{"id":49588,"date":"2014-04-09T20:09:01","date_gmt":"2014-04-10T00:09:01","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=49588"},"modified":"2014-04-09T20:09:01","modified_gmt":"2014-04-10T00:09:01","slug":"peter-schiff-goes-puerto-rico","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/04\/09\/peter-schiff-goes-puerto-rico\/","title":{"rendered":"Peter Schiff Goes to Puerto Rico"},"content":{"rendered":"<h4><span style=\"font-size: small;\">By Nick Giambruno, Casey Research<br \/>\n<\/span><\/h4>\n<div id=\"article-body\">\n<p>It\u2019s been a little over a year since I sat down with Peter Schiff at his house in Connecticut to discuss the importance of international diversification. Since then, the options available to take protective measures have declined in many ways, especially as the destructive FATCA law comes into force.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=315&amp;code=MAN&amp;editorial=peter-schiff-goes-to-puerto-rico\" height=\"1\" width=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>While some doors have closed, others have opened. And perhaps one of the most significant new opportunities in the world today is the tax incentives in Puerto Rico.<\/p>\n<p>In fact, Alex Daley and Louis James, two of my Casey Research colleagues, have already moved to Puerto Rico to take advantage of the tropical weather and low taxes.<\/p>\n<p>Peter Schiff is also moving there. He has already moved one of his businesses there and plans to move personally sometime in the future.<\/p>\n<p>It\u2019s not an exaggeration to say that these new incentives in Puerto Rico have been life-changing.<\/p>\n<p>Any American looking for relief from the suffocating burden of ever-increasing taxation should seriously look into the Puerto Rico option.<\/p>\n<p>Peter and I discuss it in detail below. You won\u2019t want to miss this fascinating discussion.<\/p>\n<p>But first, I\u2019d encourage you to check out the fully revised and updated version of Peter\u2019s book <a href=\"http:\/\/www.internationalman.com\/go\/v4v4r-2\/PIP\" target=\"_blank\"><em>The Real Crash<\/em><\/a>, which just hit the shelves. It\u2019s a must read if you want to understand the economic abyss that is staring the US in the face.<\/p>\n<p>And now to our discussion on the stunning tax benefits of Puerto Rico.<\/p>\n<p><strong>Nick Giambruno:<\/strong> Peter, tell us about your take on the situation in Puerto Rico and some of the opportunities it offers.<\/p>\n<p><strong>Peter Schiff:<\/strong> The Puerto Rican situation is actually quite appealing for Americans who own businesses because the way they have reformed their tax law is very favorable to businesses that are generating their income out of Puerto Rico\u2014Puerto Rican-sourced income.<\/p>\n<p>So if you are doing something, if you go to Puerto Rico and do it\u2014if you incorporate a business in Puerto Rico and operate your business from Puerto Rico\u2014the tax treatment is very favorable. You basically pay a 4% effective tax rate.<\/p>\n<p>If you incorporate in Puerto Rico, that corporation enjoys a 4% tax rate even if you yourself are not living in Puerto Rico, which is much better than being in the states, where it is subject to a 35% tax rate federally and then some. Depending on which state it might be incorporated in, you\u2019d have another layer of corporate tax, so clearly you\u2019re at a competitive advantage if you\u2019re operating a business out of Puerto Rico. And you\u2019ll also find that the cost of doing business\u2014the labor costs and the rental costs\u2014are going to be lower in Puerto Rico than the 50 states.<\/p>\n<p>So you can move over there, you can operate a business at a lower cost, and you can keep a lot more of what you earn, which effectively is like a reduction in cost because you don\u2019t have to make as much money. In the US, in order to generate a dollar of profit, you pretty much have to generate almost two pretax dollars to get a dollar after tax, whereas in Puerto Rico, you can get a dollar of after-tax profit by generating only $1.04.<\/p>\n<p><strong>Nick:<\/strong> So what makes Puerto Rico different than other low-tax jurisdictions like the Cayman Islands?<\/p>\n<p><strong>Peter:<\/strong> Well, the Cayman Islands is not part of the US. You can incorporate in the Caymans and you can enjoy a very low, maybe even a zero rate of tax. But the difference for an American is <em>huge<\/em> in that if you run a business in the Cayman Islands on the corporate level and you pay no taxes, as the owner of that business, if you want to enjoy the fruits of the profits, if you want to pay yourself a dividend or if you want to move to the Caymans and pay yourself a salary, all of that is going to be subject to US income tax. Even though the Caymans doesn\u2019t impose an income tax, America still does. Now, if you are Canadian or German or anybody else, then it doesn\u2019t really matter. You can move to the Cayman Islands and live a tax-free life.