[jariel]

Quote:

NEW YORK (MarketWatch) –— John Paulson is expected to expand his investment in Puerto Rico to $1 billion by the end of next year, as the hedge fund titan leads a growing brigade of wealthy U.S. business owners who are taking advantage of the languishing island’s efforts to transform itself into a tax haven.

The Paulson & Co. founder, estimated to be worth $11 billion, is headlining an invitation-only summit in San Juan, Puerto Rico, on Thursday to discuss two new tax laws that provide generous dividend and capital gains tax breaks for individuals willing to relocate their businesses to the tropical island, according to Puerto Rico officials.

For their part, the commonwealth’s political leaders are hoping the tax-breaks will attract businesses that can help jump-start Puerto Rico’s ailing economy, which is suffering from high unemployment rates and a declining population.

The tiny island is grappling with a debt burden of roughly $70 billion, and many municipal credit analysts see a broader economic revival in Puerto Rico as key to making good on that debt.

Paulson has already invested $260 million this year to create two high-end luxury resorts in San Juan’s Condado district. That follows investments last year in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Gold Club.

The government expects Paulson to invest a total of $1 billion in Puerto Rico by 2015. Paulson’s firm had no comment.

“Get on a plane now, and business class is filled with representatives from Blackstone, Goldman, DE Shaw, and every private equity firm I know,” said Nicholas Prouty, president of Putnam Bridge on the new interest in Puerto Rico from Wall Street’s elite.

Putnam Bridge Investments is expected to invest $200 million in Puerto Rico this year, according to the government.

A LOW-COST BASE

“What we are trying to achieve here is a second transformation with the Puerto Rico economy,” said Alberto Baco, the Puerto Rican secretary of economic development and commerce.

More than 150 companies are already looking to move their offices to Puerto Rico to take advantage of the new tax laws, and the government is expecting more than 300 applicants this year. Officials are expecting the move to create 90,000 jobs by 2016 and to add up to $7 billion to the island’s GDP.

“The cost of doing business is low, the cost of hiring local labor is lower,” said Peter Schiff, owner of Euro Pacific Asset Management .“And if I need to move employees form the mainland it’s easier, I don’t have to worry about visa issues.”

Schiff recently relocated his firm from California to Puerto Rico and is establishing his main office in the capital, San Juan.

“It’s been pretty nice here, the Puerto Rican people are very, very friendly and we have enjoyed that,” said Jim Nelson, a member of Schiff’s team. “The weather is excellent, it’s 80-85 degrees constantly.”

So what kind of savings is Euro Pacific experiencing?

While the investment broker wouldn’t give specifics, the savings are substantial and they will become more significant over time, he said. Schiff plans to eventually move to Puerto Rico himself and has already bought property there.

WOOING THE RICH

The two laws the government is actively promoting are Act 20 and Act 22., both of which were created in 2008. The laws aim to promote the export of services from the Caribbean island and to encourage the ‘import’ of wealthy individuals.

Act 20 seeks to incentivize businesses to come to Puerto Rico by taxing companies at a flat 4% on earnings, as well as offering them 100% tax exemption on dividends or profit distributions from export services. To qualify, a company has to employ at least 3 people.

Act 22 is the real gold mine, said Alex Daley of Casey Research, who commissioned a report called “Puerto Rico’s New Tax Advantages”, after moving to the island to take advantage of the new incentives.

“This is mostly geared towards U.S. citizens,” said Prouty. “It lets them take advantage of a new tax system.”

A citizen or green card-holder living outside the U.S is still subject to U.S. tax laws. But Puerto Rico has a unique status as a U.S. commonwealth. Residents are considered U.S. citizens, but are subject to different tax laws, which offers Americans from the mainland a window.

The act also exempts businesses from taxes on dividends and capital gains, a huge incentive for hedge funds, asset managers and traders who earn a lot of their income that way , said Daley.

“Taxes on capital gains are based wherever the investor is based,” said Daley. “If you are a trader or a venture capitalist and invest and recognize your capital gains – you don’t pay taxes if you get those tax exemptions.”

RECESSION YEARS

Puerto Rico, which has about 3.5 million residents today, went through its first transformation back in the 1950s, when the island developed a huge manufacturing base.

That helped it develop needed infrastructure and boosted economic growth. Since then, however, its fortunes have faded. The island has been mired in recession for the past eight years.

The government recently sold $3.5 billion of new municipal bonds in an effort to replenish its coffers and service its outstanding municipal debt burden. Bond investors are divided on whether the island will eventually have to go through some kind of restructuring.

