One section that is particularly more interested in settling here are the businesses going offshore. Of course, the first thing that any business owner looks for before taking his business offshore is the tax liabilities of that country. This is exactly where Puerto Rico proves to be an angel with almost zero tax rates. However, before shifting, you need to understand if there is any other form of tax charged in this country.
Many successful entrepreneurs like Grant Cardone are prime examples of how you can save on taxes by shifting to a new location. Grant took his business offshore from high-tax California State to zero-tax state options, including Florida, Nevada, and Tennessee. While eliminating state tax from the picture doesn't solve every problem. For example, any resident of Nevada and Florida still has to pay any US federal taxes, which ultimately makes things even.
However, moving to a zero-tax state in Puerto Rico means you do not have to worry about US Federal taxes. Residents of Puerto Rico are not liable to pay any type of Federal tax to the government. But there are a few things that you need to be watchful for. When we talk about taking businesses offshore or shifting to a new country, many questions strike our minds.
To successfully take your business offshore, you need to find answers to all these questions. Especially for a business, it becomes more crucial that you understand the changes and odds you will get in a new place. In addition, you need to familiarize yourself with how things work here in Puerto Rico to avoid any type of federal issue. So here's everything you need to know about all those investors and entrepreneurs with the idea of shifting to Puerto Rico.
Puerto Rico And Its Taxes
The US tax laws were changed in 1986 to allow both Residency and citizenship in Puerto Rico. If a person moves to Puerto Rico and lives there for at least 183 days of the year, then that person is considered a resident of Puerto Rico and not a US resident. Therefore, the funds are not taxed by the US government if they are invested locally in business or real estate. If a person resides in Puerto Rico for at least two years or more, then he/she can apply for citizenship with some exceptions.With this drastic change, the tax liability is also expected to be zero, but it's not always the case. With the introduction of some tax incentives in Puerto Rico, including Act 20 and Act 22, it has become a zero-tax state. Suddenly, now there are thousands of investors and businessmen looking to lay foot on the grounds of this tax-friendly country.
Are There Any Federal Taxes?
The tax system of Puerto Rico is hybrid which means we control half US, and half is offshore in some sense. Residents of Puerto Rico pay tax to the Puerto Rico government, not the US. These rates are comparatively lower than those charged by US authorities. It means not everyone is living exactly ta free here, but the taxes rates are a bit cheaper here than in mainland states of the US. Despite this being a small amount, you will still have to pay this tax just like it was calculated for US citizens.Even though Puerto Rico is considered a tax-free state by many, it is not completely free of taxes. For example, even if you do not live in Puerto Rico, but your companies do have a business presence here, you will still be liable to pay the wage tax. The wage tax is paid by companies registered in Puerto Rico and has made profits. The wage tax is calculated based on the number of employees in a company with a maximum limit of $7000 per employee.
How Do Puerto Rico Tax Incentives Work?
There is a lot that makes Puerto Rico attractive, including some tax incentives. These incentives make it even easier for business owners to shift to this territory. The Puerto Rico government has laid this Act 20 and Act 22 to offer huge tax benefits to residents and investors. As a result, those who legitimately move their business here in Puerto Rico can significantly cut down on taxes.Puerto Rico is not entirely tax-free, but it has its advantages for businesses compared with the US. For starters, the difference between tax rates in Puerto Rico is considerably huge. There are special tax programs that allow new residents and investors to save up on paying taxes. However, you have to fulfill their requirements for these, like not having to live here in the last fifteen years. For such investors, the Puerto Rico government allows
- Income tax Rate - 4 %
- Dividend Rate – 0 %
- Capital Gains Tax Rate - 0 %
Additional Taxes Applicable To Puerto Rican Residents
Additionally, a double taxation arrangement enables both residents and companies to benefit from the taxes saved in their home countries while paying them in Puerto Rico. This tax avoidance is made possible by allowing residents of Puerto Rico to work abroad and allow their companies to operate and return to Puerto Rico after the tax year ends. Many people like Grant Cardone seem to be interested in taking this route due to this kind of ability granted by DTA.There is another tax which is called the federal excise tax. The federal excise tax is similar to state sales taxes, except it is paid to the Federal government instead. This includes gas, cigarettes, and other products. But it does not include alcoholic beverages or tobacco products as these are excluded from this tax.
