#435 – The Expat Files: Puerto Rico, Tax Incentives, and Life in Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now I wonder Hello there all you expat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started Okay. Now here's an email about something we almost never talked about and this is from Patrick He says hey Johnny, and I'll paraphrase this a bit to streamline it just came back from Puerto Rico and one thing I learned there was that for those not yet committed to being an expat or just getting started

[00:49] It's a great launching point turns out Puerto Rico is perfect for a Spanish language immersion experience Now to my surprise many there are bilingual and use English to correct your bad Spanish For example, I ordered uno mas agua Which means one more bottle or glass of water and the bartender explained in English that I should place the object Prayer to the verb and actually say it as una agua mas I found instances like this are commonplace and really helped the learning process Anyway, Puerto Rico from certain locales on the mainland USA it's a good quick last-minute escape to guaranteed warmth even when the weather in South Florida is questionable as for everything else in Puerto Rico the entire island approximately the size of Connecticut is

[01:38] Definitely on the tourist trail. So it's just as pricey as in the states Not to mention most taxi drivers there are out to rip you off I also found out that practically everyone there has some family living all over the mainland USA Even Alaska and regarding crime just like everywhere else It depends on where you are and the locals will tell you that public housing is where their real crime problems are surprise surprise I did have a woman who clearly looked to be in her late 60s early 70s Try to sell me drugs and that never happened to me in Central America like in Guatemala or Costa Rica Anyway, it feels like a US state really with one exception. They don't pay federal taxes

[02:24] and Big Pharma not rum is the number two industry due to all the tax breaks you get when you move a business down there I met an accountant as a matter of fact commuting to and from Puerto Rico regularly Helping clients relocate for the same reason the tax breaks But you know after reading just a little bit of information on the internet It seems to me that these long-term tax breaks in Puerto Rico might fizzle out for individuals for various reasons Including possible future statehood, you know state number 51 Well, I could go on a bit more here. But anyway, well wishes Patrick Well, thanks for that Patrick And by the way He was one of our expert wisdom seminar attendees a while back and I see he's doing the right thing by getting his boots

[03:12] On the ground again in Latin America. And of course Puerto Rico is technically Latin America But again, it's a US territory or as they like to say a US Commonwealth now people often wonder why there are so many Puerto Ricans on the US mainland or as Latin say Puerto Ricanos and by the way, you really know you're getting your Spanish down when you can roll those ours as in Puerto Rico Go ahead try saying that three times without twisting your tongue around your uvula and by the way while I'm at it How many you out there know what your uvula is? Anyway, you could say Puerto Rico is kind of a US version of a third world Latin island tourist trap So even though it's considered part of the US a commonwealth of the US

[03:58] Like I said, they don't necessarily have to follow nor do they follow all the stateside laws For example, almost all salaries in Puerto Rico are about half of those in the United States Whether it's a job flipping burgers at McDonald's or an accountant job or an emergency room trauma surgeon Now you can gauge that by the minimum wage there, which is four dollars and ten cents an hour while in the states It's 725 soon to be raised to around ten or so by your illustrious Nobel Prize winning President Obama He's your president not mine so it's understandable if Puerto Ricans only make about half of what you can make up in the states a Lot of them go to the mainland regularly because they do not need a visa That's one group of Latins that doesn't have to slip into the states illegally. It's not necessary

[04:47] You have a perfect right to walk right in without a visa Nor do they have to apply for a green card or anything like that That's why so many millions of them are up in the states looking for a better standard of living and as far as my Recommendations for you listeners who might wanna become expats in Puerto Rico Well, remember it is a Latin American enclave, but you're still on US territory Meaning you're under the thumb of US big brother Latin style and all the frivolous rules and legislation that you have up in Cleveland however, lately there've been a flurry of articles a lot of them coming from expat publications like sovereign man and From the Doug Casey organization specifically touting Puerto Rico as a great place to live work play and or retire

