Peter Schiff on the Joe Rogan Experience 7/17/18

Originally Posted by dannno

Peter is killing it..

So..... Puerto Rico doesn't have a capital gains tax and a bunch of BTC millionaires moved there cuz he mentioned it the last time he was on the podcast, ehhh???

Good to know.

No federal capital gain taxes?

https://ustax.bz/puerto-rico/

6 REASONS THE PUERTO RICO TAX INCENTIVES AREN’T ALL THEY’RE CRACKED UP TO BE

Lots of offshore gurus are pushing Puerto Rico these days. As usual, the picture isn’t quite as rosy once you dig below the surface.

Time to pull the shovel out on all this Puerto Rico hype. Let’s get down below all the fancy marketing to look at how the Puerto Rico tax incentives actually work in the real world.

As you’ll see, living in Puerto Rico turns out to be a great deal for hedge fund managers, full-time traders, and certain other high net worth professionals. But for most expats and digital nomads, simply living outside the US entirely provides a much better tax deal.

THE BASICS

As a US citizen, you’re subject to US tax on your worldwide income, whether you live inside the US or outside the US. Of course, there are lots of tax incentives available for expats, like the foreign earned income exclusion, foreign tax credit, and the ability to operate a business through a non-US corporation.

However, if you become a “bona fide resident of Puerto Rico,” you’re no longer subject to US federal income tax on your Puerto Rico source income. Instead, you’re only subject to Puerto Rican income tax on that income.

Then, Puerto Rico has enacted several tax incentives, the two most popular of which are as follows:

Under Act 20, a Puerto Rican corporation that’s engaged in certain types of service businesses only pays Puerto Rican tax of 4%.
Under Act 22, you can pay 0% on certain dividends and capital gains you realize while you’re a bona fide resident of Puerto Rico.
Let’s get into the details and see why the deal here may not be as sweet as it looks on the surface.

1. THE PUERTO RICO INCENTIVES ONLY WORK IF YOU LIVE IN PUERTO RICO

Some offshore gurus claim that you can take advantage of Act 20 benefits while you live in the US. They say you can form a Puerto Rican corporation, hire employees in Puerto Rico, and operate your business from your home in the US.

The idea here is to only pay US tax on a salary you take from the company, while the company’s income is taxed only at the 4% Puerto Rican tax rate.

This doesn’t work. Suggesting that it does is horrible advice. Just really really bad, even by the usual standards of offshore gurus.

The problem is that this advice looks only at the Puerto Rican tax consequences. It doesn’t consider the broader US tax consequences of this arrangement as a whole.

Here’s how the full tax consequences would really work in this fact pattern:

For purposes of the US tax rules, a Puerto Rican corporation is a non-US corporation. So, it’s subject to the same general US tax rules that apply to a corporation formed anywhere else outside the US.

A non-US corporation that is “engaged in a trade or business in the United States” (or “ETBUS” for short) is subject to US tax.

Generally, a non-US corporation is ETBUS only when it has its own people on the ground in the US operating its business. Click here for an article that goes into more detail on this issue.

Then, a non-US corporation that’s ETBUS is subject to US tax on its income that’s “effectively connected” with the conduct of business in the US. In the fact pattern discussed above, there would need to be an allocation to determine how much of the company’s income is attributable to your work in the US and how much is attributable to the employees down in Puerto Rico.

The part of the income attributable to work in the US would be subject to US tax at graduated rates up to 35%.

Then, if the non-US corporation removes that income from the US, the amount removed would also be subject to the branch profits tax at 30%. Assuming that the income tax applies at the full 35% rate, the combined rate is 54.5% (which is 35% plus 30% of the remaining 65%).

So, if you live in the US and you operate a business that you hold through a Puerto Rican corporation, that Puerto Rican corporation is ETBUS and therefore subject to US tax (at a very high rate) on at least a portion of its income.

To avoid this, you would need to move to Puerto Rico to operate your business. By doing that, your corporation would no longer have “people on the ground” in the US and therefore wouldn’t pay US tax on its income.

2. NO REALLY, YOU DO HAVE TO ACTUALLY MOVE YOUR LIFE TO PUERTO RICO
Sometimes you’ll see offshore gurus say that you only need to spend at least 183 days per year in Puerto Rico. That’s true. It’s also incomplete.

To no longer be subject to US tax and take advantage of the Puerto Rico tax incentives for a taxable year, you must be a “bona fide resident” of Puerto Rico for that entire taxable year. In addition to being in Puerto Rico for 183 days, you must also pass two additional tests:

You must not have a “tax home” outside of Puerto Rico, and

You must not have “closer connections” to any place other than Puerto Rico.

