Trading from Puerto Rico

Any news on bitcoin/ cryptocurrency issues? Could I go down there for a week, become a resident, sell six figures worth of bitcoin through Coinbase, have it wired to my US bank account and avoid taxes?

 

Here's my blog.

Puerto Rico’s tax haven status is tailor made for investors, traders and investment managers
http://www.greencompany.com/blog/index.php?postid=215

Any traders or investment managers interested in making the move to PR?

 

Hi Robert, I'm curious as to how you made that conclusion. I see Act 22 here, do you have any other versions of it:

http://unarealty.com/wp-content/uploads/2014/02/Act-22-English.pdf

It specifically states that it only applies to long-term capital gains.

So, I don't see how all investors can take advantage of this. As short-term capital gains are still taxed at ordinary income, which is 33% for puerto rican residents (vs. 43.4% for us citizens elsewhere), it still isn't significant enough to justify a move to such a location.

Also, collectibles would still be taxed at the IRS-set 28%, so for gold/silver bullion sales, for example. And dividends would also be taxed at 23.8%, at the set IRS rate, again.

The only advantage that could be here in theory would be for futures/fx traders, who could use the 60/40 tax regulation (which I'm guessing also applies to puerto rico, as a CPA, could you confirm it formally?) on section 1256 to be taxed at a rate of 13.2%, vs. the standard US 31.64% blended rate.

 

Here is the actual spanish document of Act 22, again, only long-term capital gains are mentioned:

http://www.lexjuris.com/lexlex/Leyes2012/lexl2012022.htm

 

I am skeptical. There are quite a number of Puerto Ricans in NY and on Wall Street. The fact that none of them has left NY to set up shop in PR means that it's more complicated than that.

youknowwhatimeanwhatimtalkingabout?

 

You have to fill out this form:

http://www2.pr.gov/agencias/oeci/Do...licitudes/Application for Act 22 Fillable.pdf


The only restrictions seem to be that you can't have been a previous Puerto Rican resident between 1997 and 2012 and that the Puerto Rican government will do a background check, but other than that, provided you don't have a felony, you should be approved, no?

 

According to Gabriel Hernandez of BDO PR, the original law was updated to include all capital gains. I'll ask him for the actual support on that. Many writers say all capital gains.

 

See the Tax Notes article by Gabriel Hernandez below where it says "all capital gains." In my blog, I asked Hernandez to clarify uncertainty about all versus long-term capital gains only, as I saw it written both ways. Hernandez said the law was "corrected" later. Excerpt of Tax Notes below.

B. The Puerto Rican Tax Rules

In January 2012 Puerto Rico passed Act No. 22 of 2012, which contains numerous incentives to encourage individuals to relocate to Puerto Rico. Thelaw provides the following benefits to new Puerto Rico bona fide residents (more on who qualifies as a new bona fide resident below): 100 percent tax exemption from Puerto Rican income taxes on all dividends; 100 percent tax exemption from Puerto Rican income taxes on all interest; and 100 percent tax exemption from Puerto Rican income taxes on all capital gains accrued after the individual becomes a bona fide resident of Puerto Rico. The new resident must not have been a resident of Puerto Rico at any time during the 15-year period preceding the effective date of Act No. 22, which period would be from January 16, 1997, through January 16, 2012.

This morning, I asked Mr. Hernandez for the cite in the law showing that correction to all capital gains. Thanks.

 

Some sites are claiming only long-term capital gains:

http://www.the2022actsociety.org/index.php/tax-incentives/act-22

Others have conflicting claims, sometimes saying that the deal only applies to long-term capital gains in certain instances even then:

http://puertoricotaxincentives.com/


I'm not sure if that rate applies to capital gains made outside puerto rico, perhaps only short-term gains inside puerto rico are considered tax-free (that's one possibility, but still not clear on that), however, gains outside puerto rico (investments) would still be taxed at 33%, only that long-term capital gains outside puerto rico would be ensured at 0%.

Also, can you ask if section 1256 applies to Puerto Rican investors and can be used in this context to lower the tax liability to 13.2% from 31.64% for the 60/40 rule for futures/fx profits in conjunction with the deal?

 

When I started researching this topic for our blog, I also saw conflicting info all around and I tried to pin down Gabriel Hernandez of BDO PR on it. He said the law was "corrected." I've asked him for the source.

My blog says:

The article says “(Act 22) has a 100% tax exemption from Puerto Rico income taxes on all long-term capital gains accrued after the individual becomes a bona fide resident of Puerto Rico.” I asked Mr. Hernandez if this should say all capital gains (including short term). Hernandez confirmed all capital gains now receive the exemption.

“Originally, PR Act 22 had only the long-term capital gains exclusion and after a short while they corrected it to include all capital gains (on the sale of personal property),” he says.

Some tax professionals feel the Hacienda might consider a day trader, scalper or high-frequency trading market-maker to be a business, and disqualify their trading gains from Act 22 exclusions. But Hernandez and Leeds disagree.

“Puerto Rico follows federal precedents on trade or business, and trading is a capital gains activity in the U.S.,” Hernandez says.