Puerto Rico is a jurisdiction that excites the imaginations of wealth planners. It has interesting attributes for American citizens that other non-U.S. jurisdictions don't. For instance it is the one place that American citizens can greatly reduce their Federal Income tax liability without having to renounce their citizenship. This has generated an enormous amount of interest.

There is good reason for that interest. 2020 and 2021 have thrown a lot of uncertainty at wealthy families trying to arrange their affairs. A worldwide pandemic, relative electoral chaos, an explosion of wealth in some sectors of the economy, the targeting taxation of the wealthiest families and all sorts of legislative uncertainty have foretold increasing tax and compliance burdens for most people.

With the chatter of Puerto Rico as a magic pill, I thought it was necessary to find out more about the benefits, the requirements, the traps for the unwary, and the best practices in using Puerto Rico as a jurisdiction for wealth planning.

Enter MARIA DE LOS ANGELES RIVERA, Tax Partner in Grant Thornton's Puerto Rico office.

In her role as tax partner, Maria engages in the design and development of tax planning and consulting strategies. This includes tax services in the area of mergers and acquisitions,business reorganizations, partnership transactions, tax incentives and exemptions, individual and corporate tax issues, personal financial matters, and others.

Mrs. Rivera is a summa cum laude graduate and holds a bachelors degree in business administration from Catholic University of Puerto Rico and holds a Masters degree in publicaccountancy from the University of Texas at Austin.

She is an expert in the ins and outs of Puerto Rico and a terrific resource as we dive into this topic.

Below is an outline of our discussion. Of particular use to those who want to dive into the details is a link to GRANT THORNTON'S 2021 PUERTO RICO TAX AND INCENTIVES GUIDE. This is extremely helpful in starting a Puerto Rico relocation analysis. (As with any tax planning, an analysis of an individual situation with the requisite legal, accounting, investment and business advice is mandatory- this podcast is for educational purposes.)

INTRODUCTION

Maria's background and tax training.

OUTLINE

Puerto Rico is getting a lot of attention as a planning situs for US Citizens- why?

Expatriation "lite"?  For U.S. Citizens that are willing to give up citizenship for tax or other reasons, they usually have to pay a hefty exit tax. In Puerto Rico, with the right structuring, you can maintain U.S. citizenship with reduced federal tax liability (with no expatriation tax).

It's not as easy as just renting a place and "moving down there". What kind of analysis should prospective "re-locators" go through? What are the family implications? What about thoughtfully leaving your previous state of residence?

Benefits

Personal Taxes- What are the benefits?  Tax Savings at the Income, Capital Gains, and Estate Level.

Business Taxes- What are the benefits for people locating their businesses there? What are the parameters?

Geography and Business features of Puerto Rico

Personal Tax Benefits

What is required? 

The Presence Requirement-

-Physical presence (Annual proof of living in P.R. for 183 Days +, what is the home purchase requirement?)

-Tax home presence - where you work from?

-Closer connection - where do you "live"? How do you prove it?

-Is there planning to think about during the year of the move? Forms?)

-What are the requirements for those who are anticipating a significant capital gains event?

Business Tax Benefits ?

What is the general rule for whom this could work for?

What are the traps for the unwary?

-Recordkeeping

-Audit risk

-What actually qualifies?

-Best practices- what should someone do if they are thinking about this route?

OUTRO