Your “tax home” is basically the locus of your economic activity. If you work in an office, that’s your tax home. So, you can’t be commuting back and forth between Puerto Rico and your office—you need to move the office to Puerto Rico.

Then, to pass the “closer connections” test, you need to move the rest of your life to Puerto Rico as well. This test looks at a long list of factors to determine the place in the world that is really home for you. Some of these factors are as follows:

The location of your permanent home;
The location of your family;
The location of personal belongings, such as automobiles, furniture, clothing, and jewelry;
The location of social, political, cultural, professional, or religious organizations with which you have a current relationship;
The location where you conduct your routine personal banking activities;
The place where you conduct business activities (other than those that go into determining your tax home);
The location of the jurisdiction in which you hold a driver’s license;
The location of the jurisdiction in which you vote;
The location of charitable organizations to which you contribute; and
The country of residence you designate on forms and documents.
The IRS doesn’t specifically require that you get a Puerto Rican flag tattooed on your shoulder, but it certainly couldn’t hurt.

I had a client who wasn’t favorably impressed on his first trip to Puerto Rico, so he asked if he could buy a boat and anchor it just inside Puerto Rico’s territorial waters. Well, it would be pretty hard to meet the above factors in that case.

More at link but basically you have to move completely away from mainland USA (with any family) and set up permanent residence in Puerto Rico (you can travel up to 90 days a year out of Puerto Rico but can't have any other homes outside the country). A "summer home" in Puerto Rico does not count. And only money earned IN Puerto Rico is subject to the Puerto Rico tax rate. If you earned it anywhere else (like the US) it is subject to the taxes there (in the US in this example).

The break on things like bitcoin only applies to the ones you buy AFTER moving to PR and sold while living there.

https://medium.com/@drewcrawford/why...s-c35029a5ab0d

Which allows individuals to establish a “closer connection” Puerto Rico, to be approved for an Act 22 contract, and subsequently pay $0 capital gains tax on assets purchased after a person becomes a resident and sold during their time on the island.

https://cointelegraph.com/news/is-pu...se-expert-take

Still, some see in Puerto Rico a budding crypto tax paradise. Some tax advisers are telling their clients to pick up and move to Puerto Rico. As the theory goes, after establishing residency they can sell their cryptocurrency holdings 100 percent tax-free. Sounds great! Where does one sign up?

If true, this could be a boon to the Puerto Rican economy, not to mention to those individuals sitting on mountains of appreciated cryptocurrency assets. But does this Puerto Rico tax scheme actually work? Like everything in the world of cryptocurrency taxes, great caution is in order.

The IRS is just getting around to developing a strategy to identify, assess and collect the billions of dollars in taxes from cryptocurrencies that some believe are going unreported. The notion that US and Puerto Rico tax authorities will allow millions (if not billions) in cryptocurrency sales to escape taxation entirely is pretty optimistic, to say the least.

Will the US tax crypto sales after a move to Puerto Rico?

Generally speaking, the IRS does not require a US taxpayer to include income from “sources within Puerto Rico” if they have resided in Puerto Rico for an entire taxable year. That part seems good.

However, there are a whole host of rules governing “bona fide residency” that can apply, as well as information reporting requirements to the IRS. So one would need to truly move to Puerto Rico, not just go through some of the motions. Plus, sales may still need to be reported to the IRS, even if they’re not subject to US tax.

Of course, the more significant worry is that the IRS will seek to tax these crypto sales from Puerto Rico, even if one legitimately establishes residency there. How could this be done? Possibly under complex regulations governing “property of former US residents.” The IRS might argue that much of the gain from a crypto sale in Puerto Rico should be taxed in the US. For example, take someone that bought Bitcoin back in 2015 and only moved to Puerto Rico in 2018. The IRS might argue that nearly all of the appreciation occurred prior to the move to Puerto Rico and that therefore the IRS has the right to tax nearly all of the gains from the sale. You may have to wait ten years before you sell to avoid any US tax.

Would the IRS prevail if this issue went to court? Some tax advisers apparently think not. But with big tax dollars at stake, caution is definitely in order. The IRS is just ramping up its efforts to tax cryptocurrencies, and it might not take the most taxpayer-friendly positions. The idea that someone can move to Puerto Rico with appreciated cryptocurrencies, potentially worth billions of dollars, and sell them entirely tax-free, sounds good but perhaps too good to be true.

