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Why Are Bitcoin Millionaires Moving to Puerto Rico?

  • Puerto Rico offers tax incentives for foreign investors to live and invest their assets, as well as spectacular beaches to enjoy for most of the year.
  • The crypto investor community has grown in recent months, attracting Bitcoin enthusiasts from across the U.S.
  • Not all Puerto Ricans are thrilled with the arrival of new residents.

Like Texas and other states in the United States, the island of Puerto Rico has become an increasingly attractive place for crypto investors over the last year. The U.S. protectorate not only holds friendly laws for foreign investors, but also offers sunny days year round and attractive beaches where one can rest.

The fact that residents keep their U.S. passports and don’t have to pay capital gains taxes is a big plus. This is  possible due to the incentives created to entice Americans to move to the Caribbean island and spend at least 6 months a year there.

Living on an island has its advantages, such as its climate and warm environment, and so Puerto Rico has become a fashionable destination for a growing number of crypto investors who possess the necessary infrastructure, internet connection, and physical office space to make it possible.

A Massive Arrival of Crypto Investors

The arrival of Bitcoin enthusiasts has spurred others in the industry, along with their families and friends, to move there as well. That was the case for David Johnston, a 36-year-old American who had been living in Austin before he decided to move with his entire family to the island in March last year.

“That’s where all my friends are. I don’t have one friend left in New York, and maybe the pandemic accelerated this, but every single one of them has moved to Puerto Rico,”

he told CNBC.

The cryptocurrency entrepreneur and investor, who lives in a suburb of San Juan, said that the building his company operates in has been filling up with other cryptocurrency businesses like his.

“Pantera Capital (a cryptocurrency fund) is on the fifth floor and then there is a co-working space on the sixth floor. My company, DLTx, took over the eighth floor and NFT.com took over the twelfth floor. All of that happened in the last 12 months,” 

he remarked.

According to corporate and tax attorney Giovanni Méndez, around half of all his current clients are crypto asset companies or cryptocurrency investors, and the number of new foreign clients has increased exponentially in the last six years.

Attractive Laws for Investors

One of the biggest attractions of the island, particularly for cryptocurrency investors and miners, is the so-called “Law 60” or “Law of Individual Investors.” The legal instrument allows residents to save hundreds, or even thousands of dollars in taxes each year, if they qualify for exemptions.

Unlike the rest of the U.S, where investors are required to pay up to 37% on short-term capital gains, and around 20% on long-term gains (which applies to crypto assets held for more than a year), in Puerto Rico, Law 60 reduces this percentage to zero for certain entrepreneurs and crypto investors.

Another incentive for businessmen who establish their businesses on the island is that their companies are not required to pay the 21% federal corporate tax charged to businesses on the mainland, nor the state taxes that are variable. In Puerto Rico, the tax is only 4% for services provided outside of the island.

In order to obtain these tax benefits however, companies must become fully established on the island, warns CPA Shehan Chandrasekera, a specialist in cryptocurrency businesses.

"That's the part that people aren't talking about,"

Chandrasekera said. Crypto entrepreneurs must first apply for Puerto Rican residency to be able to enjoy these benefits.

Some investors have chosen to simply transfer their profits to the island. They invest and, after obtaining residency, they sell their stake, and buy it back as if it were a new asset.

In this way they prevent profits from the U.S. from incurring accounting penalties.

On the Flipside

  • Not everyone in Puerto Rico is happy with the rush of people moving to the island, especially since the tax laws, which were designed to attract foreign capital, do not benefit locals, as was its intention, only foreigners.
  • Puerto Ricans are required to pay up to 15% taxes on capital gains, which has created a very unequal gap.
  • The avalanche of crypto investors has also caused a substantial increase in the price of real estate on the island.

Why You Should Care

  • The island has been devastated in recent years by hurricanes, earthquakes and financial problems. Adding to this, the pandemic crisis has greatly affected the tourism industry.
  • With the arrival of new investors, the economy of the U.S. overseas territory is picking up again.

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    This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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