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Is Puerto Rico A Good Place To Protect Your Wealth?

4 min read

Is Puerto Rico A Good Place To Protect Your Wealth?

In a world where financial success often comes hand in hand with complex and burdensome tax obligations, the desire to keep more of what you worked for in your pockets is entirely natural. 

Taxation is theft, and what the government does with your tax dollars enrages you – therefore, safeguarding your wealth is a must.

You’ve built your empire, put your sweat, and maybe even a few – if not multiple – sleepless nights into it. You don’t want to lose half of your income in taxes. Thoughts of using offshore jurisdictions to minimize that tax burden often come to your mind. However, navigating offshore waters without hitting rough patches is nearly impossible all alone, especially due to complex tax regulations and the massive number of jurisdictions to choose from.

That’s why, in this article, we’ll go through the benefits of one particular paradise for your finances – Puerto Rico. 

We'll uncover the advantages of its tax benefits, delve into its robust financial privacy measures, explore its favourable environment for those seeking to safeguard their wealth, and much more. So, if you're ready to uncover the hidden insights of Puerto Rico's potential for wealth protection, let's get started.

 

Guajataca, Puerto Rico

Guajataca, Puerto Rico

TAX BENEFITS AND INCENTIVES IN PUERTO RICO

The government might try to give moral lessons on how money should be spent, but their opinions seem insulting after building your financial kingdom. In reality, money flows to places where it receives good treatment. Puerto Rico does a good job at that.

Puerto Rico is more than just a sunny vacation spot with beautiful beaches, music and a laid-back lifestyle. This territory offers a business-friendly environment for successful individuals who want to preserve the fruits of their labour where they should belong – their own pockets. 

To start, it’s a state with a corporate tax rate of 4% in the export services and commerce sector. Think of law firms, software companies and corporate headquarters. Refer to this website to learn more about the selected activities that benefit from this tax rate. 

Act 60, a powerful legislation transforming businesses' tax landscape, is at the heart of this opportunity. It’s like a golden key that unlocks a treasure trove of advantages. Consider this: your business thrives, and profits pour in. With Act 60 in play, those profits can dodge the 21% federal corporate tax rate. What a great game changer!

And here’s a twist that might amaze you: capital gains tax doesn’t apply here. Here’s an example: You sell a property and profit substantially. You don’t have to share any of it with the IRS. Not a single penny! But wait, there’s more. The cherry on top: no taxes on dividends, royalties and interest. Puerto Rico becomes your financial oasis, where your earnings remain steadfastly yours. 

As you can see, Puerto Rico offers enticing tax incentives for businesses and investors. But what if you’re self-employed? To put it into perspective, if you make more than $500,000 USD, you’d pay 20% of that income. And if you make less than $100,000 USD, 6%. 

All in all, as a business owner or investor in Puerto Rico, you’ll find a favourable tax climate that will happily welcome your money by offering you low taxes and even exemptions. Indeed, it’s a jurisdiction that should be on your radar. 

 

Colorful Village at the Coast of San Juan

Colorful Village at the Coast of San Juan

FINANCIAL PRIVACY AND CONFIDENTIALITY

After exploring Puerto Rico's tax benefits, let's delve into its commitment to privacy. In an ideal offshore jurisdiction, tax advantages per se are insufficient – safeguarding your assets and data is equally vital. The notion of your financial actions being subject to scrutiny might be unsettling. This is where Puerto Rico excels as a bastion of financial confidentiality.

Consider these terms: Automatic Exchange of Information agreements and the Common Reporting Standard (CRS) – phrases that might evoke concern. However, in Puerto Rico, these aspects are notably absent. By discarding these regulations, your financial choices remain discreet, preserving your peace of mind.

 

FORMATION OF CORPORATIONS IN PUERTO RICO

Transitioning our focus to the dynamic landscape of forming corporations and business entities in Puerto Rico, let’s explore the jurisdiction's diverse range of options. In this realm, simplicity and flexibility intertwine to create an environment conducive to your particular financial aspirations.

