Home Cryptocurrency Bitcoin Millionaires Are Moving to Puerto Rico for Lower Taxes

Bitcoin Millionaires Are Moving to Puerto Rico for Lower Taxes

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Last updated on April 22nd, 2022 at 01:10 pm

David Johnston, a crypto entrepreneur and investor, relocated his parents, wife, three daughters, and company to Puerto Rico in March 2021.

The 36-year-old, who has been working in the crypto sector since 2012, says it was a no-brainer to relocate from Austin.

Bitcoin Millionaires Are Moving to Puerto Rico for Lower Taxes

Bitcoin millionaires are moving to Puerto Rico

Apart from the fact that Puerto Rico enjoys a tropical climate all year and beautiful beaches, the US territory also boasts crypto-friendly legislation, such as large tax reductions for anyone who spend at least 183 days on the island each year.

Residents can keep their American passports while avoiding paying capital gains taxes. It undoubtedly helped cement the deal for Johnston, but the greater motivator for him was a dread of missing out.

“That’s where all my buddies are,” says the narrator. “I don’t have a single friend left in New York, and perhaps the epidemic has hastened this, but every single one of them has migrated to Puerto Rico,” he added, adding that many of his California pals had followed suit.

According to CNBC, Johnston went to check it out himself in early 2021 after watching his friends and colleagues leave.

“I responded, ‘Wow, okay, I understand it,'” says the author. Johnston recounted his initial impressions of the little island region, which can be driven around in half a day.

“There are three million inhabitants on the island… This area is large enough to house a technology centre.”

Puerto Rico, according to Johnston, reminds him a lot of Austin in 2012. He believes the city felt small before Tesla, Samsung, and Apple helped convert it into one of the country’s hottest innovation centres.

However, Austin, like Puerto Rico now, had a lot of energy and a lot of passionate people moving in, which accelerated over time. Making the move to Puerto Rico, for Johnston, feels like getting in on the ground floor.

“That’s where my neighbourhood is.” That’s where my friends and family are going, and they’re going to construct something wonderful.

That’s what I like about open source: it’s something that helps regular people. That’s one of the things I like about blockchain. “Everyone is welcome,” he stated.

The advantages of living on an island

Puerto Rico has quickly established itself as a new hotspot for the crypto community.

Frances Haugen, a Facebook whistleblower who told the New York Times she bought cryptocurrency “at the appropriate time,” moved from San Francisco to Puerto Rico last year, partly to hang out with her “crypto buddies” on the island.

Logan Paul, a controversial YouTube personality and NFT investor, as well as crypto billionaire Brock Pierce, a child actor (of “Mighty Ducks” fame) turned 2020 indie presidential candidate, set up shop there.

Meanwhile, Johnston claims that his entire office building is being taken up by start-ups and crypto firms.

“On the fifth storey, there’s Pantera Capital (a crypto fund), and on the sixth floor, there’s a co-working area. My company, DLTx, occupied the eighth floor, while NFT.com occupied the twelfth. “All of this happened in the last year,” Johnston tells CNBC.

Redwood City Ventures, a firm that invests in bitcoin and blockchain startups, has also established a presence in the United States.

For many, the main attraction to the island is Act 60, which provides large tax benefits to qualified inhabitants.

In the United States, short-term capital gains are taxed at up to 37% and long-term capital gains are taxed at up to 20%, which applies to bitcoin and other assets held for more than a year.

If certain conditions are met, one of Act 60’s tax advantages, known as the Individual Investors Act, reduces that tax obligation to zero.

This is particularly significant for businesses and cryptocurrency traders.

There is also a significant tax advantage for businesses to establish themselves in Puerto Rico.

Mainland businesses must pay a federal corporate tax of 21% plus a state tax that varies.

A company that exports its services out of Puerto Rico, to the United States, or basically anywhere else, pays a 4% corporate tax rate.

Any gains made before landing in Puerto Rico are still subject to the usual capital gains tax rates on the mainland, according to CPA Shehan Chandrasekera.

The gains made after becoming a Puerto Rican resident are the only ones that are tax-free.

“That’s the aspect that no one is talking about,” said Chandrasekera, who is the head of tax strategy at CoinTracker.io, a crypto tax software startup.

There is, however, a workaround.

If an investor has made a profit, they can relocate to Puerto Rico, obtain residency, sell their investment, and then repurchase it as a new position.

They avoid muddying the waters by bringing over any gains from the United States in this way.