Que Pasa con Puerto Rico?
The other side of the equation is Puerto Rico. Let’s assume that in a perfect world, the IRS conceded that the sale of crypto in Puerto Rico (after moving) was not subject to any US tax.

Would Puerto Rico try to tax these sales? Again, some advisers say no, and point to tax incentives that Puerto Rico has for built-in capital gains of new residents. But here too, caution is definitely in order. Consulting with Puerto Rico tax experts first seems prudent, to avoid an expensive mishap.

For example, the Puerto Rican exemptions might only apply to gains that were accrued after the individual becomes a bonafide resident of Puerto Rico. Plus, with state budget severely strapped, and the local economy flailing, it might pay to expect the unexpected. Even if the Puerto Rico tax dodge works for now (which is questionable), whether it will persist is worth considering carefully.

Imagine that billions of dollars of cryptocurrency sales are being executed in Puerto Rico, and no government is collecting any tax on them. Should you really expect the IRS and the Puerto Rican tax authorities to sit back and watch, rather than trying to take a piece for themselves?

If so, I have an island paradise to sell you.

Then there are the Puerto Rico infrastructure problems. Parts of it are only now getting electricity back following last year's hurricane.

https://www.oaoa.com/news/business/a...5f7c88d82.html

Puerto Ricans return to power grid, but fear for long term

Posted: Monday, July 16, 2018 8:40 am

ADJUNTAS, Puerto Rico (AP) — It was finally a night to celebrate in this village tucked into the mountains of central Puerto Rico.

People pressed TV remote buttons, clicked on fans and plugged in refrigerators as electricity again flowed into homes that had been without power since two major hurricanes devastated the U.S. territory nearly a year ago.

Lights are slowly coming on for the more than 950 homes and businesses across Puerto Rico that remain without power in hard-to-reach areas. Repair crews are sometimes forced to dig holes by hand and scale down steep mountainsides to reach damaged light posts. Electrical poles have to be ferried in one-by-one via helicopter.

It is slow work, and it has stretched nearly two months past the date when officials had promised that everyone in Puerto Rico would be energized.

And even as TVs glow into the night and people like 20-year-old delivery man Steven Vilella once again savor favorite foods like shrimp and Rocky Road ice cream, many fear their newly returned normality could be short-lived. Turmoil at the island's power company and recent winds and rains that knocked out electricity to tens of thousands of people at the start of the new hurricane season have them worried.

"If another storm comes through, we're going to die. There's no money left here," said 66-year-old Marta Bermudez, who still has a blue tarp over her rusting zinc roof. She doesn't believe the government has enough resources to properly rebuild the power grid amid an 11-year-old recession.

Still, after power was restored to her house on Friday, she celebrated no longer having to eat a diet of mostly rice, bananas and soup or wash clothes by hand in a sink that she and her husband found on the street after Hurricane Irma.

The only power they had for 10 months was courtesy of a neighbor who threw over a thin yellow extension cord connected to his generator that provided just enough power to light one bulb in her kitchen and another in her living room for a couple hours each day.

Puerto Rico's electrical grid is still shaky after Hurricane Irma brushed past the island as a Category 5 storm last Sept. 6 and then Hurricane Maria made a direct hit as a Category 4 storm two weeks later, damaging up to 75 percent of transmission lines.

More than 52,000 power poles have been installed and thousands of miles of cable secured, with some 180 generators still providing power at key locations. But Gov. Ricardo Rossello warns that there is no backup system yet in case the power goes out again, which it did for up to 47,000 customers when the remnants of what was once Tropical Storm Beryl lashed Puerto Rico with rain and wind in early July.

A further complication is the lack of leadership at Puerto Rico's Electric Power Authority, which has seen four directors since Maria, the most recent one lasting only a day in the job.

More at link.

http://thehill.com/homenews/administ...-while-most-of

President Trump handed out supplies to Puerto Ricans during his visit to the hurricane-ravaged island on Tuesday, including paper towels, flashlights and rice.

Trump handed the supplies out to hurricane victims at Calvary Chapel in Guaynabo.

Video and press reports from the event show Trump tossing paper towels into the crowd. He is also seen handing out flashlights.

“Flashlights? You don’t need ‘em anymore,” Trump said. “You don’t need ‘em.”

It was unclear what exactly Trump meant when he suggested people no longer needed flashlights. More than 90 percent of the island remains without electricity following the Category 4 storm, which severely damaged Puerto Rico's electrical grid.