Is Puerto Rico the Perfect Tax Haven for US Citizens? Part 2

A couple of my Casey Research
colleagues have actually moved to Puerto Rico to obtain these benefits. So I
thought I would offer my two cents on a couple of points. 

1. Dividends and interest are
really only eligible for the tax benefits if they come from Puerto Rican
sources, like a CD at a Puerto Rican bank or a dividend from a Puerto Rican
corporation. Otherwise the source of interest and dividends is generally where
the payer is located (see chart below
from the IRS and page 7
here.) So if there is
a US based stock listed on the NYSE and it pays your a dividend while you are a
resident in PR, that dividend is not considered PR sourced income and
therefore is not eligible for the benefits. 

Capital gains are a whole
different animal however, and they are generally determined by where your residence is. So capital gains
is where the real benefit is for the PR tax incentives for individuals. If you
were to purchase a US stock with your US brokerage account, or a gold coin, and
realize a capital gain while a PR resident, that gain would qualify as PR sourced income
and thus would be eligible for the benefits.




2. That $70 billion debt
figure that is commonly quoted is not the federal debt of Puerto Rico, it is
the combined federal, local, and municipal
and other obligations. If you were to take that and total that up for all the
states in the United States and add them to the US federal debt, you’d be far
worse off than Puerto Rico is. Puerto Rico has debt problems, but they’re not
dire.

3. As for the crime rate it is
true that it is high in certain areas like all large cities, but it would be a
mistake to extrapolate that for the entire island. Memphis, Tennessee has about
the same crime rate as San Juan, Puerto Rico. Do you hear anybody warning you
against moving to Memphis? And would Memphis’ crime rate stop anybody from
moving to greater Tennessee?

4. The US federal government
certainly could end the Puerto Rican tax incentives. But we believe that is
highly unlikely for the foreseeable future for a number of reasons we detail here. 

Nick
Giambruno

Is Puerto Rico the Perfect Tax Haven for US Citizens? Part 2