Puerto Rico: Tropical Tax Haven for America’s Super-Rich

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by Katherine Burton,

from Bloomberg Businessweek,

Struggling to emerge from an almost decadelong economic slump, the Puerto Rican government signed a law in early 2012 that creates a tax haven for U.S. citizens. If they live on the island for at least 183 days a year, they pay minimal or no taxes, and unlike with a move to Singapore or Bermuda, Americans don’t have to turn in their passports. (Puerto Ricans are U.S. citizens but cannot vote in federal elections.) About 200 traders, private equity moguls, and entrepreneurs have already moved or committed to moving, according to Puerto Rico’s Department of Economic Development and Commerce, and billionaire John Paulson is spearheading a drive to entice others to join them.

Puerto Rico’s low-tax welcome mat comes as some of the wealthiest Americans grow more anxious about tax increases and rhetoric directed at the rich. Tax bills have risen after a 10-year break under President George W. Bush that disproportionately favored the rich. The 2008 global financial crisis and the recession that followed also unleashed movements such as Occupy Wall Street that focused attention on growing inequality and the responsibility of large financial institutions in helping to create the mess.

Peter Schiff - John Helmers

In October 2011 protesters marched by the homes of Manhattan’s billionaires, including Paulson’s. A little more than a year later, President Barack Obama beat Mitt Romney in an election that highlighted the latter’s wealth and private equity background. “I’m worried about the shifting mentality among the electorate, people blaming problems on the rich, on business, and on capitalism,” says Peter Schiff, a onetime candidate for the U.S. Senate from Connecticut and a former economic adviser to libertarian presidential hopeful Ron Paul. “I’m afraid that the tax rates that are already high will get higher in the years ahead,” maybe up to 60 percent or 70 percent, he added.

John Helmers, a hedge fund manager who spent time at Citadel and Tudor Investment, says he would never have moved from Greenville, S.C., to San Juan with his wife, Glenn, and three of his five children, if they hadn’t all been on board. “When my wife said this could be a cool adventure for the family, that was the go switch,” he says. Helmers is setting up Long Focus Capital Partners, a macro fund that also trades individual stocks. “Before I spent 30 percent of my time thinking about taxes, and now I don’t have to do that,” he says.

The biggest question is whether Puerto Rico’s plan will improve its economy. “This place is in dire straits,” says Rill of Strategic Group PR. He calls the tax laws a glimmer of hope for the island. “We’re buying cars and getting office space and contributing to the economy.” He spent about $1 million, on top of his house purchase, on office space, a car, and legal and accounting services, he says. … “We’ll know in five years if you end up with a couple of areas of haves amid a whole bunch of have-nots.”

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