<\/p>\n<p>But you can\u2019t do that as an American citizen, because the US government says, \u201cUh-uh; we don\u2019t care where you go on this planet.\u201d In fact, they probably don\u2019t care where you go in the universe. Wherever you are, if you\u2019re earning money, the US government wants its cut.<\/p>\n<p>But if you go to Puerto Rico, they don\u2019t take a cut, and that is what is unique, because there is a tax treaty between the United States Government and Puerto Rico as part of the terms of the territorial agreement that we have with Puerto Rico. It says that if you\u2019re an American citizen living in Puerto Rico, working in Puerto Rico, that the income that you earn while you were there is not subject to any US income tax.<\/p>\n<p><strong>Nick:<\/strong> I think that\u2019s the one point that needs to be emphasized. Americans can find these kind of benefits <em>nowhere<\/em> else in the world because of the system of citizenship-based taxation which no other country effectively imposes on their citizens. So for Americans, Puerto Rico really is the only escape hatch for this kind of tax relief short of renouncing your US citizenship.<\/p>\n<p><strong>Peter:<\/strong> If you\u2019re a Canadian, you can pretty much go to any of the tax havens all around the world\u2014it doesn\u2019t really matter, you can take your pick\u2014but if you\u2019re an American, you really don\u2019t have a choice. It\u2019s Puerto Rico, or that\u2019s it.<\/p>\n<p><strong>Nick:<\/strong> What\u2019s the situation with your company in Puerto Rico?<\/p>\n<p><strong>Peter:<\/strong> So far, I\u2019ve moved one company there, which is my asset management company, Euro Pacific Asset Management. It used to be based in Newport Beach, California. So the immediate benefit to my company from that move is that the tax goes down from the tax in California, the marginal tax is upwards of 50% when you combine the state income tax with the federal income tax, so my income tax liability goes down by upwards of 90%.<\/p>\n<p>Also, the office space I\u2019ve leased in San Juan is considerably cheaper than the office space that I leased in Newport Beach, so my rent is lower.<\/p>\n<p>I have four employees who have since relocated there. They\u2019re still working from home until they get the office fully ready, but once it is up and we do hire some local Puerto Rican labor, I am sure that we will be able to hire somebody working in Puerto Rico, clerical-type work that will be a lot less expensive than what we were paying for that kind of work in California.<\/p>\n<p>So the labor cost will be lower, the taxes will be lower, so it\u2019s just a lowering overall of the operating expenses of the company, and of course, you know the plan for me\u2014I am ultimately planning on moving there.<\/p>\n<p><strong>Nick:<\/strong> Yes, it\u2019s also individuals who can directly benefit. You have the two laws, Act 20 and Act 22. One pertains to service businesses and the other pertains to individual investors. So when you move to Puerto Rico, tell us about the kind of benefits you can get.<\/p>\n<p><strong>Peter:<\/strong> Once I officially move to Puerto Rico, then I can get tax-free dividends on Puerto Rican-sourced income, which would include my business that has moved to Puerto Rico.<\/p>\n<p>I can also make investments in the stock market and enjoy zero capital gains tax. Right now, living in America, if I buy 100 shares of IBM at $100 and sell it at $110, I have a $10 capital gain. There\u2019s a tax rate if it\u2019s short-term, it\u2019s higher than the long-term rate. But once I move to Puerto Rico, I can trade IBM as often as I want, and no matter how much money I make, I pay zero capital gain taxes in Puerto Rico, and I pay zero capital gain taxes in the United States.<\/p>\n<p>And any other businesses that I operate\u2014you know, I do my radio show and right now, it really doesn\u2019t generate much of a profit, but to the extent that it was able to generate a profit, I won\u2019t pay any taxes if I\u2019m doing it out of a studio in Puerto Rico as opposed to in the US.<\/p>\n<p>So pretty much anything that you can do via the Internet, via the telephone, if you do it from Puerto Rico, you\u2019re going to hardly pay any income tax, which is kind of the way it used to be in America. It\u2019s kind of like turning back the clock to the olden days, when you got to keep what you earned, where you really were free, when you didn\u2019t pay a lot of tax, and that\u2019s the way it is now. If you want to move to Puerto Rico, you can reclaim the freedom that was once enjoyed here on the mainland by our great-grandparents.