Puerto Rico recognizes a comprehensive spectrum of corporate structures, catering to diverse needs – from fundamental sole proprietorships and general partnerships to specialized corporate structures and limited liability companies. This rich variety allows you to set up your business according to your unique requirements. 

On January 31, 2011, Act No. 1, also known as the Internal Revenue Code for a New Puerto Rico, was passed, marking a crucial turning point. This reform, which became effective on January 1, 2011, changed the Puerto Rican tax system. Before this change, corporations weren't always subject to double taxation and partnerships weren't always given pass-through tax treatment. 

For those who opt for a solo venture, a sole proprietorship emerges as a viable choice. This vehicle entails no extraordinary legal prerequisites beyond the customary requirements of starting a trade or business. 

As we delve into the realm of partnerships, we encounter an organized collaboration of two or more individuals or juridical entities governed by a partnership agreement. Unlike limited liability partnerships and special partnerships, partnership agreements are exempt from adhering to statutory formalities and don't necessitate registration with the Department of State. 

Puerto Rico's array of business entities underscores flexibility and accessibility. From solo ventures to intricate partnerships, the jurisdiction ensures that your chosen business structure aligns seamlessly with your objectives. 

 

San Juan, Puerto Rico

San Juan, Puerto Rico

PUERTO RICO TRUST FUND

Due to its Spanish colonial past and its current association with the US, the legal system of Puerto Rico is a mix of Civil and Common Law. That means that Puerto Rico also has its own Trust structure. Let’s explore its benefits and versatility.

Firstly, this type of trust is a potent mechanism for:

  • Optimize Wealth Management;

  • Ensure Asset Protection;

  • Navigate Tax Planning;

  • Facilitate Multigenerational Planning.

Secondly, we can’t overlook the different trust types:

  • Irrevocable Trust;

  • Revocable Trust;

  • Charitable Trust;

  • Generation-Skipping Trust;

  • Special Needs Trust.

And last but surely not least, here are the tax benefits that come with this trust:

  • No Federal Estate Tax;

  • Elimination of Gift Tax;

  • Competitive Income Tax Rates;

  • Estate Tax Credits.

Puerto Rico’s Trust Funds offer a range of trust types tailored to diverse goals. These trusts offer multiple benefits for high-net-worth individuals, from wealth optimization and asset fortification to intelligent tax strategies. 

 

Related article: Becoming A Resident Of Puerto Rico

 

Cueva Ventana Natural Cave in Puerto Rico-1

Cueva Ventana Natural Cave in Puerto Rico

CONCLUSION

Puerto Rico emerges as an exceptional offshore jurisdiction to preserve wealth and optimize taxes regardless of your profile. As we conclude our exploration of its wealth protection potential, it becomes clear that this Caribbean haven is more than sun-kissed shores and vibrant culture. It’s a place to preserve and maximize your hard-earned assets. 

Puerto Rico unveils its mastery as an offshore jurisdiction, from the enticing tax incentives that breathe new life into businesses and investments to the fortress of financial privacy that shields your wealth from prying eyes. The options to form corporations and the power of its trust funds add to its allure, offering avenues for comprehensive financial optimization.

Overall, Puerto Rico is a strategic choice, a sanctuary where the full potential of your financial dreams can flourish. 

 

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Mikkel Thorup

Written by Mikkel Thorup

Mikkel Thorup is the world’s most sought-after expat consultant. He focuses on helping high-net-worth private clients to legally mitigate tax liabilities, obtain a second residency and citizenship, and assemble a portfolio of foreign investments including international real estate, timber plantations, agricultural land and other hard-money tangible assets. Mikkel is the Founder and CEO at Expat Money®, a private consulting firm started in 2017. He hosts the popular weekly podcast, the Expat Money Show, and wrote the definitive #1-Best Selling book Expat Secrets - How To Pay Zero Taxes, Live Overseas And Make Giant Piles Of Money, and his second book: Expats Guide On Moving To Mexico.

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