Episode 60: Puerto Rico Tax Advantages with Chris Hamm

Ben Lakoff, CFA
December 27, 2021
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Have you heard about Puerto Rico being the last true tax haven for Americans?

In this episode we dive deep into Puerto Rico; Most importantly what the tax savings opportunities are for Americans.

We talk about all things Puerto Rico. What’s it like living there, the climate, what sort of people should be interested in looking at Puerto Rico and what to keep in mind if you’re interested in doing it.

Enjoy learning all about Puerto Rico and It’s potential tax advantages with Chris Hamm!

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Show Notes

0:00:00 Welcome and context

0:01:37 What is your background?

0:04:06 What is the relationship of Puerto Rico with the US?

0:07:05 Why should Puerto Rico be on people’s radar?

0:11:50 What is Act 60?

0:13:56 Federal income tax exemption

0:18:00 What are the qualifications that people need to meet for Act 60?

0:22:50 What are some of the common misunderstandings about moving to Puerto Rico?

0:26:05 What is the crime rate like in Puerto Rico?

0:31:00 Huricane season and infrastructure

0:36:10 The risks of changes in Puerto Rico?

0:41:41 The timeline for getting the paperwork done

0:45:06 Cost of living in Puerto Rico

0:46:51 What are the services that your company is offering?

0:51:42 Who should be most interested in Puerto Rico?

0:55:59 Where can people find out more about you?

Show Links

Flag Theory

The World Is Flat

The 4-Hour Workweek


Act 20

Act 22

Helpful other Alt Asset Articles

Episode Transcript

[00:00:00] Ben: Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lakoff.

Hello and welcome to the all to asset allocation podcast. Today’s interview is with Chris Hamm. Have you heard about Puerto Rico being the last true tax Haven for America?

I certainly have, in this episode, we dive deep into Puerto Rico. Where is it geographically? What is it, why they came up with this and a bit of history around it, then most importantly, what are the tax saving opportunities for mainland Americans? We talk about. All things, Puerto Rico, what it’s like living there, the climate hurricanes, they terrify me.

What sort of people should be interested in looking at Puerto Rico and what to keep in mind if you’re actually interested in doing it? What sort of gotchas exist that you should be aware of before you listen? Please don’t forget to like, or subscribe to the podcast or even better leave a review. If you’re watching this on YouTube.

Give the video, a little thumbs up and or subscribe to the channel. These things really help and they help spread the word about the podcast and really help keep this thing going. Okay. Enjoy learning all about Puerto Rico and its potential tax advantages with Chris Hamm. Enjoy

Chris welcome to the all to asset allocation podcast.

Excited to have you on today.

[00:01:29] Chris: Thank you for having me calling in from good old Puerto Rico, where. So we are in dirato we’re about 30 minutes outside of San Juan, so pretty close, but a little bit a little bit outside of downtown.

[00:01:42] Ben: Yeah. This episode is all about Puerto Rico. Before we jump into it start off a little bit about you, your background, and then we’ll, we’ll dive into all things. Puerto Rico.

[00:01:52] Chris: I’ve been I’m originally from Texas and I’m I’m living in Puerto Rico. Now. I’ve been down here for five years and I never thought that I would leave Texas in my wildest dreams. And when I moved out. Before. I mean, it sounds ignorant, but I never even knew where Puerto Rico was and now it’s my forever home.

But like I said, originally from Dallas, I have a background in accounting. I have an MBA at a CPA, so well-versed in the tax side of things and I was doing international self-insurance before I found out about. Puerto Rico. And when I first heard about what Puerto Rico had to offer, I said, this is way too good to be true.

So I came down here and checked it out and I actually read a book called the world is flat, which is a classic and also the four hour workweek by Tim Ferriss. So both of those have been very influential in my life. And some of those aspects, you know, intermingle with what’s going on in Puerto Rico. Can you live in a low tax environment?

Can you communicate with people very easily? Which I feel like COVID really helped that out. And I don’t like the cold cause that was coming from Chicago. So I’ll tell you, I don’t think it’s ever snowed in Puerto Rico and its history. So I like the warm weather. I love the beach and I love being an American, but I also.

Love not paying taxes. So I look to provide that opportunity for, you know, hundreds of entrepreneurs that really thousands, that it relocated

[00:03:26] Ben: four hour workweek was very, very influential in my life as well, as well as like flag theory, which I’ve done another podcast on. And just this idea of diversifying everything across multiple jurisdictions and currencies.

All the things. Before we get into why this is such an interesting opportunity and that people should be looking into, let’s just start off for the listeners because there might be some people that don’t even know where Puerto Rico is or what the relationship is of Puerto Rico with the U S because I’ve talked to people and they’re like, oh no, I can’t leave the U S.

It’s kind of this other thing. I think that’s a great place to start.

[00:04:05] Chris: And when I first came down here, I thought Puerto Rico was like 45 minutes away from Miami, right by The Bahamas. And then you get on the flight from Miami and you’re like, wait two and a half hours away. Like, where am I going? We’re actually closer to Venezuela than we are to the mainland us.

So if you look on the map in Puerto Rico, we are way out in the middle of that. But it’s actually a very big island. We have about 3 million people. So we’re actually bigger than 20 states. Regarding your question about what is a relationship between you were at the U S and Puerto Rico? It’s actually a very interesting one and it’s been going on for quite a while.

So. Puerto Rico was became a us territory and unincorporated territory, which is kind of important. I’m not a political expert, but we got it from Spain in the, in the Spanish American war in 1898. And historically Puerto Rico’s really been like a military outpost for the U S until recently. And so.

We have all the rights and privileges of being us citizens to everyone. That’s born here as a us citizen. We transact and dollars. All of our banking is, you know, FINRA fence and FBIC insured. We’re sec regulated. We have the us court system. But the unique thing about Puerto Rico is no taxation without representation.