They’ll come if you build it.

Puerto Rico’s nearly too-good-to-be-true tax regulations were devised a decade ago to assist lure in inhabitants and revenue at a time when the island was losing both.

The region has had a streak of terrible luck in recent years, including earthquakes, hurricanes, a multi-year bankruptcy, and a global epidemic. Investors are pouring in at an all-time high, much to the government’s relief.

Giovanni Mendez, a corporate and tax attorney, has been assisting in the onboarding of new Puerto Ricans. He tells CNBC that over half of his clients are now crypto firms or investors, a figure that has risen dramatically in the previous six years.

Mendez, who grew up two hours west of San Juan, Puerto Rico’s capital, says he began talking to clients about moving to Florida (a tax-free state) or Puerto Rico in March 2020, just as the Covid epidemic began to shut down governments around the world. Ultimately, many people chose Puerto Rico.

“With everything going on with the pandemic, I wasn’t anticipating a lot of people to move, but on the contrary, a lot of individuals just decided to pull the trigger,” Mendez said. “This is almost probably accompanied by a rise in the value of crypto assets.”

George Burke, a crypto investor, had been contemplating the move since 2018, but he eventually took the plunge last year.

“I realised I needed to make a shift after the performance of 2021 with bitcoin and the performance of my firm, so Puerto Rico became a really excellent alternative,” Burke said.

Burke wouldn’t give a specific cash amount to CNBC, but he did claim his crypto assets are in the mid-seven figure area. “I was at an ethereum crowd sale… Only about 6,000 individuals were able to accomplish that,” Burke said, adding that he also worked on the first bitcoin debit card in 2013, according to CNBC.

Burke claims that the transition was relatively painless.

“I got on an aircraft, and I created my residency the same day I got off the airline by renting a room at a friend’s house, and I started the clock,” he explained.

Burke also stated that he was not required to apply prior to his arrival. He applied for the individual investor’s exemption on his own, and he paid a lawyer $15,000 to assist him with the business exemption.

Johnston had a similar experience, claiming that going through all of the cursory evaluations took between six and nine months, though it “didn’t take a significant amount of effort.”

“I mean, it’s America,” Johnston explained. “You do not require a visa.” You are not need to submit an application for residency. A passport is not required. You may simply take a domestic trip to San Juan, obtain a driver’s licence, purchase a home, and launch a business downtown.”

He went on to say, “It was pretty smooth.”

Inside the crypto-community in Puerto Rico

Theodore Agranat told CNBC that he understood very little about Puerto Rico before moving there, except from the idea that it was an American colony.

When Hurricane Maria hit, he also remembered witnessing footage of former President Donald Trump throwing paper towels into a crowd.

However, after conversing with friends who had made the move and taking a scouting trip himself this spring, the 45-year-old realised that Puerto Rico could be the kind of location he had been looking for since the birth of his first son in 2003:

Agranat is part of a community of entrepreneur families with children that embraces home-schooling and alternative diets — he eats raw foods himself — while also acting as a start-up incubator, bringing together business-savvy and creative brains. In the southeast Puerto Rican city of Humacao, he discovered just that.

The financial incentives, according to Agranat, who leads an early-stage blockchain investment firm that invested in over 225 businesses last year.

So far, island living has proven to be a good fit.

Agranat and his wife homeschool their three children, and they’ve tailored the curriculum for their 14-year-old to incorporate crypto-related topics like NFTs, crypto games, and token trading.

Johnston, who lives in Guaynabo, a San Juan suburb, has taken a similar strategy. He and his wife homeschool their three children, and crypto has always been a part of the curriculum.

Johnston told CNBC, “My kids have had crypto wallets since they were born.

When Grandma tried to compensate them in cash for doing tasks for her, they answered, ‘No thanks, Grandma.’ ‘Bitcoin is my preferred method.’

Many individuals congregate outside of the suburbs for Crypto Mondays, a weekly meet-up hosted at excellent hotels and restaurants in the capital, and Crypto Curious, which attracts newcomers to the industry and covers topics such as NFTs, DeFi, and how to open your own crypto wallet.

Hundreds of residents have started to attend the sessions, which are now also available in Spanish.

Burke tells CNBC that he attends a luncheon every Thursday with roughly 30 to 40 other crypto-minded people who live in either Condado Beach or Old San Juan, and that his friends and crypto colleagues have been moving to Puerto Rico since the last bitcoin bull run in 2017.

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