This Is The New Puerto Rican Law That's Making Wealthy People Want To Move There To Avoid Taxes

[Joel thakkar]

Source: Business Insider

On January 17, 2012, Puerto Rico enacted Act 22 (a.k.a. "The Act to Promote the Transfer of Investors to Puerto Rico&quot .

According to AMGPR Law, the basic premise of the act is to incentivize people who are not already residents of Puerto Rico to become residents.

To incentivize them, the acts exempts these individuals who become residents from income tax on their interest and dividend income and certain long term capital gains from the sale or exchange of securities, the newsletter states.

The idea behind the acts is that by having these individuals become residents it will help Puerto Rico's economy through real estate investments and consumption of their local products/services.


Read more: http://www.businessinsider.com/puerto-rico-tax-law-act-22-2013-3

[hobbit709]

1. Sure it will help the economy by not paying for government services.

[SunSeeker]

2. How can Puerto Rico exempt residents from federal income tax?

"According to Bloomberg News, the new law makes it so new residents pay no local or U.S. federal taxes on capital gains."

I can see them having the power to exempt them from state and local, but not federal. This is crazy. Talk about race to the bottom!

Well, they've gotten 10 hedge fund billionaires to "move" there, i.e. set up a shell homestead, like the shell corporate domiciles in the Caymans that consist of a P.O. Box. Hope Puerto Rico is keeping track of how much these "wealth producers" and spent on the local economy. I am guessing it will be minimal. Rich people like to hang out in places like New York City and Newport Beach, not places like Puerto Rico where they and their families can get kidnapped because there is no police or infrastructure...because there are no taxes to pay for them.

[Morganfleeman]

3. IRS Rules

http://www.irs.gov/taxtopics/tc901.html

"In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are only required to file a U.S. federal income tax return if they have income from sources outside of Puerto Rico or if they are employees of the U.S. government. Bona fide residents of Puerto Rico generally do not report income received from sources within Puerto Rico on their U.S. income tax return. However, they should report all income received from sources outside Puerto Rico on their U.S. income tax return. Residents of Puerto Rico who are employed by the government of the United States or who are members of the armed forces of the United States also should report all income received for their services to the government of the United States on their U.S. income tax return.

[SunSeeker]

11. All the people they are seeking to attract get their income from outside Puerto Rico.

So is this new law nullifying that IRS rule? I don't see how Puerto Rico can exempt those folks from federal income tax on earnings outside Puerto Rico.

[Bacchus4.0]

4. residents of Puerto Rico do NOT pay federal income taxes

they pay the payroll tax (Social Security) and medicare I believe but NOT federal income tax. Now whether this new law will bring investment, I do not know. Puerto Rico has a commonwealth income tax AND a commonwealth sales tax.

[SunSeeker]

16. What about IRS rules requiring PR residents pay US federal income tax on income earned outside PR?

Which in the billionaires' case is all their income. This could explain why only 10 wealthy people have taken PR up on their offer....

[AngryAmish]

8. In the mid 18th century some of the North American colonies of Britain

did not like the fact that they had to pay taxes to the Crown yet were not given seats in Parliament. Among the many mottos of these disagreeable colonists was "No taxation without representation." Some of these colonies banded together and formed what came to be known as the United States of America after defeating Great Britain in a war that came to be known as the American War for Independence.

In the late 19th century this republic of the United States fought a war against the Kingdom of Spain which had a colony in the Caribbean with the unfortunate name of Puerto Rico. The United States won this war (commonly known as the Spanish-American War) and the U.S. kept Puerto Rico as a colony. Over time the US kept Puerto Rico to keep a naval base to guard the Panama Canal. The US calls Puerto Rico a Commonwealth, but Puerto Rico's citizens cannot have a voting voice in the US's legislature. So to keep everything cricket6, the US does not force Puerto Ricans to pay national income tax - to prevent Puerto Ricans from crying "No taxation without Representation."

Seeing as how the US does not own the Panama Canal anymore or even maintain a naval base in Puerto Rico, isn't it high time the US was out of Puerto Rico?

[Bacchus4.0]

9. PR just had a referendum where the majority voted for statehood

that being done, the US congress will not accept PR as a state. Offering them independence instead would be a fair option.

[SunSeeker]

12. Seems the billionaires would still have to pay on income earned outside PR.

Which is all their income. So why would they move there if that is the case?

[MADem]

13. They pay taxes to Puerto Rico instead--it's like not allowing double jeopardy, as it were.

I have relatives who live there. Very different place in terms of taxes and voting!

[SunSeeker]

15. Do they earn their income outside Puerto Rico?

As pointed out by someone up the thread, IRS rules still require that you pay U.S. federal income tax on income earned outside Puerto Rico. And I imagine all of the people Puerto Rico is seeking to attract earn their income from outside Puerto Rico.

[MADem]

18. Not my family--they aren't One Percenters....but it will be interesting to see what

constitutes "earning income OUTSIDE" PR, in terms of PR law.