So Ben, you might remember the Boston tea party from 17 hundreds, right? Everyone was pretty upset that they were getting taxed by the British and they weren’t allowed to vote. So the U S. So Puerto Rico is domestic for everything besides our tax system. So there’s some opportunities there and there also some challenges there too, that we work with every, every single day.

So it took me a while to understand, like, you know, how does all of this work, you know, what’s in there for Puerto Rico. Frankly we don’t really have that much to offer. The United States anymore, because we’re not in the worst, like we used to be. But they can’t just get rid of us either. So and th that’s that could be a whole podcast within itself.

Okay. So that’s really my, my 2 cents on that, but I do believe like right now, this is. This is going to be the Renaissance of Puerto Rico. There’s been ups and downs from going back to the 1920s and thirties from, you know, the sugar cane industry and a whole lot of other stuff. So that is a. That’s a little elevator pitch on, on Puerto Rico right there for

[00:06:36] Ben: Nice. Okay. I do eventually kind of want to get into touching on living in Puerto Rico. What it’s like hurricane scare the crap out of me, but first let’s talk about why it one way that hell we’re talking about this little island, that’s closer to Venezuela than to Miami. Just. Explained to be why this should be such on people’s radar at 60, 20, 22, whatever the way to explain it in the most succinct way.


[00:07:04] Chris: So let me take a little bit of a step back on, why do we have these amazing tax incentives in the first place? So Puerto Rico has been really having a hard time economically since 2007. Not only the housing crisis and everything that you asked experienced, but we also have. You know, our government really, hasn’t been doing a good job of paying its debt and that’s really the short and sweet of that.

Additionally, we’ve been having a big brain drain of like the middle class college educated Puerto Rican’s who, if you’re an attorney in Puerto Rico, you make $40,000 a year. Well, I can just take a point of Orlando and make $80,000 easily. What’s what’s the best for me and my family. Yeah. They’re doing, you know, what’s in their best interest.

So in 2012 we filed bankruptcy. Since we’re an unincorporated territory, it’s very complicated. So we said, okay, we have to do something as an economy to get to get this, then jump-started right. We needed a little Tinder on the fire. So we said, and tobacco a little bit, Puerto Rico is kind of a notorious for tax incentives for decades.

The big pharmaceutical industries really started down here. Benefiting from, from the tax structure. That’s kind of change over time, but back in the day, I mean, everyone in Puerto Rico was white line with cash. So we’re kind of doing something similar for the middle market. We’re doing something for middle market businesses who are providing export services.

Our economy is about 50% of our GDP is manufacturing. So. That’s unsustainable in this global economy. And everyone pretty much agrees on that. So we need to transform to a 21st century service-based economy. So how do we do that? By tax incentives, the same thing Chicago is doing with like McDonald’s same thing Dallas is doing with like, you know, they have their Toyota headquarters and, and you can see this throughout the country, but we’re kind of doing this on a smaller, wider scale for businesses.

And then also we need rich people to meet. Pretty much because rich people made their money one way or another. They’re smart overall. And if we can incentivize them to invest capital into our. I mean, we’re maxed out on our credit cards. We don’t have any other options. So if you set up an export service business down here, which I work a lot with like tech companies a lot of, a lot of different verticals in the digital asset space, some hedge funds, things like that.

Telemedicine. You pay a 4% tax and we’re exempt from federal. So that’s pretty powerful. On the individual side, if you relocate here and you become a resident, which we can kind of get into that a little bit, a bit, you pay 0% tax on all capital gains earned as a resident. So both short-term and long-term so.

This has really become a Haven for yeah. Crypto guys, for sure. And like just invest. Right. And I mean, my portfolio is so wide, like all different types of industries, it’s kind of crazy. So but it’s working and we’re seeing this economic impact coming fast and it’s, I believe that’s a really good thing for this.

[00:10:09] Ben: Both of these acts have been consolidated into act 60, right. But there’s basically two pieces. One is you set up a Puerto Rican entity that is a service industry, exporting services around the world that is corporate income tax of 4%, as opposed to whatever it is and all these other countries. The way that that would work is I’m consulting or providing it services or whatever.

For these foreign companies, they bill my. Puerto Rican entity and I keep 96% of that income at the end of the day. Right? Yup. Yup. Awesome. That used to be called act one knee, right. Act 20. Yes. Now it’s all part of one big X 60.

[00:10:52] Chris: Well, so Puerto Rico is doing a good job. I don’t even know what it’s called anymore.

Puerto Rico has hundreds of different tax incentives. So at the beginning of 2020, I say, Hey, we’re going to take some out that aren’t really working and we need to streamline this because we want to step our game up to. So we’re going to recall to file all the incentives and call them back 60, which it’s kind of funny.

If you park in a wrong parking spot in Puerto Rico, it says lay 16. You know, don’t park here too. So I don’t know how this legal thing works, but yeah, so we have act 20, which is for businesses, act 20 twos for individuals. And this all started in 2012. So we do have a lot of good precedent. ’cause some people say it’s too good to be true.

And that, well, Hey, I’ve been down here for,

[00:11:40] Ben: okay. Act 20, I think makes a lot of sense, but the real key is act 22. And I think this is, what’s probably more interesting for like the investor type person. And this means that you buy assets as a Puerto Rican resident, they appreciate and value, and then you owe zero capital income tax on it.

Right. Federally.

[00:12:04] Chris: That’s correct. I don’t know if you want to get into the technicalities, like holding periods and things like that, but I would just say, and, you know, number one, like do your own research, this isn’t tax advice, you know, you hear it all over the place. Right. But if you do earn a capital gain in the U S and then you move to.

