annual charitable donations plus real estate ownership requirements for act 22, among other things. Long story short is the incentives are still there, but for anyone taking advantage of them after tomorrow there will be different rules to abide by versus those who applied today.
 
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Jake R

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For the first part as an Act 20, hard to say as your setup would have to be in line with the language on the decree. Sounds messy and may not be doable. I'd consult with a pro.

For the second part yes you would still pay capital gains based on pro-rata. How long the business existed and operated prior to being moved to PR. So not much benefit on that business. But for any new ventures or ones you plan to move to the island then sell after some time the benefit is massive.

Also worth noting is there is a tax code overhaul occurring right now that is about 550 pages and will have significant changes to act 20 and 22. Changes such as reinstatement of employee requirements for act 20 and higher annual charitable donations plus real estate ownership requirements for act 22, among other things. Long story short is the incentives are still there, but for anyone taking advantage of them after tomorrow there will be different rules to abide by versus those who applied today.
Hey thanks, Tom. I appreciate it. Yes it does sound messy but if I can avoid capital gains then I'll jump through the hoops available.

I'm curious about the changes you mentioned. I just did some searching and haven't found anything solid yet. Are these proposed in upcoming months or more like weeks?

Also, do you have anyone you recommend to help set this up and is it required to be on the island during the setup process or only for half the year to meet the requirements?
Thanks!
 

Kak

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@Tom.V

How is Puerto Rico treating you?

I am considering the possibility of this move eventually. Seems like the right move for any US citizen that owns a modern company that is less limited by borders than ever.
 

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