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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Around The World In 184 Days 18 comments
    Apr 2, 2013 12:47 AM

    So far, ten people have taken advantage of a new tax status that encourages investors to move to Puerto Rico and an additional forty have applied. The law in question, Act 22, makes PR a candidate for the title of the best tax haven for Americans. According to the Department of Economic Development and Commerce, investors moving to the island will not pay taxes on passive income - including on dividends, interest, or long-term capital gains - until December 31, 2035. At the same time, Americans can keep their passports and live under US common law. Investment partnerships can bank using FDIC insurance and operate within the FINRA and SEC regulatory system. A hedge fund in San Juan could take advantage of a 4% fixed income tax rate on management fees generated by the fund for services rendered to clients residing outside PR. Most importantly, incentive fees from the fund would be 100% tax exempt.

    A key to protecting a particular tax status, such as offered under Act 22, is to be away from a home in a high tax jurisdiction such as New York or Connecticut for a majority of the time. Both jurisdictions are brutal about ensuring that you are not there for any part of the day on over 182 days or you will be assessed a tax as if you are a resident. But what should you do if you are getting close to your allotted time and you want a last minute, documented excursion to protect your new tax status?

    If your schedule and interests have enough flexibility, one potentially attractive option for days abroad (including records of your absence) is to spend some time deadheading last minute charter flights and cruises. Chartered flights and yachts are both costly and time-sensitive (as is often the case, these attributes go together) if you have very specific demands in terms of times and dates. One of the reasons why these are so expensive is that you are essentially paying the fuel cost twice (to and from your point of departure), depending upon where you are traveling. However, if you can choose your travel dates without too much specificity, you can often find empty legs that are discounted by 75% or more. With the right number of passengers for the vehicle, you are getting close to the price of a ticket on a commercial jet or cruise ship for the experience of a flight or boat charter. And all of this comes out of the money that can be saved by avoided triggering the residency test of a high tax jurisdiction.

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Comments (18)
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  • Wilson Wang
    , contributor
    Comments (884) | Send Message
     
    Oh wow...
    2 Apr 2013, 02:02 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Not bad. One would need to deal with all of the subjective issues surrounding a new home, but in terms of tax this is pretty terrific.
    2 Apr 2013, 07:09 AM Reply Like
  • drone
    , contributor
    Comments (442) | Send Message
     
    What are you saying, have you heard of Cyprus?
    2 Apr 2013, 07:53 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Could you please expand upon your point a bit?
    2 Apr 2013, 08:15 AM Reply Like
  • Joe Springer
    , contributor
    Comments (2325) | Send Message
     
    "A hedge fund in San Juan could take advantage of a 4% fixed income tax rate on management fees generated by the fund for services rendered to clients residing outside PR. Most importantly, incentive fees from the fund would be 100% tax exempt."

     

    Does that mean that if you have a 2/20 hedge fund (2% of total, 20% of gains) the 20% part is not taxed?

     

    Thanks for the insight - you had me living in Medellin with a Dominican passport, but now maybe I'll stay American.

     

    http://bit.ly/Xoeont
    2 Apr 2013, 01:54 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » I think that the PR opportunity might be better, but both are good. Correct, the 20% would not be taxed.
    2 Apr 2013, 01:58 PM Reply Like
  • Joe Springer
    , contributor
    Comments (2325) | Send Message
     
    So one could make a hedge fund of one's own money, have lots of short term capital gains, leave the money in the fund except for fees paid to one's self, and not pay tax on the short term capital gains? : )

     

    Serious question - do you know of good books or resources about setting up a hedge fund?
    2 Apr 2013, 02:03 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Here's one that may be of value to you

     

    All About Hedge Funds : The Easy Way to Get Started

     

    http://amzn.to/YQOozw
    2 Apr 2013, 02:33 PM Reply Like
  • Joe Springer
    , contributor
    Comments (2325) | Send Message
     
    Sir, you are a gentleman and scholar in every sense. Thank you for this, and for all of your insights.
    2 Apr 2013, 02:36 PM Reply Like
  • sheldond
    , contributor
    Comments (1251) | Send Message
     
    Awesome thanks.

     

    This is something I have been toying with. Currently, I'm just looking at developing experience in finding opportunities and developing my trading/investment principles.

     

    Best,

     

    DCSIII
    2 Apr 2013, 03:23 PM Reply Like
  • David Schneider
    , contributor
    Comments (266) | Send Message
     
    This is another great article that should have been published. Great topic, many investors would love to read and learn about this.
    2 Apr 2013, 02:48 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Thanks, David
    2 Apr 2013, 03:47 PM Reply Like
  • C44
    , contributor
    Comments (14) | Send Message
     
    Chris once again, I cannot say thank you enough.

     

    I read this article late 4/15/2013 and of course was dealing with the accountant most of the day, only to file an extension. The usual due to the complexity of my father's death, land in 3 states, etc.

     

    After reading this yesterday I did some research and found a couple in Colorado that is also making this move (for much different reasons, honeymoon emotional). But describes the home buying process, numerous visits, areas, where they settled, etc. There are others, I found this to be the most "current."

     

    Since I am a fellow Coloradoan I have reached out to them and am hoping to setup an appointment with them to discuss their experience in full.

     

    http://bit.ly/10cuimB

     

    Found this link that may be beneficial. In the position I am in this is a no-brainer. Now I just need to convince my wife to leave the mountains of Colorado for the beach.

     

    http://bit.ly/11eYV6x

     

    I cannot say thank you enough for bring this to my attention. I saw an article about Paulson previously and didn't pay enough attention, I see he is thinking of doing the same thing.

     

    I am going to discuss this with my accountant and attorney in detail.

     

    Thank you again for sharing this, how this isn't an article is beyond me. This could save me millions of dollars until 2035 (2045 w/ extension).
    16 Apr 2013, 06:38 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » I'm so glad that it was useful. Thanks for the links.
    16 Apr 2013, 06:45 PM Reply Like
  • C44
    , contributor
    Comments (14) | Send Message
     
    Chris I sent you a personal message on this I just got back from PR for 10 days with the wife on an "exploration" mission. Thank you again for the information!
    13 Jun 2013, 03:52 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Thanks for checking it out.
    14 Jun 2013, 08:42 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Puerto Rico Act 77-2014, Adjustments to the Puerto Rico Tax System Act: http://bit.ly/1r2GpNY
    18 Sep 2014, 12:50 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5364) | Send Message
     
    Author’s reply » Puerto Rico Luring Buyers With Tax Breaks: http://nyti.ms/1u43baR
    18 Sep 2014, 12:51 PM Reply Like
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