The only other form of tax that Puerto Rico has is the capital gains taxes and the employee payroll taxes. Most people consider these local taxes, although they are federal taxes. This confusion is because of how Puerto Rico has been restructuring its laws after US federal laws came into effect in 1941.
What Is The Legal Status Of Puerto Rico?
In the early days of its existence, Puerto Rico faced many challenges in the form of Spanish invasions. Spanish forces invaded this space for nearly hundreds of years until the US came into the picture. Unfortunately, when the US came to the rescue, it led to Spanish-American War. It was then in 1899 when the Treaty of Paris was signed, which ceded Puerto Rico, Guam, and the Philippines to the United States.Now, Puerto Rico has become a commonwealth of the US and is under its influence. There have been many freedom movements throughout the US to grand freedom to Puerto Rico. Now, US residents do not require any passport to travel here. Additionally, moving here from the US comes with many complimentary tax benefits.
To a certain level, Puerto Rico has its tax policy, allowing it to form taxation rules independently. But still, there is a huge influence of the United States on this state. There are always threats and risks associated with a sudden change in tax policies under the strong influence of the United States. To attract t new investors and businesses, Puerto Rico has many laws to cut down on their taxes.
The law is designed to solve the financial crisis on the island and make it a self-governing territory of the US. The details of this law are quite complex, but essentially it allows US federal government to take over Puerto Rico's financial dealings and make decisions regarding its debt. It has also outlined a plan for creating an economic development board to help develop the economy of Puerto Rico. This additional board will report directly to the president, who shall appoint all members.
How To Get Puerto Rican Citizenship?
Puerto Rican citizenship is one of the most coveted and sought-after by many. It has been a beautiful dream for some people to become Puerto Rican and start doing business here. People across different states come with the dream of living in this sunny paradise, enjoying some quality time with family and friends, and raising a family with their loved ones in this land.US Citizenship is available for everyone. The only difference between US citizenships is that Puerto Rico requires people to have lived in Puerto Rico for five years continuously unless they are AKA's (Dual citizenship). However, there are no requirements for how long a person can remain in this specific tax exemption zone. It is all controlled by the Puerto Rico government, and in the end, it will be up to you as to whether you want to reside in this land.
There are plenty of people who currently reside in Puerto Rico and find no problem changing citizenship to Puerto Rican. However, if you seek a change in your status from US citizenship, it is better that you move from the island of Puerto Rico. You will not be able to obtain this status once you have moved elsewhere. If, for any reason, you decide that you do not wish to move from Puerto Rico, then I would recommend reaching out to an experienced immigration lawyer. This way, they can give you some great advice on how best to go about things.
Is Passport Mandatory to Visit Puerto Rico?
Puerto Rico does not require any passport to visit the island from other places. However, there is no need for US citizens to carry their passports as it is assumed that they are US citizens. A person can always use other identification cards. You can still use your driver's license when traveling with Puerto Rico.Suppose you have any loose ends in the state which you need to tie up, then consider hiring an immigration attorney. They will be able to add a lot of time and effort into resolving all your issues into a small package that can be sent and taken away by an immigration officer. There is no point in dealing with these on your own, as you could mess things up even more. Instead, find a good lawyer with a solid knowledge of this state's immigration and visa laws.
Can You Own Puerto Rican Land?
You can own land anywhere in Puerto Rico. Therefore, it is not mandatory that you have to have a green card to buy land. However, if you are interested, you should find all the available information before purchasing a particular plot or land. You can do this by reaching out to people close to you who have had dealings in Puerto Rico before and completely understand the land laws here. You can also reach out to the state or local government to get all the information regarding these laws.You must check with the government and ensure that you have all your paperwork sorted before purchasing a property in Puerto Rico. This will stop any problems in the future, keep you protected legally, and provide you with some kind of a shield in case someone tries to harm or cause damage to your land in the future.
What Type Of Language Is Spoken In Puerto Rico?
Puerto Ricans speak Spanish. However, a few can use English words and phrases too. This is one of the most popular questions in the mind of people looking to move here. It is amazing that these people even think about moving here without speaking Spanish fluently. You will want to be able to speak Spanish in this place to connect with locals and folks here.You will find that many people here only speak Spanish, and you will not be able to comprehend them at all if you don't know Spanish. Even if it is not your primary language, speaking a little Spanish will certainly not harm or cause any inconvenience. There are a few people that use English as their primary language. You won’t have as much trouble as you would think.
