The Surprising Tax Benefits of Living in Puerto Rico with David McKnight

In 2012, there were two Acts that came out in Puerto Rico that gave people massive tax incentives to move their business there.

Act 20 says that if you own a qualified business and move it to Puerto Rico they will waive your federal tax, your state tax, and they will charge you a flat 4% tax. You have to become a Puerto Rican citizen in order to take advantage of the Act.

Act 22 is even better, this Act says that Puerto Rico will also waive all your capital gains tax. This is why hedge fund managers and real estate tycoons tend to live in Puerto Rico.

There used to be a lot of stipulations around the Acts but they have since relaxed them a bit to mainly living in Puerto Rico for at least 183 days out of the year.

You can also live in Europe for the majority of the year and still maintain your tax status in Puerto Rico, it only matters if you live in the mainland US.

There are some downsides to Puerto Rico you should keep in mind. When hurricanes come there is usually little opportunity to leave so you just have to batten down the hatches and wait out the storm. You also have to deal with the fact that it’s a tropical island that tends to move relatively slowly.

When people ask when I’m coming back to the mainland, I tell them “I’m coming back when I’m sick of not paying taxes!”

You do have to give up a lot of the amenities of the US. Seeing a doctor can occasionally be a challenge so it’s not for everyone.

The lesson I learned from living in Puerto Rico is that when you pay taxes in the United States you do get infrastructure improvements in exchange. You have to temper your expectations around services in Puerto Rico and understand what the nature of living on the island is all about.

Harry Dent is a demographic investor that has made several accurate predictions and is one of many people that have decided to live and work in Puerto Rico.

Act 20 and 22 were established to convince successful businesses to come down to Puerto Rico and stimulate the economy. In many ways, the economic circumstances have gotten so bad in Puerto Rico that many people are fleeing the island to go to the mainland at the same time that Americans are fleeing to Puerto Rico.

You have to be willing to turn your life upside a bit but Puerto Rico is a possible tax paradise for the right person.