The country needs to take measures to increase tax revenues, and also create more incentives to bring people to the island and retain them, according to experts.

“Puerto Rico is suffering from a major migration from the island,” said Dan Heckman, senior fixed income strategist at the wealth management division of U.S. Bank. “They have more deaths and decreasing births, so they have been going through a (period of) depopulating.”

In 2013, Puerto Rico received 155 applications from companies seeking to move offices to the island. In 2014, the government is expecting about 360 applications.

For many companies, the tax incentive is too good to pass up.

“Strictly speaking that was a tax motivation, I was looking at Singapore or Ireland,” said Schiff, who has other businesses, alongside his brokerage. “The corporate tax rate is 4% which compares favorably to Singapore and Ireland.”

ISLAND TIME

What’s more, Puerto Rico is a lot closer to the mainland U.S., and for half the year is on East Coast time, he said.

“It’s like moving to Florida, but there is no federal income tax,” said Schiff.

Nelson, who moved to Puerto Rico six weeks ago with his wife and young child, acknowledged there are challenges.

“Obviously there are some sacrifices involved, like moving away from your family and there are some things you have to get used to — so-called Island Time — where things move slower,” said Nelson.

“It’s hard to find some groceries, different types of spices, and there’s not a lot of organic foods,” said Nelson. “And there are fewer restaurants.”

There’s also the cost of transferring your business, which includes various exit taxes.

“It’s not a simple rule,” said Nelson. “It’s takes quite a bit of time to get through the process from a legal and compliance standpoint.”

However, his boss says he’d rather pay less tax so that he can reinvest the money he saved back into the business to help it grow.

“If I moved to Singapore or Ireland, I would pay U.S. dividend tax,” said Schiff. “No other country treats its citizens as horribly as the U.S. does. If you are a citizen anywhere else and work outside that country, you are not expected to pay taxes to your country.”

http://www.marketwatch.com/story/puerto-...eid=yhoof2

[worldwidetraveler]

Thanks for posting that Jariel.

Corp tax is 4%, no tax on dividends or capital gains if you are a resident. I think the personal income tax is like 33% or so.

I have been doing some research on it and it seems like a good option for us Americans. It is probably the only tax haven we have as Americans.

We do need to be a resident.

From my research we need to break ties to the the US mainland. Our personal residence needs to be in Puerto Rico, we should get our drivers license there, banking, voting registration...

If you have kids and a wife they need to relocate as well. I don't think most here have that problem. hah

Supposedly we are to live there for 183 days. It sounds like even less is doable as long as we don't have any ties to the US mainland. If your own Puerto Rican company set up a shop somewhere, like Colombia, the residency period may be waived. It is something to ask your attorney.

It looks like Microsoft has been routing their sales for this region through Puerto Rico for a lower tax rate.

It is definitely something for those that are making over the Foreign Income Exclusion amount to think about.

[Basil Ransom]

I talked to a guy in pharmaceuticals, and he said all the big pharmaceuticals are pulling out because the government is refusing to renew their low tax rates. Plus crime and corruption on the island are high and not getting any lower. This man had been flying there on a regular basis. Now he's going to Ireland for his pharma work.

No personal experience of my own. I'd caution against making any decisions on the basis of comments from keyboard jockeys, i.e. people without real experience in the matter.

[worldwidetraveler]

(04-22-2014 06:13 PM)Basil Ransom Wrote:  

I talked to a guy in pharmaceuticals, and he said all the big pharmaceuticals are pulling out because the government is refusing to renew their low tax rates. Plus crime and corruption on the island are high and not getting any lower. This man had been flying there on a regular basis. Now he's going to Ireland for his pharma work.

That is strange. Based on the stuff I read you can lock in that tax rate until 2035.

The biggest issue was whether they would be added as a state. It doesn't sound like it will happen. They will end up losing more money from companies relocating due to the same federal tax rates than they would get from being a state.

Quote:

No personal experience of my own. I'd caution against making any decisions on the basis of comments from keyboard jockeys, i.e. people without real experience in the matter.

Indeed, but it warrants research (attorney) and taking a trip.

[Tommy Eyes]

The best way to play this is to move there if you plan on eventually renouncing US citizenship. Say you buy citizenship, or get a second citizenship via ancestry. It may take a year or so to settle your affairs. In addition, in order to renounce you have to pay the USG an exit tax on any unrealized gains. So, in order to avoid paying those cap gains taxes, establish residency in Puerto Rico, sell the assets, and use Act 22 to avoid the tax (US allows you to avoid US taxes ONLY if you live in a US territory, and PR's Act 22 waives all cap gains taxes). Renounce US citizenship, and get the hell outta Puerto Rico. Free of FATCA and CBT, you can be a perpetual traveler (if countries start giving you the stink eye when you have no fixed address and you enter their countries with a St. Kitts passport, establish residency somewhere)


Other than that, you're risking being at ground zero for the first SHTF scenario on US territory.