And you earned some capital gains in Puerto Rico. You still do have to pay the IRS for the gain that you earned in their backyard, unless you stay here for 10 years. So I do have some people that are kind of playing the long game there, but yes, you’re exactly right. Then if you establish residency in Puerto Rico and you buy something and it goes up, you’re paying 0% tax, unless it’s us real estate, and then that’s a us tax.

[00:12:47] Ben: And then further to that. Previously referred to as act 22. You also are exempt from federal income tax on income that, that that’s non Puerto Rican derived or is Puerto Rican derived, right?

[00:13:02] Chris: That’s correct. So that’s called section 9 36 in the tax code. All, all income earned in Puerto Rico is not subject to us taxes.

So if you want to own a food truck and borderline. You’re not paying the U S you’re paying the Puerto Rican IRS, which we got lost. So no, no income or in Puerto Rico tax, federal.

[00:13:23] Ben: Okay. Yeah. Us real estate is the one asset class that’s excluded. Even if you do so. I mean, for people that have massively appreciated assets that move down there, your options would be to sell and revalue at this, have this new cost basis.

And then the additional appreciation would be. Taxed, but the other option is just to wait it out for 10 years and then you don’t own any capital. Yeah.

[00:13:53] Chris: That’s called the built-in gain. Technically and if you have this built-in gain, so let’s say, you know, you know, you bought Amazon 10 years, 10 years ago, right.

It ran up a, and you’re like, I don’t want to sell it. Well, You have to wait 10 more years as a Puerto Rican resident. And in that built in gain that primary portion will be taxed to Puerto Rico at 5%. So we have some industry, I mean, you’re looking at an incredibly low effective tax rate. Right. But some people that I have that are like in venture capital or private equity, they have some access that are coming up.

And I say, look, just because it’s, you’re about to have a big exit. It doesn’t mean you can’t escape the tax man, because you know, the IRS is the biggest baddest tax authority in the world. But what you can do is, you know, if you get a valuation, just say, Hey, it’s worth this much. Right. Sell it to yourself and move to Puerto Rico.

You have to pay the tax on what it’s worth now. There’s no way around that might be able to structure an installment sale or something to use some cashflow for you. But we’ve done that a lot and that’s been pretty successful.

[00:14:59] Ben: Fascinating. The idea is I make a VC investment at a valuation of $5 million.

It’s at the latest round, latest valuation is 20 million. I have a gain of whatever I’ve invested by four X, but I suspect it’s going to IPO at a hundred million. I could shelter that 20 to a hundred because it would be as a Puerto Rican president.

[00:15:23] Chris: Yeah, but I have some founders that say like, man, I am so rich on paper, but I, I can’t stroke a $5 million tax check either.

Right. So I’m just going to have to write it out. So the cashflow considerations can be a challenge in, in something like that, especially with like, you know first time founders that are about to hit a big too. So maybe they just say, Hey. I’m just going to get as many days as I can in Puerto Rico and then on assets that aren’t marketable security.

So like, you know, P or VC you look at the days, hell between each jurisdiction to do a weighted average. So it’s getting a little bit into the weeds, but I think, you know, for your audience, it’s, it’s important to delineate that because you can go online. Holy cow, I can move Puerto Rico and pay 0% tax.

It’s like, yes, but there is some fine print in there. And I think that’s one of the goals of this discussion that we’re having to Ben is to say, okay, what are the do’s? And don’ts down here? What is it really?

[00:16:20] Ben: A hundred percent. And that’s, that’s the first reaction. Whenever I talk about this with Puerto Rico, people are like, there’s something then now you’re not, you don’t know the whole story.

There’s gotta be a way. It’s too good to be true. What are the other qualifications to, to qualify for act 60? I mean, I go down there, I move, I have to buy property. I do the donations, like what are all the check boxes?

[00:16:46] Chris: So we have a couple different. Regulatory bodies that we have to apiece pretty much so I would say the number, number one, which Puerto Rico might disagree with this, but we have to follow the IRS residents.

So what does it mean to be a resident of any place where they go follow the same rules as you know, if you want to move from California to Nevada or New York to Florida? Number one is the physical presence test. So. There are a couple of different ways to meet that physical presence test. I’ll tell you.

The first one is we have to spend the majority of your time in Puerto Rico. So that’s 183 days minimum. I like, well, overall, my philosophy is you need to make Puerto Rico your, your home, right? So that’s number one. So 183 days, or let’s say you’re an internet. Traveler which more and more people are just, you know, Airbnb and their way through life.

Pretty much. If you spend less than 90 days in the mainland, us, and you spend more time in Puerto Rico than anywhere else, you can satisfy your physical presence test in that manner. So, number one, you got to pretty much be here more than anywhere else. Number two, you have to have a tax home. So if your primary place of residence and then number three, It was actually a very interesting test and there’s a lot of case law on this and it’s kind of a gray area it’s called the closer connection test.

So that looks at all of the qualitative factors of your life to see where you live. Okay. You have a $5 million house in the Voya and you’re renting out a $1,500 apartment in San Juan. And you know, you have a California driver’s license. The California franchise tax board is going to say now, right, man, they’re probably right.

So, where are you doing your banking activities? Where is your family? Where are your assets located? Where are all of your valuables? Right. Where’s your dog, you know, all of these things, right. The dog necessarily isn’t in that sheet that we have to send to the IRS, but there’s been case law where he said, all right.

Yeah. So,

[00:18:46] Ben: oh, with their kids in private school there, and they’re saying they live there, it’s like, okay, obviously you’re not managing.

[00:18:53] Chris: It gets complicated. Right? So if you’re in a complicated situation, then you probably need to talk to an attorney to understand what the rules are. Right. Cause that’s getting pretty deep into the weeds.