[05:33] Again having to do with what Patrick said in his email. He said there were no federal taxes Which isn't exactly correct, but pretty close In fact since Puerto Rico is a US Commonwealth, it's part of the US but in some ways still independent So its tax system is also kind of a hybrid a mix of their Latin tax system and the US tax system Which would certainly seem like a recipe for disaster or certain chaos Hmm. Maybe maybe not Anyway as it stands now if you can really move yourself and your business to Puerto Rico You can cut your income taxes down to almost nothing now note just in the last maybe six months There have been some great little articles in news blurbs coming out of Puerto Rico trying to get

[06:21] American mainland people and investors to come down to Puerto Rico for those tax breaks Why since technically Puerto Rico is insolvent and virtually bankrupt What else is new like they say the Apple doesn't fall far from the tree So in the end there really are great tax incentives by which Puerto Rico hopes to lure Stateside Americans and their businesses they figure Puerto Rico is the place to go instead of overtaxed Overregulated disgruntled Americans leaving permanently for other Latin American low-tax low government destinations like Peru Bolivia Ecuador Honduras Nicaragua, etc Now you must know already that the floodgates have opened for first world people to come down to low-tax

[07:06] destinations like down here in Latin America In fact, you may have heard that at least 10 million Americans have expatriated already and why not up in the first world They're under the thumb of Big Brother and the surveillance state as well as the fact that as long as they live up there They pay more than 50% of their income to finance all that ridiculous crap Now I'm gonna stop a minute here and say no emails Please about telling me how you're in a 22% tax bracket or a 29% or whatever I'm talking about the fact that working people in America pay more than 50% in Taxes and fees and licenses etc and to back it up I have a nice report and a list of a hundred or so of those items that Contribute to that 50% or more tax bracket that you're in whether you know it or not

[07:53] So if you have any doubts send me an email and I'll ship off that list to you But back to the point just what are those tax incentives in Puerto Rico? Now if you talk to a tax guy or an accountant that knows anything about Puerto Rico He'll tell you that the income tax is only 4% Now compare that to your combined federal and state income tax burden in let's say, California That means if you move to Puerto Rico You can legally avoid the thirty nine point six federal rate and thirteen point three percent California state tax and only pay 4% how great does that sound and it gets better? There's zero tax on dividends, too Which means if you're getting distributions of company profits or have investments yielding dividends somewhere. They're tax-free

[08:41] There's also no capital gain taxes in Puerto Rico Meaning if you sell your company real estate, or you're selling shares in public companies You name it no capital gain tax at all So like I said you get those breaks if you move to Puerto Rico, however You actually have to move there You can't just buy a vacation home there and hang out a couple of weeks a year You have to sever all your ties with the mainland for example You got to quit your local clubs and the church stop the Zumba classes quit the little theater and the knitting nook Sell your house, etc Pretty much sever all your stateside ties or the IRS will think you're moving to Puerto Rico to avoid US taxes Which you are right the so the rule is you have to reside in Puerto Rico at least

[09:30] 183 days a year and now the weird part you have to actually sign an application With the tax authority in Puerto Rico, which becomes a binding contract with you in the Commonwealth and among other things It promises in that contract that you will become a resident permanent resident of Puerto Rico by December 31st 2035 and why they want you to sign a contract promising that and why they picked the date 2035 Well, no one seems to know but remember Puerto Rico is Latin America Kind of so then you might ask what's so special about Puerto Rico Why would individuals and businesses move to Puerto Rico when they could get the same or even better tax breaks?

[10:17] Moving to any of a number of other Latin American countries like Bolivia Peru Guatemala Nicaragua Whatever because you know if you move to a real bona fide Latin American country Not a US Commonwealth like Puerto Rico You can completely cut yourself off from the influence of the big brother US state Which by the way to me is infinitely preferable to being a resident of a place That's nothing more than a Latin appendage of Uncle Sam. It's like this There's two big reasons why people in some businesses up in the states like the idea of moving to Puerto Rico for one You retain your US passport and US citizenship Which believe me these days in the wake of what's happening worldwide in the light of US interference?