[Drazen]

Its kind of funny that Schiff is the main example for this article. He's pretty anti-US when it comes to the policies of the government (and is a good listen for the most part). I've got to start listening to his podcast more again to see what he says about this all.

[worldwidetraveler]

(04-22-2014 06:18 PM)Tommy Eyes Wrote:  

The best way to play this is to move there if you plan on eventually renouncing US citizenship. Say you buy citizenship, or get a second citizenship via ancestry. It may take a year or so to settle your affairs. In addition, in order to renounce you have to pay the USG an exit tax on any unrealized gains. So, in order to avoid paying those cap gains taxes, establish residency in Puerto Rico, sell the assets, and use Act 22 to avoid the tax (US allows you to avoid US taxes ONLY if you live in a US territory, and PR's Act 22 waives all cap gains taxes).


Other than that, you're risking being at ground zero for the first SHTF scenario on US territory.

Edited: Sorry, I misunderstood the post. Good plan for renouncing.

[Oaktree]

I thought about PR at one time years ago when similar tax incentives existed.

Then I went and spent time there.

A lot of crime problems even away from a big city. It's the first time that resort hotels would not allow me to visit their properties since I wasn't a registered guest. I couldn't even get close in most cases because there were guards stopping people on entrance roads.

Guard towers in the shopping malls.

Houses in the country with bars on the windows similar to what you would see in the inner cities of the U.S.

A lot of people don't speak English in a big city like San Juan. One of my earliest memories there was seeing fast food workers put up signs in English only at one of the major burger joints. Yet not one worker there could understand English.

The Spanish is heavily accented so if you are used to Mexican Spanish, it can be hard to understand.

The beaches aren't bad but not as nice as some in the eastern Caribbean. Definitely not as nice as eastern Mexico.

People are moderately friendly. Weather is good if you like warm weather.

There are a lot of drugs and a lot of people on welfare.

From a business point of view, it may be great. For quality of life, not so great.

[Jaydublin]

(04-22-2014 10:17 PM)Oaktree Wrote:  

Houses in the country with bars on the windows similar to what you would see in the inner cities of the U.S.

Pretty normal south of the USA, all the way to Argentina.

[Pete]

(04-22-2014 10:17 PM)Oaktree Wrote:  

I thought about PR at one time years ago when similar tax incentives existed.

Then I went and spent time there.

A lot of crime problems even away from a big city. It's the first time that resort hotels would not allow me to visit their properties since I wasn't a registered guest. I couldn't even get close in most cases because there were guards stopping people on entrance roads.

Guard towers in the shopping malls.

Houses in the country with bars on the windows similar to what you would see in the inner cities of the U.S.

A lot of people don't speak English in a big city like San Juan. One of my earliest memories there was seeing fast food workers put up signs in English only at one of the major burger joints. Yet not one worker there could understand English.

The Spanish is heavily accented so if you are used to Mexican Spanish, it can be hard to understand.

The beaches aren't bad but not as nice as some in the eastern Caribbean. Definitely not as nice as eastern Mexico.

People are moderately friendly. Weather is good if you like warm weather.

There are a lot of drugs and a lot of people on welfare.

From a business point of view, it may be great. For quality of life, not so great.

PR has one of the top ten beaches in the world. In fact, 3rd according to tripadvisor.

http://www.tripadvisor.com/TravelersChoi...nations-g1

Crime most of the time is related to drugs, which most of the time takes place in the "ghetto".

I don't understand what you mean about the resorts/hotels. I've never had that issue.

Most of the people I know speak english very well.

While I agree with some things you said (the welfare, people aren't as friendly as in other countries I've been). Some of the things you wrote seem somewhat exaggerated when compared to the reality.

[faznine15]

You're right it's a terrible place full of danger and killers.

Please don't come to Rincon and ruin my yearly January surf trip's cheap ass surfer rent, banana tree in the front yard, countless outdoor adventure spots, and georgeous beaches.


Seriously though it's a hell of a late safer than DC where I currently live. It's got it's shitty spots and pettty crime can be a problem if you're an idiot and leave shit lying out, but in all honesty it's no worse than any large US city.

Google CA to PR and you can read tons of "expat" blogs about people who've bailed on the mainland either for short term or long term.

It's not called the east coast hawaii for nothing.