So I would say, yeah, you need to make Puerto Rico, your home. You’re allowed to come to the us. You’re allowed to go visit your family. You’re allowed to have a second house, things like that, but yeah, Puerto Rico’s is your home. So that’s the IRS stuff. From a Puerto Rican standard. For act 60 well for act 20, I still call them at 20 and 22 because act 60, we could be talking about literally a hundred different things.

So For the export service business. You have to have at least one employee that has changed from anywhere between zero to five over the past 10 years. And could change again. Once you do sign a contract with the Puerto Rican government, you are locked into your terms. So right now it’s one employee and you have to file annual report like a census or something like that.

There are nominal fees associated with that. If you’re over a certain threshold, you do have to get out of CPF wearing and CPA to audit your books and submit that to the government from an individual investor side, which I think this is kind of more of our demographic here, you have to donate $10,000 a year to charity, which I think is reasonable.

You’re moving to Puerto Rico and paying those taxes. You still have a duty to society to contribute, right? But now it’s your responsibility, not someone else who’s making decisions behind a closed door, allocating your funds. So at least donate 10 grand to charity. And then you have to purchase a primary residence within two years of living down here.

So, you know, our real estate market’s been depressed. So we, if you want to come here and take advantage, we need you to buy a house. So, you know, get this thing going. In some areas of real estate has gone insane, right? So like in my neighborhood, It’s it’s three acts in three years. Right. And that’s a pretty damn good investment and you know, real estate is pretty swamped.

So it’s, it’s crazy times down here for sure. The word is out this obviously all sounds great.

[00:20:53] Ben: You talk to a ton of people about going down there. What are the most common, I mean, common misunderstandings upfront is a lot of things, but like once I decide to go and do it and take advantage of this opportunity, what are, what is the link?

The thing that comes up most often that they’re like, oh shit, I wish I would’ve known that upfront.

[00:21:13] Chris: So the big thing for me and I worked with a lot of, you know, high impact entrepreneurs is island time. And we might laugh to say, yeah, yeah, yeah. But. Is it, I tried to fight it for years. Been okay. Like, Hey, we need to show up at nine o’clock.

We need to have a meeting. It needs to be fast. Right. It’s not how it works down here. If someone doesn’t have an update for you, they’re just not gonna email you or even call you back or talk to you. So It’s just, it’s our culture down here. Right. We’re very, trinky lo you know work ends at about one o’clock on Friday.

Right. And once those are three hours long, that’s just how it goes. So also for. Christmas starts after Thanksgiving. And it ends on January 18th after three king states. So just nothing’s happening. Right. And it just so happens to be, that’s like the most critical time of the year to move down.

So a big thing that I try to do, especially with you, new Yorkers who are listening, you got to relax because you will drive yourself crazy trying to fight this island time. It’s maybe some of the reason why we’re in this situation. But it is what it is. But so that’s the first thing that really pops into my mind is island time.

And I learned to adapt and I’ve, you know, probably a victim of it too. Right. The big three things though that I see when moving down our safety medical care and in schools, and I’m confident to say that Puerto Rico checks all the boxes on all three of them. From a safety standpoint. Yeah. There are bad areas in Puerto Rico, but I also, you know, came from Chicago.

Right. And I loved Chicago. Chicago has its bad areas as well. Through medical side of things, I would say, yeah, the level of care is. Which you could expect in the U S but, you know, we have things like concierge doctors, like my doctor went to heart. We’re also opening John Hopkins in Dorado at.

It’s supposed to be Q4 and I drove by it today and it looks ready to go. So that’s supposed to be the number one research facility in the Caribbean. So we’re very excited about that. So healthcare is definitely getting better down here and then schooling. If you’re going to bring your kids down here, if they’re definitely going to go to private school, you know, they cost about 20 grand a year.

They’re all English speaking. The sat act scores are high and the college acceptances are pretty. Pretty exceptional too. So I was kind of surprised by that, frankly, when I first moved down. So those are really the big things that I see when, when people are looking to evaluate a relocation now here.


[00:23:40] Ben: Well, those are pleasant surprises as well. Touching on the crime a bit, and I know every city has its rough spots, but I just think like, Bigger picture. You have a bunch of rich Americans moving down there to like save on taxes and it’s a relatively impoverished place. They’re worried about like, I mean, do all the.

The act 60 people from mainland all live in like these guarded compounds and drive armored cars. And like the rest of the people are, there’s like a growing distrust for these sorts of people. And like the worried about the widening wealth gap there.

[00:24:19] Chris: So Puerto Rico has always had a super big wealth gap, right.

Through revive variety of different reasons. But a lot of communities in Puerto Rico are gated as just, you know, and we’re not worried about like getting kidnapped or anything like that, but. If you go to old San Juan and like, leave your laptop in the front of your car and leave it there, you know, someone could break in and get it, but that’s just like, it is everywhere else.

Right. So I haven’t dealt with any crime personally and I don’t know anyone firsthand that’s, you know, had their house broken into or like, and well, number one, I think we’re relive my door’s unlocked 24 7. Right. It’s very, very safe where we live, but I also lived in San Juan right on the street and we had a gate and that was super fun too.

And you know, my wife would go walk the dog at night in the city too. So no, it’s, it’s an island culture been, so, you know, They’re just really just want to hang out by the beach, drink beer know maybe that’s a generalization, but it could be, yeah, it could be worse, but so no, we don’t really see, you know, crazy stuff going on or, you know tourists getting attacked or something like that.

Yes. Things happen here and there, but. There’s also facts and circumstances that you know, campaign maybe a more clear picture to like, okay, what was an American tourist doing in the drug area? Right. Probably you getting drugs and they, I don’t know. So I don’t go down there. But. Yeah, I overall, I think Puerto Rico is, is very safe.

But if, yeah, if we’re talking about the wealth gap too, right? So maybe one of your questions is, is there animosity towards Americans for moving down here? And I would like to say mainland there’s not Americans because we all are Americans. Some people don’t like it to be, to be Frank. And I tried to have conversations with them and okay.