[11:04] imperialism and military intervention Believe me having a US passport US citizenship sure ain't what it used to be The fact is you know if you happen to be on a plane or a boat and terrorists somehow managed to take over Who do you think's the first one they're gonna chuck out of the plane or toss in the drink? The Canadian of course I know I know it to a lot of stateside folks being American still is a big thing And there's the delusion of patriotism and all that and I know Often the thought of getting another passport or another citizenship in a country like let's say Uruguay Smacks of being a very unpatriotic gesture and kind of a finger in the face of Uncle Sam So you've got that patriotism angle Which is one reason why so many mainland Americans are thinking about Puerto Rico

[11:53] It's basically still the US so there's no Abandonment stigma attached to moving there now you can agree or disagree about that logic though almost all long-term Expats I know think it's much more advisable to completely cut the cord with Uncle Sam now as for the second reason So many people are considering Puerto Rico It's the fact that you only have to be in Puerto Rico 183 days a year to qualify for residency and those tax breaks so the other half of the year by the way That's exactly a half a year You can do all those things that you just can't do in Latin America like go back to Milwaukee or Cleveland hang with the grandkids Play the slots at the reservation casino and line dance at the local country bar Sorry to say folks, but that kind of first-world excitement just doesn't exist down here not yet

[12:43] So anyway, how does that half-year residency requirement 183 days? Compare it with the residency requirements if you move to another Latin American country like Honduras Well, according to US tax law for you to qualify for the foreign earned income tax break Which for 2015 means you can exclude one hundred thousand eight hundred dollars from foreign earned income In other words pay no US federal income or state taxes on that amount Anyway to get that huge income tax exemption You have to be living in a foreign country or countries for at least three hundred thirty days a year And that's the kicker Which means you've only got a month then that go up to Cleveland or Dallas and hang out at the country

[13:30] Western clubs or the bingo parlors the fact that you're only allowed to come back to the states Approximately 30 days a year sometimes is a heavy personal and psychological burden at first anyway But as expat Eddie has said so many times when asked that question himself a lot of those relatives and so-called friends up north You realize later were energy suckers and time vampires that you're better off without So by all means if you feel you must Skype with them at least it's not on your dime. Oh and one more thing to remember about Puerto Rico There's always been a pretty large contingent of citizens there who are vying for US statehood in fact over the years They've had numerous votes and referendums on it, but it's never passed so far

[14:15] But if it does there goes all those tax breaks everyone's been counting on so then what's my take on all this Puerto Rican stuff Well, I'd never want to go there. It's overrun by tourists besides that it's first world expensive kind of like Costa Rica So it's not very high on my list anyway Though like Costa Rica or a Cancun if you can get a nice package deal for a weekend or more It's a great place to have a quick vacation Okay, speaking of emails just got another email from my friend Oscar one of my expat wisdom friends who came down to one of my earlier Seminars and speaking of seminars if you're interested in coming to one in June or July send me an email at the expat files Gmail.com or Johnny at expat wisdom.com and I'll put you on the early bird mailing list

[15:01] So anyway, I was talking about Oscar He just sent me an article in a link that supports what I've been saying in a show a couple of weeks ago about how Brazil through its massive Deforestation efforts has permanently damaged its ecosystem and its climate the title of this article on the link from natural news is 2014 rainfall levels lowest in Brazil's recorded history Carnival being canceled in many cities now I don't know how many you listeners out there have been to Brazil But you know Carnival is the number one activity for the entire year and because of all the scantily clad women It's even more popular than football So for some Brazilian cities to announce that they're canceling it due to drought that's serious

[15:48] In fact, the mayor of one Brazilian city said the sadness is palpable and he'd rather see him cancel the World Cup Never in the history of our city has something like this happened before stated Antonio Panito Chief of staff and president of the Carnival Commission in the city of Oliveira quote with broken hearts We made the decision to cancel this year's festivities now see if you get the secondary meaning on this that comes from the same report Says here the situation in Rio Brazil's other major metropolitan city isn't much more optimistic According to experts the primary water supply is operating at zero capacity meanwhile Agriculture throughout the region is suffering tremendously including get this massive genetically modified

