In Pursuit of Puerto Rican Tax Incentives
For any of you that have been reading my articles for any time, you know that I am a lover of horn bands, particularly the Tower of Power (TOP). I have seen them perform in different venues multiple times. I have reimagined another life following the Tower of Power from concert-to-concert in the same manner as a "Dead Head" minus the haze of smoke! It is clear when you hear the horns that the horn section has taken music lessons. Reading the group's fan mail online, I noticed the group's leader Emilio Castillo, paying homage to a fan that had passed away for having seen the band a thousand times in concert. I thought, "What an enviable life," to hear such music so often. A life well lived!
One of the TOP's soul classics from the early 1970s is the song, So Very Hard to Go; however, to borrow a lyric from another TOP classic What is Hip, "What is Hip Today may become passe!" This blog focuses on a planning strategy to minimize the impact of any potential tax increases in 2021.
So Very Hard to Go
The commonwealth of Puerto Rico has had a hard time in the last ten years. PR has suffered a combination of devastating events including the Island's bankruptcy, a hurricane and COVID-19, The Puerto Rican government introduced an incredible tax incentive program in 2012 to attract investment on the Island. In my view, the Number 1 problem, is that the business owner or investor cannot make the sale to the spouse to move to Puerto Rico. No one would ever turn their back on significant tax incentive programs but for the dilemma, "How do I convince my spouse to move?"
Sophisticated tax planning has created a path to achieving this result. A taxpayer from Birmingham, Alabama or Dubuque, Iowa can benefit from a Puerto Rican tax incentive program by transferring key functions within his business to Puerto Rico without relocating to Puerto Rico (emphasis added). The Puerto Rican exempt company is taxed at only four percent with no Federal or state taxation. Furthermore, the business owner can repatriate the profits of the Puerto Rican exempt company without taxation. Let me repeat what I just wrote “The Puerto Rican exempt company is taxed at only four percent with no Federal or state taxation. Furthermore, the business owner can repatriate the profits of the Puerto Rican exempt company without taxation."
No one had to learn Spanish, and no one had to learn to dance! More importantly, no one goes to jail! So Very Hard to Go (Not)!