Why don’t you like it? Well, we’re colonizers. Okay. Well, what’s your game plan for fixing Puerto Rico? The conversation kind of stops there and it gets emotional. Right. So. From my perspective. I mean, I am Puerto Rican now a hunter, I feel like I’m a hundred percent Puerto Rican and I want to make this place a better place.

And I don’t know how else we can do it besides the private sector, because we tried the public sector for four years and it failed terribly. For example, only two thirds of the people in Puerto Rico work. And one third of those people worked for the government. So I think that was. Designed for, for a reason.

And it’s, I mean, incredible inefficiencies for my, my perspective. So are we going to be able to backtrack on that? No, but can we move forward and try to. We need to be a global competitor. Right. And even, you know, the U S is looking at reassuring companies down to Puerto Rico, especially pharma, things like that.

Biotech. That’s a great idea too. Right. Let’s bring them back on our soil. So The government has been pretty bad to Puerto Rico. The local government has been, been a big detriment to the growth of the island for, for decades. And now they’ve kind of seen the light to say, Hey is this going to save Puerto Rico?

No, that’s not, but is it better than nothing? Absolutely. Because we can’t get any more freeway. Yeah, no, a lot of the Puerto Rican’s know that like the business entrepreneurs and, and the government officials, most of them know that they see the data. They’re like, wow. And you can see it firsthand to just, you know, I’ve been here for five units, like, oh, things are getting better and it’s it’s happening.

It makes me happy.

[00:28:01] Ben: Nice. Two more on lake living, interacting in Puerto Rico itself hurricane season and infrastructure issues.

[00:28:11] Chris: So it’s hurricane season right now. And I played golf today. So, but I will say that we are always keeping an eye out for the hurricanes, right? I will tell you, my house is built out of concrete and every good house in Puerto Rico is built out of concrete.

I’m about maybe 400 yards from the ocean. We didn’t have any damage during hurricane Maria, which. Like an F three tornado with two feet of rain in a 24 hour period. So this was a once in a hundred year storm. It was so devastating. We are still very traumatized from hurricane Maria. It was the worst thing I’ve ever seen, like by far But a hurricane we’re in the Caribbean, right?

Hurricanes hit Florida hurricane say Houston hurricanes hit new Orleans. So I think after Maria, we had to learn a tough lesson. But we’re much more prepared now for these types of things. And if you can afford to fly it, you can get out. Right. We have flights all the time, too, all over the place.

But if you, a lot of the poor people in Puerto Rico, They moved out to the mountains, you know, a hundred years ago, 50 years ago. And they said, Hey, this is my house. They don’t have an address. They will, you know, it was her grandparents’ house and it was their parents’ house. Now it’s their house and their kids live there.

And then this was a lot on the news when they write. Tell the story that Faena says, Hey, look, can we see your property D and then we’ll fix your house. Well, we don’t have a property. We just live here. Right. And they’re like, well, sorry, because FEMA is kind of like a military style thing. So they have standard operating procedures.

So I think they got that worked out. Eventually, but kind of transitioning into infrastructure. Puerto Rico had the own, the last state owned utility company in the United States that was recently just privatized to a company called Luma energy. And there’s been some bumps in the road as. Was expected, but we know we have the highest electricity in the country right now we’re paying 28 cents a kilowatt hour, you know, Texas they’re paying 7 cents.

So that’s really a regressive tax on people too. Right. I can afford a thousand dollar electric bill. Like a lot of people can, right. So we gotta get in. It’s also a big hindrance on businesses of tourists. Right? One of the reasons tourism is I mean, A third of what it is. And other Caribbean countries is because we have to pay very high electricity and that’s their highest line item too.

Right? So we’re, there’s a big push on renewable energy, which we have saw on all year round. I don’t know why like renewables is great. And especially in Puerto Rico, it makes the most economic sense because of our Some energy and because of the high prices other infrastructure, so like housing, we’re getting, you know, $10 billion or some, some crazy number for, you know, all new government housing pretty much.

Right. And we’re also getting. 10% of our GDP for 10 years to rebuild like random stuff to where we could just became like one of a new testing sites for 5g, which some people think 5g is, you know, some conspiracy theory, I think five years is great. We need fast internet. Also Google launched this.

I don’t know if you know what it’s called, but like when they put the balloons up in the air and like we could have wifi around. So they’re doing that here. Yeah. Yeah. So that’s pretty cool too. So Infrastructure is getting a lot better, but if you come down here, when I first came down here, I, I flew it.

I’m like, wow. There’s like skyscrapers. There’s like good highways. Like my phone has 5g, LTE. Like I thought this was going to be like going to Caribbean, like different country. Right. It has its own culture and Puerto Rico is its own thing. If we didn’t have all the amenities that, you know, we’re used to living in the mainland, we wouldn’t be here.

Right. So when my wife saw there was crispy cream and Costco here, she was like, okay, Right. So so little things like that we, we need that kind of stuff. Right. So yeah, that’s kinda my 2 cents on, on infrastructure and hurricane. So it’s September 29th. I don’t know when you’re releasing. But when you release this, I fingers crossed we’re out of hurricane season.

Add we’re clear. So we’ve been clear for a couple years now, so that’s good.

[00:32:31] Ben: But like November through March, April is kind of like the non hurricane season right now.

[00:32:37] Chris: So like mid October through June, June, pretty much June or July. So.

[00:32:44] Ben: Yeah, good to know. Good to know. Okay. That’s super helpful, kind of actually boots on the ground, getting some feedback on how it is actually living there.

I’m less concerned I’ve lived all over the place, but for my listeners, for sure. I guess my next question would be. Like the risks of all of this changing. You said that when you, when you sign, you kind of lock in the current one, and I think there’s some changes coming in 2022. And we can go into that, but more of like you go down there, you spend three years, you’re loving it.