<\/p>\n<p><strong>Nick:<\/strong> Yeah, it\u2019s really an amazing opportunity. Isn\u2019t Puerto Rico in many ways perfectly suited for American startups and entrepreneurs?<\/p>\n<p><strong>Peter:<\/strong> If you can start up a company, do it from Puerto Rico\u2014especially if it\u2019s an online company. Then in a few years you can turn around and sell it for $5 million or $10 million or $20 million.<\/p>\n<p>Let\u2019s say you sell your business for $5 million. That\u2019s a lot of money, but after taxes you\u2019re left with $3 million. But if you do it in Puerto Rico, you get to keep the whole thing. So that could be a big difference.<\/p>\n<p>Let\u2019s say you\u2019re operating a business from the US right now, but it\u2019s small\u2014maybe it\u2019s an online company or whatever you\u2019re doing and maybe you\u2019re earning $500,000 a year\u2014and that\u2019s all you\u2019re earning, and by the time you finished paying all your taxes, you\u2019re left with $250,000 a year. Well, if you decide to move to Puerto Rico, your income would probably be more like $450,000 a year, so you\u2019d give yourself a $200,000 a year raise, and your overhead expenses would be lower and you\u2019d also reduce your cost of living.<\/p>\n<p>So it\u2019s a big, big difference, and especially if you compound it over years. Because you just don\u2019t have that savings one year, you have it year after year. And now you have that extra money that you didn\u2019t pay in taxes\u2014you can then take that money and invest it. And now those returns are going to compound tax-free.<\/p>\n<p>So if you think about it from an ability to retire\u2014when can you retire and how much income can you have in your retirement savings\u2014it\u2019s so much easier, because all the checks that you would have written to the IRS you can now invest it and compound the returns tax-free.<\/p>\n<p><strong>Nick:<\/strong> So what do you say to the skeptics? Are you afraid the US government could force Puerto Rico to change, or the incentives could otherwise disappear?<\/p>\n<p><strong>Peter:<\/strong> Well, the incentives aren\u2019t going to disappear because they\u2019re working. Puerto Rico is already benefiting from a lot of people moving to the island, setting up businesses on the island, and so this benefits Puerto Rico because this is tax revenue they never would have received. Four percent of something is better than 50% of nothing, and in addition, when these businesses are moving to Puerto Rico, they hire people, they spend money, and they do other things that impact the local economy where the government does collect additional tax revenue. So it\u2019s nothing but a plus for Puerto Rico; they would have no reason to end this.<\/p>\n<p>Plus when you go down there they write a contract with you. So even if they end it in the future, if you\u2019re already there, you\u2019re locked in until 2035. So no matter what they do, once they approve your status, you\u2019ve got a guaranteed zero-tax situation until 2035, which is another value\u2014tax certainty.<\/p>\n<p>I mean, who knows what the income tax is going to be in the United States? You have no idea how much they might jack it up in the future. At least if you live in Puerto Rico, you know what it\u2019s going to be until 2035\u2014and for a lot of people, that\u2019s beyond their life expectancy. That\u2019s a nice certainty to have.<\/p>\n<p><strong>Nick:<\/strong> What about the US federal government?<\/p>\n<p><strong>Peter:<\/strong> Puerto Rico needs to do something. The economy is in a lot of trouble\u2014they have a lot of debt. I mean, what else can Puerto Rico do to try to improve their economy but try to expand their tax base?<\/p>\n<p>So I don\u2019t know that the US is going to try to put pressure on Puerto Rico to end something that\u2019s actually working for Puerto Rico, unless the US government is willing to come up with a lot of cash for Puerto Rico. If the US loses a few billion dollars a year in tax revenue, well, that might be politically better than having to spend a few billion dollars in bailout money.<\/p>\n<p>If Puerto Rico had simply taken this particular policy position 20, 30 years ago, Puerto Rico would now be like Singapore or the Cayman Islands.<\/p>\n<p><strong>Nick:<\/strong> So what areas of the island do you like personally from a lifestyle standpoint?