However, you must know what is going on in the public and private sectors of this state. If you do not, you could be missing out on a lot of information that could prove helpful in the future. That is why it is recommended that you learn Spanish here and employ people who can teach you and help with your day-to-day life.
Puerto Rican Culture
Culture is one of the major differences that separate Puerto Rico from other states in the US. Puerto Rico has a strong Spanish-based culture, and they have maintained their roots pretty well. You must keep this in mind if you are thinking about moving here. You will have to follow a set protocol along with some rules that are quite different from other states and your home country.The culture in Puerto Rico is dependent on religion, food, family and friends, and festivals. The society structure here is also quite different from what you might be used to back home in another state. However, it does not take much effort or time to learn about the people here and what will make them happy.
Moving To Puerto Rico With Family
There is a lot of space in this land, and it is recommended that you keep it simple. When making plans, try to include family and friends in them as this will help you adjust to the new environment easier. When you have your family with you, things will work out pretty well. They must understand why they are moving here so that everyone can be happy here.
A good friend of mine used to live on the island of Puerto Rico for over 20 years. She left when she had two kids. Her husband stayed back on the island, and now, she has only her kids with her. She still keeps in touch with friends and family who have moved over here and people who were born here. She is an amazing person who understands how easy it is to settle down in Puerto Rico.
If you learn Spanish fluently and don't mind a little different culture, you will have a good time living here. First, however, you must get to know the people before you move into this land to make some great friends and understand the people already here in Puerto Rico.
Is there Any Debt Crisis In Puerto Rico?
Puerto Rico has suffered many unbalanced budgets and financial crises throughout its history. There have been incidences where the authorities have failed to secure a steady flow of assets and financial stability in this country. In the past fifty years, authorities here have been buying bonds to cover up for its huge fiscal irresponsibilities.
As per the stats, by 2018, Puerto Rico was under $50 billion in unfunded pension liabilities and approximately $74 billion in bond debt. This is way past the island's total gross national income. This kind of situation has never been witnessed by individuals living in this country. But unfortunately, many people fail to understand the real reason behind this crisis.
Some people think that it's caused by an economy that works on a dollar that exchanges at a fixed rate to the US dollar. This is an old-fashioned currency system, obstructing Puerto Rico's economy in today's world. This system has been around since the 1940s and was intended to benefit US citizens who move here to be able to buy the property and receive government services at a cut price.
Currency Used In Puerto Rico
As per the reports, people living in Puerto Rico have been suffering from a continuous economic meltdown which has brought down the standard of living and set back all growth. Closer to the end of 2018, Puerto Rico had an unemployment rate of 10.8% and an adjustable jobless rate of 11%. Moreover, there has been a major loss in real income on the island since last year, with around 18% since 2016.
As per some stats, the population that lives here is steadily decreasing by about 12% in one decade. The main reason for this is that there are many problems which can't be solved easily by authorities here. As a result, many people have lost faith and are leaving the island, so they don't have to deal with this crisis.
Puerto Rico's economy is heavily dependent on the US. This is mainly because of imports and exports. The US has been one of its major trading partners for a long time and accounts for about 1/4th of all the imports and exports here. As per some experts, there will be more economic issues in the coming ten years, even though Puerto Rico seems to be recovering from a recession now.
Poverty In Puerto Rico
The poverty rate has also gone up considerably in recent years, and other related economic issues such as unemployment, loss of jobs and income, etc. This has led to massive migration from the island, resulting in negative population growth. The island's economy is merely about 1% of that of the US.It merely has enough resources to provide for all its people and cover the basic needs required by it. This situation has placed financial stress on Puerto Rico's government. It can take many years before all these issues are solved. Even though there are some attempts to resolve this problem, they don't seem to be very effective in solving these issues.
Final Words
Although the mainland of Puerto Rico is a commonwealth of the United States, it has its own set of laws and regulations. This could be the perfect destination for you to avoid those heavy numbers of taxes. Businesses looking for the best destination to relocate to can try Puerto Rico. Additionally, to further diversify your company's portfolio going offshore, you can try countries like Mexico, Malaysia, and other tax-friendly nations.
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