And then like the, the IRS or the U S government is like now, actually that that’s stupid. We’re going to retroactively go after all of that. Is that a real, real.

[00:33:28] Chris: Okay, well, there’s a couple of different issues that you touched on there. Ben. So number one, the IRS can, the big, the big thing is, or really two factors that the IRS can challenge you on is where are you really a resident, right?

It’s pretty easy to say yes or no on that. A lot of that is objective the closer connection test, a little subjective, where’s the dog, et cetera, et cetera. But from a business side of things were you earning income in the United States that you said it was Puerto Rican income? That’s what the IRS is looking at as well.

So that’s not, that’s not clawing back to say, Hey, your decree is not legit. It’s you, weren’t doing proper accounting and due diligence and go legal and all that. So that’s a whole another podcast as well. What is an arm’s length transmit? Between related parties on a cross border deal. But going back to your question from, from a Puerto Rican side, and I work a lot with the Puerto Rican government and the department of economic development and commerce down here, we always want to improve the program because we want what’s best for Puerto Rico.

So there has been a bill introduced in the house to say, Hey, let’s make capital gains 12% moving forward, which right now it’s Europe. Okay. Which is amazing. Should it be 12%. I think that’s a little high, I’m just speaking from my personal perspective, but what’s going to be happening in the states.

If I was a betting man, I would bet that those tax rates are going up. And a lot of the people who live down here are like the hedge fund guys and the crypto guys, they’re all their money’s capital gains pretty much. So Do I think Puerto Rico should try to refine their program to capture some of that revenue.

Yes. Right. But we need to make it palatable and not a hindrance for people to move down and go, okay, that’s too high for me. I’ll stay where I’m at now. So I don’t know what that number is, but we still need to have a pretty sexy, attractive deal to get people down here because. The indirect economic effects of this, this tax incentive program has been so successful for Puerto Rico.

So we’re working with legislators and other stakeholders to see, you know, what is the best for Puerto Rico? Ben, the law came into, into an abdomen in 2012. It’s probably changed five or six times. I don’t, I don’t, I could figure out how many times it has, but you know, every administration looks to modify something a little bit here and there.

So we’ll see. I mean, there’s one. About five or 6,000 businesses and individual investors in the program right now. So it’s a lot smaller than a lot of people think. We want 25, 30,000 down here. I want 300,000 down here. I need, I need Ilan to move out here. Okay. So I’m working on him. But if we’re going to make this place to sing a word, the Caribbean, we’ve got to think big.

And. If Puerto Rico doesn’t get in its own way. I think that can happen. But. There’s quite a lot of stakeholders on what happens in our economy. So I don’t agree with a lot of them, but that’s the reality.

[00:36:41] Ben: I totally get it. I think for like the 10 year, what’s it called? When you wait 10 years and then yeah.

Step up built-in games. Yeah. I mean, the biggest worry would be that you go down there, right. With some appreciated assets, assuming that you’re going to wait it out for 10 years. And then they changed that law. And you’ve just spent nine years, like waiting for that’s in your contract too.

[00:37:04] Chris: Right. So it’s all pretty clearly defined.

You’re locked in. So on the other side of it, some people moved down here for their export service business and said, you have to have five employees. Well, now it’s one and they want to say, Hey, I only want. They’re like, sorry, like you’re locked into this. So he goes both ways.

[00:37:22] Ben: Gotcha. Gotcha. You have a contract with the government saying you’re adhering to act 60 that stipulates this, this and this.

Even like in 2022, when it changes, I think it changes from four to 12% for act 20. I think

[00:37:38] Chris: he’s been voted on. Gotcha. And end of

[00:37:42] Ben: September.

[00:37:44] Chris: So we don’t, we don’t want to speculate on what’s going to happen. Okay. So, so let’s say it goes to 12. Yeah. So then you have to be you’re under 12%. Yeah. I’m locked in at zero.

Right? Gotcha. So if you come down and it’s 12, then you’re in for 12. Okay.

[00:38:02] Ben: The other thing that I thought was surprising when looking was it’s a, it’s a calendar year, right? If I moved down there in October of 2021 my like calendar start date. Doesn’t start till January, 2022. Right.

[00:38:20] Chris: Yep.

That’s correct. So that’s IRS, federal raw residency regulations. So that is the same everywhere. Yeah.

[00:38:27] Ben: Gotcha. And then I’m curious. So how long does this whole process take, I mean, obviously from Thanksgiving until new year’s, everything is kind of slow. Including government agencies, I’m sure. Even slower.

Like if somebody moves down, the

[00:38:42] Chris: government’s always slow

[00:38:45] Ben: even slower. I mean, my God. Is it actually feasible to hit that January one start date if you start in December.

[00:38:53] Chris: Yeah, it is. The biggest thing that you need to do is find a place to look. Okay. So yes, we can get all your paperwork done. You know, you have to submit a background check, you have to submit your banking documents.

You have to submit a business plan and you know, a lot of different things, right. That doesn’t that, you know, that takes a couple of days to get all of that together. Right. If we’re looking at doing, you know, draws for cross border tax transactions, that takes the accountants a couple months to figure that out and, you know, tens of thousands of dollars of legal, right.

So. From a, if you’re an individual investor and you say, I want to move to Puerto Rico because I think Bitcoin and Ethereum are going to the moon next year. And you call me and you say, Hey, Chris, I need a place tomorrow. Okay. Bring your checkbook. And we’ll find you a place tomorrow. And you know, we’ll start doing all the things to get you set up.

So it really doesn’t take that long. I think another important aspect of this. When is my decree become effective? So your decree is retroactive to your filing date. So Ben, you have to get all these papers and we have to submit it. And then you get up a case number, which is basically like your EIN for the tax incentive office.