[16:34] That's GMO soybean plantations that are experiencing irreversible yield damage So the bad news there's no water for the people, but there's good news, too the GMO soybean crops are withering away and in Sao Paulo Brazil the biggest city in all of the Americas with 20 million people in the metro area city council chairman Gilberto Natalini told reporters sadly quote. I know we are heading for collapse In fact, he says rather than to try to celebrate Carnival himself. He plans on get this Completing his own personal rainwater collection system on his home hmm

[17:20] You mean to say he'd rather have water than party doesn't sound like your typical ass-wipe politician to me So you could say the prepper movement has finally arrived in Latin America first stop Brazil Where some cities are already rationing water to two times a week, so all you listeners up there who? Continuously email me about Brazil you still want to move there Anyway by necessity some of these Brazilians are becoming preppers too little too late I know but that's the state of things now I've mentioned before that oftentimes I'll get invited to parties and I'll even go and yes You can often really enjoy middle-class parties and those upper middle-class parties well They're fun too simply because later on you can make fun of everybody now at those pretentious upper-class parties often

[18:10] I'll listen to the pseudo intellectual BS and when that gets old and I no longer can bite my tongue I'll get a little conversation going like for example Pollution drones genocide Putin the Ukraine situation fracking Whatever when I get blank stares, which I generally do I'll play a kind of a game by throwing out a few fashionable current trendy first world terms in English Just to see if anyone in the room has more brain cells than spy Rick eats now just last week I was at an international travel agency convention looking for some travel deals myself not to mention I heard at last year's event They had free food and giveaways Anyway, it was at a big international first world chain hotel in El Salvador And I'm telling you there must have been 2,000 people at this event with a hundred different travel agency booths and kiosks set up on the main floor

[19:02] And the first thing I noticed once again was I was practically the only gringo there in fact That was also probably the tallest person there at six foot that doesn't say much But being the only tall gringo in the room, I did get some stares, especially from the little kids Anyway, as usual there were pretentious jerks walking around with their bodyguards and even some people walking around with a couple of kids in tow Each kid being tended to by his own nanny or maid and how do you know that well because they're dressed in typical Degrading maids outfits and believe me, it's hard not to stare and another observation here nearly everyone in the whole place Except for the workers, of course who had smocks with travel agency logos on them Anyway, about 80 or 90 percent of all the hundreds of other people filing through had a t-shirt or a sweater on of some kind

[19:53] Some item of clothing with English words and phrases and logos and writing on them because like I've said so many times To Latins is a coolness factor to anything first world gringo and therefore anything in English Even if they don't understand what the lettering says, which is the case about 95% of the time So anyway, I was sitting down at one of those travel agency booths checking out some trips myself One of the guys sitting next to me actually had a jacket on that said get this Dr. Prepper and then the lettering on the back of the jacket said to be alive first survive And then it had the address and phone of the place. I think it was in LA. So sitting next to me I turned and said to him so you're a prepper, huh? And he just kind of nodded and smiled and I said well you're prepping for anything particular in

[20:42] Spanish, of course and to make a long story short. I found out this guy had a business administration degree So apparently he wasn't an idiot But then again, maybe he was because all the while he had that jacket. He thought it was for the cola Dr. Pepper and then by hook and crook. I found out prepping is pretty much a completely unknown phenomena down here So there's no Spanish word for it. Oh and by the way one more thing about that travel agent convention now They had different sections for different types of travel one for cruises one for trips to Europe trips to the states South America Australia China, etc. Etc. And along with that they had big-screen TVs everywhere Posting the latest offer or deal of the hour Which was the real reason why I was there because I heard last year when they had this event a gringo friend of mine got a

[21:32] Two for one deal on a two-week cruise to the tip of South America Just by hanging around and watching the big-screen TVs when those deals popped up Anyway, this you won't believe well, maybe you will one of the travel agent ladies there Told me that by far the biggest selling trips at these conventions are trips to Orlando And Disney World. Oh, what fun the and the second biggest selling trip a Disney cruise. I mean, come on. Does that not strike you as the gringo advantage on steroids? but here's the thing since most Latins about 98% of them could never qualify to get a visa to go to the US one of the big reasons why these travel agents are able to sell so many trips to Disneyland and so many Disney cruises because

