Puerto Rico as a Residence?

[azsailor12]

Recently Puerto Rico changed their tax law, such that some forms of investment income- capital gains and dividends, would not be subject to Puerto Rico or US Federal tax. Sorry, I don't know all the details yet. This may make PR a better option than FL for retiree livaboards. My question: is anyone aware of a mail forwarding service(with street address) in PR? something like St. Brendan's Isle.

[FSMike]

Don't know about a mail forwarding service, but I rather doubt that Puerto Rico has the authority to alter anything the IRS does. If so, a whole lot of states would probably change things lol.

[denverd0n]

Agreed. I think you got bad information, azsailor. Puerto Rico is a territory of the United States. No law that they can pass can supersede a federal law.

[amytom]

But they're not a state. They do a lot of things there that would never fly on the mainland.

[skipmac]

I know that the status of PR is kind of weird. Not a state, not a colony, not independent, not totally dependent, but had assumed that residents paid income tax like the rest of us since they receive SS and many of the same benefits as residents on the mainland. But a little research I find this.

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.

So based on this, if you are a full time resident and all your income is derived in PR you don't have to pay federal income tax on the income. But as I read it, if you have income from outside PR which I would assume means capital gains, stock dividends that are taxable, etc from the mainland then you are still liable for IRS taxes.

[azsailor12]

My accountant is investigating the details, but the bottom line is that PR is not a state and different laws apply. Their economy is not doing so well and they have a huge deficit. They have changed their laws to encourage corporations and productive people with money to relocate there, hoping that it will create jobs.

A lot of other countries do similar things. In St. Kitts and Nevis, you can buy citizenship(passport) by making an investment in the country.

[azsailor12]

Thanks Skipmac. I'm thinking you would have to incorporate an investment company in PR to shift the source of income there.

[skipmac]

Originally Posted by azsailor12

My accountant is investigating the details, but the bottom line is that PR is not a state and different laws apply. Their economy is not doing so well and they have a huge deficit. They have changed their laws to encourage corporations and productive people with money to relocate there, hoping that it will create jobs.

A lot of other countries do similar things. In St. Kitts and Nevis, you can buy citizenship(passport) by making an investment in the country.

All true but PR still cannot pass any law that supersedes federal law. They can reduce state taxes, offer local incentives, etc but cannot offer an exemption from IRS taxes without the approval of the US government.

One example, pharmaceutical companies received tax breaks for setting up production and bringing jobs to PR but the break was under the federal IRS tax code, not based on tax breaks given by the government in PR.

[skipmac]

Originally Posted by azsailor12

Thanks Skipmac. I'm thinking you would have to incorporate an investment company in PR to shift the source of income there.

Excellent question and getting way beyond my job rating. If the company is based on PR but the investments are in companies outside PR is that local income or outside income? Definitely time to consult a tax expert.

My initial reading however, does lead me to believe that residence in PR is a critical part of the whole thing. If you maintained a residence in the US and just used a mail drop in PR I think you would be skating on very thin ice. If you did not own a home in the US at all, even if you cruised the states in a boat might be a safer bet.

[SmartMove]

FWIW when we were outfitting in Puerto Rico during the 2012 elections, they voted to apply for statehood at the time. I'm not sure what all is entailed in becoming a state, but they are heading down that path.

[denverd0n]

Originally Posted by SmartMove

FWIW when we were outfitting in Puerto Rico during the 2012 elections, they voted to apply for statehood at the time. I'm not sure what all is entailed in becoming a state, but they are heading down that path.

I wouldn't hold my breath. They have voted on the question of statehood many times over the course of many years. It is a fairly contentious issue in Puerto Rico. Some times statehood loses by a small margin, sometimes by a large margin, but so far it has always lost.

[tomfl]

Originally Posted by SmartMove

FWIW when we were outfitting in Puerto Rico during the 2012 elections, they voted to apply for statehood at the time. I'm not sure what all is entailed in becoming a state, but they are heading down that path.

Drugs are a huge part of the PR economy.

Lots of huge US drug companies are located there and produce their drugs there because of US income tax laws. The US tax code is thousands of pages long and changes every year but for what ever reason since PR is a commonwealth legally (what ever that means) they are taxed differently than on the mainland.

When I was in law school I lived with an undergrad art student from PR. The most conflicted I ever saw her was when watching the evening news about PR voting for statehood I asked her opinion.

Historically about 40% have voted PR stay a commonwealth, 30% for statehood, and 30% for an independent nation. I don't see that changing.

[azsailor12]

Yeah, I think there is significant risk that PR changes its tax laws back even if they don't ever become a state. Given that, I'm just exploring options.

[SmartMove]

Originally Posted by denverd0n

I wouldn't hold my breath. They have voted on the question of statehood many times over the course of many years. It is a fairly contentious issue in Puerto Rico. Some times statehood loses by a small margin, sometimes by a large margin, but so far it has always lost.

Not this time it was approved, we were here for the election.

[SmartMove]

Originally Posted by tomfl

Drugs are a huge part of the PR economy.

Lots of huge US drug companies are located there and produce their drugs there because of US income tax laws. The US tax code is thousands of pages long and changes every year but for what ever reason since PR is a commonwealth legally (what ever that means) they are taxed differently than on the mainland.

When I was in law school I lived with an undergrad art student from PR. The most conflicted I ever saw her was when watching the evening news about PR voting for statehood I asked her opinion.

Historically about 40% have voted PR stay a commonwealth, 30% for statehood, and 30% for an independent nation. I don't see that changing.

As we have toured the island, it appears that some of the drug companies may have shut down their operations in PR. At least two of the facilities looked completely abandoned.