So you say, Hey, here’s my EIN number or my case number. And. I’m good to go, but I still have to wait like six or nine months for the government to actually sign it. I think that’s a big benefit of working with someone like me is I can tell you before we even sign it, if it’s gonna work or not. Right.

So my batting average is a thousand on that, but if you have a business that’s not. We’re not, I’m not going to make you spend the money. I don’t want to waste my time dealing with this either. Right. So qualification and, you know, preliminary feasibility analysis. We do a lot of that. That just saves a lot of time money and frankly, paint on the front end.

[00:40:46] Ben: Yeah, that makes a lot of sense. Okay. Timeline super quick. I liked that they, the decrease effective from your filing date. Even if they dragged their feet, They always do. It’s a government agency, no different than anywhere else in the world. I’m actually, I’m doing my golden visa in Portugal and it’s the same thing.

It’s like, okay, we filed, you’ll have your residency in a year and a half. Which is nuts. Curious. Caught or are you comfortable sharing like cost estimation ballpark?

[00:41:11] Chris: It depends. It depends because if you’re a simple, you know, maybe you can get out of there with like 10 grand, right. If you’re complicated, you know, I have some guys that own three businesses, so it’s like, You’re going to have to pay me 10 grand to get all the documents organized.

Right. So, you know, if you need a residency attorney, if you need a transfer pricing study done you know, if you’re a heavy hitter, you probably want to do some estate planning down here cause that’s different too. So I would say, you know, anywhere between 10 and a hundred grand, and that is a super wide range, I would say If I had to pick a number that was my best guess I would say call it 30 grand and you’ll be good.

[00:41:53] Ben: Okay. Yeah. No, that makes sense. And you know what? I never, we never talked. We talked about you and how you got involved with Puerto Rico, but definitely pitch Casper and like what you guys are working on and what you do and the services that you provide.

[00:42:08] Chris: Yeah. So we went to the Puerto Rican government and said, this is amazing.

We’re like, yeah, we know I’m like, we need to get the word out. And they’re like, yeah, we know. And I go, can you pay me to get the word out? And they go, well, Chris, we don’t have any money. I’m like, yeah, I know. So. We have a designation called a qualified promoter designation with the department of economic development and commerce where we are incentivized to streamline businesses and individuals moving down to Puerto Rico.

And we have a pretty unique compensation model. We’re kind of on a commission basis. So I bring a business down, I get a percentage of their taxes. For 15 years. So I kind of look at myself as like a mini VC. So I get 30 bips on that for 15 years for all the clients that are bringing down.

And what do I do? Number one, like I said, the feasibility analysis is. Just to say, okay, how much is this going to cost? How much am I going to be saving relatively before I start writing checks to attorneys? Pretty much. So that’s really step one. Step two is a scouting trip. So come down, you know, we’ll have our guys to give them the airport, which you, you know, rates at the, at the hotels.

And before this, we’re saying like, what is important to you? I have to be on the beach. I love to surf. Okay. Well, or I need to be close to the airport or I really need to be close to is to a school or. I’ve had medical issues. I need to be close to a good doctor. So whatever you want to do, we can tailor your scouting trip around your individual preferences.

So you say, okay, Chris, great. This looks good. Or Chris, you know what, this isn’t for me either way. I’m happy that we, you know, uncovered this solution, which you know, is really what the Scottish truth is about. So then we’ll help you find a good attorney. So, you know, if you’re in the digital asset space, you need a guy that’s an expert in crypto.

So, you know, we have that person, right. That’s going to be a different person then. Okay. I’m in the real estate development industry, or my company is going to talk to the public. So on and so forth or you see deals or whatever. And then we got to find you a house. So we worked with a handful of realtors in Puerto Rico.

There’s been, there’s no MLS to some in Puerto Rico. So That’s not great for finding a place. If you find a place, people don’t answer the phone, they don’t email you back. They say, it’s, you know this much. And then you sign the contract and it just doubled. Right. So w our job is to not make that happen.

Right. So, okay. You get a house, you’re all set up. You got the good attorney you know, ongoing accountant. You’re gonna need to get a Puerto Rican driver’s license, which I would be willing to bet that if you been went to the driver’s license place, you would be there for 16 hours over two days, trying to get this thing.

You have to get the bills in your name, like get your electricity and your name that’s damn near impossible to write. So some of these are tax compliance issues that we have to satisfy to become residents, but also some of them are. Chris, like this is a big pain in my ass. Like, how do I, how do I fix this?

Like, don’t worry about it. I know the people that have done it. And we’ve really been crafting our offering for the past five years. And I’ll tell you, in the beginning it was a little Rocky, right? So some of my early guys had to go through some trial and error, which. Yeah, they love me and I love them, but a little bit, little bit Rocky that’s that’s Puerto Rico.

Right. That’s just how it goes. So, and then kind of the next step is let’s get involved in the community, right? Whether that’s, you know, hiring people or going to job fairs at colleges or donating to charities or being on the board of charities down here. Right. I’m on the board of a couple charities down here.

I’m from Texas. I never really cared about the environment. So I came for Rico and now I’m like, oh my gosh, we have a serious issue here. Right. And, and now globally. Right? So I’m on the board of a charity that, you know, we’re, we’re looking at recycled down here. We don’t have enough recycling centers down here.

Right. That’s been hugely successful. So, but let’s also go to the Puerto Rican Mardi Gras, right in old San Juan with like all of us. Right. It’s so much fun you’re out till, you know, sunrise. And just, just having fun and experiencing this unique culture, which is, you know, my favorite culture in the world too.

Right. So, you know, connecting all these like-minded entrepreneurs is really an unsung benefit of moving down here too. And. You’d be surprised how many business deals get done in Washington, some football or golfing, or just, you know, going out through surfing too. Right. So that, that’s pretty cool too.