[22:21] Along with the package deal they sell you they arranged to get you that temporary visa so you can try it on US territory Legally, then when I asked the travel agent lady Well, then how many people do you lose how many just skip out and become illegals? And she said oh, no, we don't lose any of them because they always pay with credit cards So they're pre-qualified by the credit card company that they have a decent job a bank account a car and maybe even a house So there is no risk of flight there In fact, the whole travel agency slash tourism convention was sponsored by a credit card company called Cred-o-matic its recent MasterCard and a Colombian bank called BAC And in fact the general promotion that day was if you use a credit card

[23:07] You get 10% off any deal you cook up with a travel agency If you didn't have a credit card, you'd fill out the applications and get pre-qualified there Maybe in the end all it was was a promotion for you to get a credit card and buy a trip And in the process get reamed a new anus with the interest payments Because like the lady in the kiosk told me the average person paid for their trip in 12 separate payments over 12 months Now if you do the numbers, you'll find out they're paying more than 60% interest over that year some deal, huh? They get sucked into a 10% off deal with a credit card and they pay 50% or more to get that deal Now remember there were hundreds and hundreds of people there signing up for different kinds of package travel deals

[23:54] And when I asked one of the ladies at the kiosk how many people pay for their trips with cash and she said well Nobody that I know of so far. Anyway, everybody pays with a credit card And then I said you do accept cash don't you stupid question, huh? And she said of course, but people normally don't have that kind of money So then as it turned out right then and there I had a future glimpse of the downfall of Latin middle-class and upper middle-class society Credit cards I should have known everywhere you go down here You see people pay for a buck and a half cup of coffee with a credit card They even use their credit card for a $2 parking fee And you know, I'll never forget what expat Eddie once said having a credit card is like having a boat The very first day you get it. It's both the best and the worst day of your life

[24:43] Oh and by the way when I said so many people at that event were wearing t-shirts and sweaters and coats with English sayings on them The best one I saw was a kid who had a sweatshirt on that said Better be nice to America or we'll bring democracy to your country, too And you know every time he walked by I couldn't stop looking at it because I want one of those And of course this Latin kid a college kid was clueless as to the double meaning behind that one Obviously, so anyway to the casual observer to this travel agent convention if he has spoke Spanish Anyway, you had to come to the conclusion that any Latin who's got any kind of money at all or could qualify for a credit card Has this overwhelming desire to go to Disney World or take a Disney cruise and that Disney pipe dream permeates all

[25:32] levels of Latin society Fact is it seems even the poorest little Latin kids know all about Disney and they've seen the Lion King and the classics like Cinderella and Dumbo and Pinocchio Etc. Etc. I'm talking about the buccas In fact, I can't tell you how many middle-class Latin people I've spoken to who said if they could see three things before they died first the Pope and the Vatican Second would be a trip to Disneyland or Disney World and third a Shakira or pitbull concert Go figure, huh? How'd you do it? Did you guess any of those? I doubt it

[26:21] Okay, so then what are the three things you want to see before you die? Send me an email on it the expat files at gmail.com and please don't tell me it's a pitbull concert Or I'll strangle you myself. Anyway about that Disney obsession that permeates all of Latin America You really got to hand it to that guy whoever he was ages ago in the Disney organization The guy who planted that seed so deep in the mentality of every Latin person It's got to be one of the greatest subliminal marketing successes of all time Which is why I think some time if the Disney corporation put a Disneyland or Disney World somewhere in Latin America That just might go a long long way to solve the illegal immigration problem to the US. Oh and better yet

[27:07] recently, I received an email from a Florida listener who said if the US government would post some border patrol agents at the Entrance to Disneyland and Disney World just to check green cards as people walked in Chances are within a month's time there wouldn't be enough buses or airplanes in the world to deport all the people they snagged Well, I don't know about that, but it is an interesting thought experiment now, isn't it? You've been listening to the expat files living in Latin America coming to you twice a week from somewhere south of the border Email me the expat files at gmail.com And don't forget to check out expat wisdom calm to sign up for your free reports on Latin America

[27:52] See you next time nos vemos He knows