<\/p>\n<p><strong>Peter:<\/strong> I bought a condominium personally in an area of Dorado Beach. And I\u2019m in the Ritz Carlton Reserve, which just built a spectacular resort in Dorado Beach. It\u2019s part of a larger community, which is gated and has lots of private homes that share the Dorado Beach Club, which is the beach and four 18-hole golf courses, and it\u2019s just a beautiful community. Around the community there\u2019s lots of stores, there\u2019s really good private schools, English private schools; so for people who have families and want to relocate, I think it\u2019s very family friendly. You see kids at night walking around, riding their bikes to each other\u2019s houses, you don\u2019t have to lock your doors; it\u2019s a very, very safe, beautiful community. And of course, you\u2019ve got great weather. So if you like the water, if you like sailing and scuba diving and playing golf, and tennis and stuff like that, it\u2019s a nice place to be.<\/p>\n<p>There\u2019s also a big city, so if you\u2019re young and single you can be in the San Juan area. I mean, it\u2019s not like a remote little island\u2014there\u2019s a vibrant urban population there. There\u2019s stuff going on, there\u2019s a vibe to the place.<\/p>\n<p>So when you have a vacation you can go to New York, or you can go to London or Paris, you can go to a show, you can see a play, you can go to the symphony, you can see a museum. That\u2019s your vacation. Your normal life is what everybody else\u2019s vacation is.<\/p>\n<p>There are people who try to retire to Arizona or Florida, but they are still subject to federal income taxes. Even in Florida where there\u2019s no state income tax, there\u2019s still the federal income tax which is pretty high. You\u2019ve got guys like Rick Perry in Texas trying to convince businesses to move to Texas because they have no state income tax, but they still have the federal income tax. Puerto Rico can out-Texas Texas, they can out-Florida Florida. I mean, <em>nobody<\/em> has what they have to offer, which is exemption from the US federal income tax.<\/p>\n<p>And that is the big enchilada\u2014not only what the US income tax is today, which is 39% plus the Obamacare, so it\u2019s about 44%, but who knows what it\u2019s going to be? What if Hillary Clinton is the next president and we\u2019re still in recession; and what if Hillary says, we need another tax bracket, maybe we have to go to a 60% or 70% tax bracket?<\/p>\n<p><strong>Nick:<\/strong> Peter, I know you\u2019re a busy guy. I appreciate you taking the time to explain to our readers this exciting and unique opportunity and wish you the best on your endeavors in Puerto Rico.<\/p>\n<p>Editor\u2019s Note: <a href=\"http:\/\/www.internationalman.com\/go\/v4v7s-2\/PIP\" target=\"_blank\"><strong><em>Puerto Rico\u2019s Stunning New Tax <\/em><\/strong><strong><em>Advantages<\/em><\/strong><\/a> is the authoritative guide on the Puerto Rico option. It\u2019s been reviewed by dozens of professional sources in Puerto Rico and the mainland US, including top law firms and accountants. It\u2019s an A-Z guide with information you won\u2019t find anywhere else. If you\u2019re considering taking advantage of these incentives, get started with this guide. It will save you a lot of time and money in the process. <a href=\"http:\/\/www.internationalman.com\/go\/v4vst-2\/PIP\" target=\"_blank\">Click here to learn more.<\/a><\/p>\n<div class=\"clear-me\"><\/div>\n<\/div>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.internationalman.com\/go\/v4vvu-2\/PIP\" rel=\"permalink\">Peter Schiff Goes to Puerto Rico<\/a> was originally published at <a href=\"http:\/\/www.internationalman.com\/go\/v4vyv-2\/PIP\">internationalman.com<\/a>.<\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>By Nick Giambruno, Casey Research It\u2019s been a little over a year since I sat down with Peter Schiff at his house in Connecticut to discuss the importance of international diversification. Since then, the options available to take protective measures have declined in many ways, especially as the destructive FATCA law comes into force. While &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2014\/04\/09\/peter-schiff-goes-puerto-rico\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Peter Schiff Goes to Puerto Rico&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-49588","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/49588","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=49588"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/49588\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=49588"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=49588"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=49588"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}