Peter Schiff Goes to Puerto Rico
>Posted on April 9, 2014
Nick Giambruno: Peter, tell us about your take on the situation in Puerto Rico and some of the opportunities it offers.
Peter Schiff: The Puerto Rican situation is actually quite appealing for Americans who own businesses because the way they have reformed their tax law is very favorable to businesses that are generating their income out of Puerto Rico—Puerto Rican-sourced income.
So if you are doing something, if you go to Puerto Rico and do it—if you incorporate a business in Puerto Rico and operate your business from Puerto Rico—the tax treatment is very favorable. You basically pay a 4% effective tax rate.
If you incorporate in Puerto Rico, that corporation enjoys a 4% tax rate even if you yourself are not living in Puerto Rico, which is much better than being in the states, where it is subject to a 35% tax rate federally and then some. Depending on which state it might be incorporated in, you’d have another layer of corporate tax, so clearly you’re at a competitive advantage if you’re operating a business out of Puerto Rico. And you’ll also find that the cost of doing business—the labor costs and the rental costs—are going to be lower in Puerto Rico than the 50 states.
So you can move over there, you can operate a business at a lower cost, and you can keep a lot more of what you earn, which effectively is like a reduction in cost because you don’t have to make as much money. In the US, in order to generate a dollar of profit, you pretty much have to generate almost two pretax dollars to get a dollar after tax, whereas in Puerto Rico, you can get a dollar of after-tax profit by generating only $1.04.
Nick: So what makes Puerto Rico different than other low-tax jurisdictions like the Cayman Islands?
Peter: Well, the Cayman Islands is not part of the US. You can incorporate in the Caymans and you can enjoy a very low, maybe even a zero rate of tax. But the difference for an American is huge in that if you run a business in the Cayman Islands on the corporate level and you pay no taxes, as the owner of that business, if you want to enjoy the fruits of the profits, if you want to pay yourself a dividend or if you want to move to the Caymans and pay yourself a salary, all of that is going to be subject to US income tax. Even though the Caymans doesn’t impose an income tax, America still does. Now, if you are Canadian or German or anybody else, then it doesn’t really matter. You can move to the Cayman Islands and live a tax-free life.
But you can’t do that as an American citizen, because the US government says, “Uh-uh; we don’t care where you go on this planet.” In fact, they probably don’t care where you go in the universe. Wherever you are, if you’re earning money, the US government wants its cut.
But if you go to Puerto Rico, they don’t take a cut, and that is what is unique, because there is a tax treaty between the United States Government and Puerto Rico as part of the terms of the territorial agreement that we have with Puerto Rico. It says that if you’re an American citizen living in Puerto Rico, working in Puerto Rico, that the income that you earn while you were there is not subject to any US income tax.
https://www.theburningplatform.com/2014/04/09/peter-schiff-goes-to-puerto-rico/