“You’re moving to Costa Rica? Do they even have power yet?”
That’s the response we usually got when we told people we were moving to Puerto Rico. Most people don’t seem to know much about the island. We didn’t until I saw an article about a year ago talking about the tax incentives the government started offering in 2012 to entice businesses and entrepreneurs to relocate to the island in an effort to help an economy that’s been depressed since 2006. Of course, Hurricane Maria didn’t help. It set the island back considerably, as a large part of the population left in the aftermath and many structures and infrastructure were damaged.
Why Puerto Rico?
My family and I love to travel. Before I was married I lived in Brazil, Portugal, France, Italy and Germany. I worked online so I could work from anywhere and while I was there I took language classes, which only enriched my experience and helped me understand the culture more.
When I got married, my wife and I moved to Paris for about a year, including a month in Bulgaria. As many people have found, travel, especially long-term travel, truly enriches the mind by giving you a wider, more comprehensive view of the world.
So when I heard a tropical Carribean island was giving U.S. citizens tax incentives to relocate, I was intrigued.
So we move to Puerto Rico, both to have an adventure and to take advantage of the tax incentives Puerto Rico has had since 2012. I’ve talked about my philosophy on taxes and ways to legally reduce your tax bill before, but Puerto Rico takes it to the next level.
The incentives are known as Act 20 and Act 22, which basically say that if you move your company to the island and export services (consulting, advising, management, shipping, etc.) then your company will pay only 4% of qualified income. There are no personal income or capital gains taxes for the owners of those businesses.
The one catch is you have to be a resident of Puerto Rico. You have to be legit. It doesn’t work to just incorporate on the island, as you can in other places. You have a move your life here. Get a driver’s license and bank account and spend at least 183 days on the island and have a closer connection here than to other places. It doesn’t work to do it halfway and it shouldn’t. Puerto Rico needs real businesses to establish themselves here.
A boost to our income
I’ve never been a fan of high taxes. I understand taxes are necessary, but I don’t know why someone living in a high tax state like California wouldn’t move somewhere else. One Californian neighbor moved here to reduce his tax bill from 53% to 4%. That means more money in his pocket and an accelerated timeline for reaching financial goals.
Let’s do some math to make the point. If this guy from California is making $100,000 a year and paying about half of that in taxes, his after-tax income is $50,000. If he relocated his company to Puerto Rico, he’d pay 4%, so his after-tax income would be $96,000. He just effectively doubled his income. The more you make, the more you save.
There are, however, some things to consider that would temper the tax savings. It costs money to move your life to an island, apply for and get residency and some things are more expensive here (thank you, Jones Act).
For Puerto Rico, it means more tax revenue and likely revenue from companies adding local employees, employing local services, buying cars, houses, and other goods and services.
If you are a U.S. citizen and have a qualified business and are in a financial position where the lower tax rate is meaningful for you, you may want to consider living on this tropical island.
Puerto Rico has some amazing natural beauty that’s easily accessible. We haven’t been here that long so we’ve got a lot of exploring to do, but so far we’ve kayaked through a bioluminescent bay at night and hiked through the rain forest. In fact, the water that comes out of the tap in our home actually comes from the rain forest.
As a U.S territory, you don’t need a passport to visit the island and many people speak English. At the store, many of the signs are in both Spanish and English. Even with the prevalence of English, it’s a great opportunity to learn more Spanish and experience a new culture.
How’s it going so far
One of the things I’ve found most interesting about Puerto Rico is to see how the island is so much different than I see in the news or hear from people. Before moving I heard there wasn’t power and that Zika was overtaking the island. Both untrue. I think this happens with a lot of places. I heard New Yorkers and Parisians were rude and snotty, but have found that also to be untrue after living in both cities.
We’ve been very welcomed by our neighbors here. We’re adjusting from coming from a desert climate to a tropical, humid one where it’s 90 F every day, with the occasional 10-minute rain every day.
We miss our family and friends back home but plan to visit often. We’ve already got a list of people coming to visit in the next 6 months.
How long we’re here is up in the air (at least a few years), but we’re having an adventure and keeping most of our money, so life is good.