Puerto Rico: A Cryptocurrency Tax Haven for US Investors

[DISCLAIMER: This does not constitute in tax nor legal advice]

As you probably know, 2017 has been a landmark year for cryptocurrency trading. The market has exploded in unprecedented growth and has acquired the attention of investors all around the world. Market capitalization at the beginning of the year was around $17 Billion Dollars and has grown to $562 Billion Dollars. In addition to Bitcoin, there has been a plethora of cryptocurrencies (“alt coins”) such as Ethereum, Litecoin, Monero, Dash and others that have exceeded everyones expectations this year. Many US Cryptocurrency Investors are concerned with the prospect of facing a short-term capital gains tax of up to 39% depending on where you fall in the tax bracket. Most investors are swing traders that conduct numerous trades month to month as they grow their active funds aside to the more passive funds. This means that they are expected to pay short-term capital gains taxes on those “assets” as the IRS is classifying digital currencies for the time being.

There couldn’t possibly be a jurisdiction within the US that had a 0% capital gains taxes could there? Puerto Rico comes to the rescue. It’s a US territory (“Commonwealth”) located in the Caribbean adjacent to the Dominican Republic. For the past 10 years, the local economy has been in recession and many jobs have been lost. It is not secret that the territory owes over 70 billion dollars to accreditors and is under a federally imposed fiscal control board for the next few years to lower the debt. The government, in an attempt to restore and stimulate economic activity in the island, it approved Act 20 and 22 back in 2012.

The Breakdown of the two Acts:

Act 20  (“Export Services Act”)- Any businesses that export their services from the island get a corporate tax of 4%. This benefits freelancers, bloggers, lawyers, consultants, any online-based business and it includes financial/investment services. The decree signed will be valid for 20 years with a potential for an additional 10 years. Lets take the example of a consultant who has clients outside in the mainland, all income generated from those clients while residing in Puerto Rico will be taxed at 4%. There are other benefits within this Act but that would fall outside of the focus of this article.

Act 22  (“The Individual Investors Act”)- Investors that move to the island receive the benefit of not paying any tax on their capital gains (includes cryptocurrencies and stocks). Current Puerto Rico residents do not pay federal income tax. Any cryptocurrencies acquired from the point you become a resident, you will be exempt from paying any short-term or long-term capital gains tax on your profits. All gains need to be realized prior to January 1, 2036 to receive full benefit. The basic requirements entail that you shall be physically present in the island for 183 days of the tax year. You must demonstrate you have a local drivers license, banking account and property. The law allows you a window of 2 years to purchase a residential property on the island. There are many great homes available around the island at below market price. Other requirements include:  The investor cannot have a tax home outside of Puerto Rico, cannot have been residents in PR 6 years prior to the date in which Act became effective on January 12, 2012, cannot have a closer connection to United States or any other foreign country than to Puerto Rico, and must file an Annual report with the Office of Industrial Tax Exemption due April 15th including evidence of compliance of conditions and requirements of the grant for taxable year immediately before the filing date of report. In addition, a $5,000 fee is due upon the approval of any grant under Law 22 in addition to fee due with filing of grant application.

Areas to look for homes:

San Juan: The capital city of Puerto Rico and a touristic hub that includes Old San Juan. Neighborhoods to lookout for in close proximity to the beach and touristic areas are Condado and Santurce mainly. I would personally look for an apartment in the Condado area. Easy access to Old San Juan, shopping Centers, schools, restaurants, hospitals and most importantly the international airport.

Dorado: A small suburban beach town 20-30 minutes west of San Juan, has one of the more elegant hotel resorts in the island (Dorado Beach Ritz Carlton Reserve). Adjacent to the resort is Dorado Beach which is a community of luxury homes mixed in with a huge golf course and adjacent beach.It’s definitely one of the higher end neighborhoods in the island. A lot of executes commute daily from Dorado to San Juan.

Humacao: Another beach town located on the east coast of the island, you will find another high end community called “Palmas del Mar” with a variety of family homes, villas and condos to choose from. Having lived here before, I am biased to the location. If you ever been to Amelia Island in Florida, it is designed/planned by the same group of folks and has a similar feel. It’s an ideal location for families with young children since it has it’s own private school(K-12).

Rincon: This is my personal favorite place in the entire island. It’s a small surfer town in the west coast of the island. If you are into the more 20-30 something digital nomad rugged lifestyle, this is the ideal location for you. It already has a decent population of expats and with Act 20/22 it will only continue to grow. There is plenty of beach homes/villas at a decent price with close proximity to the best restaurants in the area. Wake up to the beautiful sunset, work and then enjoy surfing lessons in the afternoon. Adjacent to Rincon, there is a major engineering/science university and a developing airport with flights to Florida and New York.

Please sign for our newsletter below if you are interested in finding out for more information. We will be hosting a Q&A with a licensed CPA from the island shortly.

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