So yeah, we, we set all that stuff up too. So I really look at ourselves as, you know, full service relocation specialists in a, in a unique place who should be.

[00:46:45] Ben: And, and, and not like culturally, oh, I’m excited to explore a new culture and experience, but like business-wise investment-wise who should be most interested in Puerto Rico and who, who is this like less less super advantageous

[00:47:01] Chris: for, yeah.

So I would really look at it from a personal perspective for, so like number one, where do you live? A lot of my clients are from California, Illinois, New York and New Jersey. I have a handful of people that moved from New York to Florida and they said, wow, why don’t we just come down to Puerto Rico?

So, you know, your tax conscious, number one, there’s no way around that. If you don’t like warm weather, this ain’t the place for you. I’ll tell you that I have buddies that are like, it’s too hot for me down here. I mean, I’m from Texas, so it’s not really that. For me, but it, it is workflow layer any business that’s remote, which is crazy to say because now pretty much everyone is remote before I would have guys, guys and gals call me and say, Chris, I’d love to move down there.

The numbers make sense, but I just have to be with. I think COVID happened. And then they’re like, holy shit, New York socks, you know we, I I’m, I’m moving out of New York somewhere, so I’m might as well come, come check it out. And it takes about the same time to drive to the Hamptons and traffic. I said, as you get to Puerto Rico, so that’s, that’s kind of funny.

So I tech is big, like I said, crypto. Big all financial services, all professional services, really. We have a pretty nice niche of radiologists too, but It’s really all across the board. If you can have, you know, an independent party or in, you know, in a lot of cases, a related party pay you an arm’s length transaction to a business that that’ll work.

But, you know, I have guys that like work at Facebook that are like, Hey, I want to move to Puerto Rico. Well, Facebook’s not going to let you start, you know, you know, been Puerto Rico and pay you right. Cause all of their HR and all of that. But so I have some people that are still working for a company in the bay and, but they’re just down here waiting for their, you know, investing their options and then they’re gonna sell them.

And because they’re a resident of Puerto Rico, but they’re still paying taxes on, on their W2’s. If you’re a W2, you’re not going to get any tax benefit from your, your income, your actively earned income. If you are a real estate person, there’s not really much benefit unless you were a big dog. I would say doctors because you have to be in the alar to make your money, but if you own a lot of doctor’s offices, then yeah, you can manage them all from here.

So. It is pretty flexible on that yet. I do find that, you know, people who have been recently divorced or looking to get, they lost half their money. So they’re looking to get their money back. Empty nesters too, are pretty popular with me. And then also, you know, like single, like digital nomads too, right?

There’s, that’s a lot of us, right? If you have a laptop and internet connection, you can live from anywhere, why don’t you. Accumulating your wealth in a low tax environment. So those are the ones that come to my mind off the top of my head.

[00:49:55] Ben: That’s super helpful. And then I wanted to just comment on the W2 employees.

The way. Around that, the, what that I think about would be you set up a Puerto Rican export services company and then have a B2B relationship where that company contracts you through that Puerto Rican entity. And then you would get around and you would have these tax

[00:50:16] Chris: benefits, right? Yep. That’s correct.

And also that’s going to save you. Previous employer now, your client some money on like social security, unemployment taxes too, because now you’re in charge of that as a 10 99. So there is some cost savings there, but you have to have flexibility with your employer, previous employer slash current client.

So sometimes I work, sometimes it doesn’t like my guy’s friend Stanley. They’re not willing to have.

[00:50:45] Ben: Yeah, no, but that totally makes sense. But sometimes these employees, you know, They quit or they retire. And then they come back on as a consultant from time to time anyways, and it’s like, oh, you just spin up an entity from that and have this entity, a consultant sort of relationship.

Chris, this was incredibly helpful. I think we covered a ton. I’ve got some great notes. I’ll drop a lot of these links and things we’ve talked about into the show notes. But anything else you want to leave the listeners? Where can they find out you?

[00:51:17] Chris: I really love your podcast too. And you have social wide variety of guests, too.

I feel like smarter every time I listened to one of your podcasts. So I hope I can contribute back to your ecosystem. But if you know, going back to your question, if you want to learn more about Puerto Rico, our website is www dot join Casper. That is C a S P r.com. No E in there, we’re also on Instagram, that joint Casper.

So not much tax advise on our Instagram page, but a lot of sweet pictures about Puerto Rico and the lifestyle, which is it. I’ll tell you, Ben, I moved to for the taxes, I’m staying for the lifestyle and the culture at, and that might sound cliche, but it is a hundred percent true. And so many of my people say like, If the tax incentives went away, like I would rather live here too.

So I know it’s hard to understand because a lot of people are in their own world, but I just feel so blessed to live here. And sometimes I need to pinch myself and remind myself that I’m not on vacation because it is a paradise down here. But Yeah. I mean, as you can tell, I love Puerto Rico. I’m super bullish on our future.

And I think it’s a great place for entrepreneurs and investors to, to build wealth and to also to contribute to.

[00:52:35] Ben: Awesome. What a great way to end it. Chris been a real pleasure. Really appreciate you taking the time and jumping on here today. Tonight.

[00:52:41] Chris: Absolutely take care of my man. We’ll see you.

[00:52:45] Ben: There you go. First off. Thank you very much for listening all the way through. I hope you got a lot of value out of that conversation as always.

You can find show notes, links, and more. Alt asset allocation.com. Please share this with anyone you think might be interested in derive any value from this conversation. And as always, you can reach out to me for any feedback or questions. Please give the video a like, or even better subscribe on YouTube or your podcast player of choice.

This really helps others find the podcast or the video as well. Thanks a lot. Hope everybody has a fantastic day and stay safe out there and invest with. Cheers.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.