Example: Some rich basstid has zillions invested in XYZ Corp and makes a hefty chunk of cash from the dividends. If he's 'living' (i.e. residing, ordinarily resident, that's his home of record) in PR, does that mean that he "earned" his dividends there? After all, if the money comes to you while you're enjoying the warm breezes and a Barcardi in your back yard, did you not make that dough "in" PR?

They are quite capable of torturing language and mangling justifications, there--as are many other places in this crazy world...!

[SunSeeker]

20. I guess the law depends on how much money you have for lawyers. nt

[bamacrat]

5. And they want to be a state...

[eggplant]

6. And this is an incentive for the US to grant then statehood. n/t

[MADem]

14. No, they don't. There are plenty of people who like the existing Commonwealth status.

Or something similar.

Those stories that said people wanted statehood were untrue--the ballot was constructed in such a way that it created a false impression.

http://www.huffingtonpost.com/bennett-l-gershman/puerto-rico-statehood_b_2118727.html

However, a fair reading of the referendum results shows clearly that the headlines proclaiming that a majority of Puerto Ricans support statehood are misleading and erroneous, and certainly promote considerable cynicism regarding Puerto Rico's political process. Indeed, the votes of nearly half a million voters who did not support statehood were not counted. These voters deliberately left blank the second part of the ballot, in effect stating that they preferred a fourth option to the three options listed on the ballot. These voters likely would have supported a fourth option, choosing some form of commonwealth status similar to the current arrangement, but since this option did not appear on the ballot, would have checked a box marked "other" if such a ballot option was available, which it was not. The absence of this fourth option, and the reason for its omission, explain why the official results of this referendum are spurious, and certainly do not support the dramatic headlines proclaiming Puerto Rico's approval of statehood.

[EC]

7. Unless they require actual

people physically being there living in a residence...they'll just buy post office boxes for an address. But I'll bet a lot of the rich won't like living in Puerto Rico.

[Douglas Carpenter]

10. I suspect that they have the same rule as the Northern Marianas that requires a minimum of 180

days of provable physically presence in the territory in order to qualify as residence for tax purposes. The Northern Marianas have had similar rules all along and do attract a small handful of multi-millionaires - but not enough to promote that much real investment in the Islands during periods of economic downturn.

[closeupready]

17. If you keep your US citizenship, you have to pay federal taxes.

You could live on Mars, yet you'd still be obligated to pay US federal taxes.

[MADem]

19. Residents of Puerto Rico ARE US citizens--and some don't pay "personal" federal income tax, quite

often: http://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico

Though the Commonwealth government has its own tax laws, Puerto Ricans are also required to pay most U.S. federal taxes,[1][2][3][4][5][6][7][8] with the major exception being that some residents do not have to pay the federal personal income tax. In 2009, Puerto Rico paid $3.742 billion into the US Treasury.[9] Residents of Puerto Rico pay into Social Security, and are thus eligible for Social Security benefits upon retirement. However, they are excluded from the Supplemental Security Income (SSI), and the island actually receives a small fraction of the Medicaid funding it would receive if it were a U.S. state.[10] Also, Medicare providers receive less-than-full state-like reimbursements for services rendered to beneficiaries in Puerto Rico, even though the latter paid fully into the system.[11]

The federal taxes paid by Puerto Rico residents include import/export taxes,[12] Federal commodity taxes,[13] social security taxes,[14] among others. Residents also pay Federal payroll taxes, such as Social Security[15] and Medicare taxes.[16]

Only certain Puerto Ricans are required to file federal income tax forms. According to the Internal Revenue Service:

In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are only required to file a U.S. federal income tax return if they have income sources outside of Puerto Rico or if they are employees of the U.S. government. Bona fide residents of Puerto Rico generally do not report income received from sources within Puerto Rico on their U.S. income tax return. However, they should report all income received from sources outside Puerto Rico on their U.S. income tax return. Residents of Puerto Rico who are employed by the government of the United States or who are members of the armed forces of the United States also should report all income received for their services to the government of the United States on their U. S. income tax return.
United States citizens or resident aliens who are not bona fide residents of Puerto Rico during the entire tax year are required to report all income from whatever source derived on their U.S. income tax return. However, a U.S. citizen who changes residence from Puerto Rico to the United States and who was a bona fide resident of Puerto Rico at least two years before changing residence can exclude from U.S. taxable income the Puerto Rican source income received while residing in Puerto Rico during the taxable year of such change of residence.

[Evasporque]

21. The Story of rich guy A and his holdings in companies B and C in the US....

Rich guy A moves to PR...
(Rich guy has high percentage of holdings in company B and C)

his buddies at home spin off a holding company D in PR or other island tax haven for company B

Company C does the same creating company F

Company D and F create a bunch of "store fronts"...companies that do nothing.


Rich guy A pulls large amounts of funds from various investments including stocks from company B and C....invests this money in company D and F

Rich guy now just put his money back and gets to collect income tax free, kicks back a little to his buddies. Some of who are congressmen.