Reduced Taxes and American Citizenship a Possibility
A lot of Americans are moving out of the homeland, getting rid of their American citizenship and with it a whole lot of tax. The American system of Worldwide tax and FATCA levied on the citizens is one of the driving forces for this shift. The IRS collects taxes from US citizens worldwide.
It is however, now possible to hold on to your citizenship, carry an American passport and pay close to zero taxes. If that sounds fantastical and far-fetched, consider Puerto Rico. Puerto Rico is an American Commonwealth, part of the US, but still independent. You can reside there without changing your citizenship. Also, the tax situation there is very favorable. However, there is a catch to it. You have to physically move out and shift your business to Puerto Rico. The move alone is not enough. The tax system in Puerto Rico is finely crafted. Some people have to only report to the Puerto Rico department of finance, some have to report to the IRS, while some others have to report to both.
How does the tax system work?
Residents of Puerto Rico do not have to pay the federal income tax or file any income with the IRS, but all incomes as well as profits made outside of the island have to be reported and taxes have to be paid. The total income tax in Puerto Rico is four percent, compared to the combined tax of 39.6 percent in the mainland. There is also no tax on dividends earned. Capital gains tax is also not collected. If you sell your property, shares, or even your entire business for a profit, there is no tax on it. In case of long term gains just before moving out of Puerto Rico, you will have to pay a tax of five percent.
Qualifying criteria for the tax breaks include:
* You should not have been a resident of Puerto Rico in the last fifteen years.
* You must become a resident of Puerto Rico before the end of 2035.
* You must reside there for a minimum of hundred and eighty three days a year.
The move has to be real, filed in with both the IRS and Puerto Rico department of finance. If possible, sell your house, cut connections with your old communities, clubs and the like. The IRS will check, and if you are found to not be a real resident of Puerto Rico, you automatically fall back into the tax bracket of the IRS.
