Friday, May 9, 2014

Is Puerto Rico the Perfect Tax Haven for US Citizens? Part 2

Nick Giambruno, who is a senior editor at Doug Casey's International Man, emails with a follow up to Is Puerto Rico the Perfect Tax Haven for US Citizens?:

A couple of my Casey Research colleagues have actually moved to Puerto Rico to obtain these benefits. So I thought I would offer my two cents on a couple of points. 

1. Dividends and interest are really only eligible for the tax benefits if they come from Puerto Rican sources, like a CD at a Puerto Rican bank or a dividend from a Puerto Rican corporation. Otherwise the source of interest and dividends is generally where the payer is located (see chart below from the IRS and page 7 here.) So if there is a US based stock listed on the NYSE and it pays your a dividend while you are a resident in PR, that dividend is not considered PR sourced income and therefore is not eligible for the benefits. 

Capital gains are a whole different animal however, and they are generally determined by where your residence is. So capital gains is where the real benefit is for the PR tax incentives for individuals. If you were to purchase a US stock with your US brokerage account, or a gold coin, and realize a capital gain while a PR resident, that gain would qualify as PR sourced income and thus would be eligible for the benefits.

2. That $70 billion debt figure that is commonly quoted is not the federal debt of Puerto Rico, it is the combined federal, local, and municipal and other obligations. If you were to take that and total that up for all the states in the United States and add them to the US federal debt, you’d be far worse off than Puerto Rico is. Puerto Rico has debt problems, but they’re not dire.

3. As for the crime rate it is true that it is high in certain areas like all large cities, but it would be a mistake to extrapolate that for the entire island. Memphis, Tennessee has about the same crime rate as San Juan, Puerto Rico. Do you hear anybody warning you against moving to Memphis? And would Memphis’ crime rate stop anybody from moving to greater Tennessee?

4. The US federal government certainly could end the Puerto Rican tax incentives. But we believe that is highly unlikely for the foreseeable future for a number of reasons we detail here

1 comment:

  1. (1) All the while, the local businesses get squeezed tax-wise.
    (2) That calculation is interesting. How does that translate on a per capita basis? Is there source where I can look at the numbers?
    (3) The big difference is that you can get in your car and drive out of Memphis or to another State.
    (4) Yep. Depending on daddy's generosity.

    If you care about participating in the Federal elections, once you become a resident in Puerto Rico, you no longer can vote.