Transcription
Why is it that so many traders, investors, and wealthy Americans are moving to this island right here of Puerto Rico? I'm going to answer that question in today's episode. My name is Ross Cameron, and as you may know, I am a full-time trader. Last year, I earned a little over $6 million in trading profits. I'm also a Massachusetts state resident, sometimes called Taxitus. Tax Massachusetts has a 10% state income tax since they recently enacted a 4% millionaire tax. Any profit that you make, income over a million dollars, is subject to an additional 4% on top of the state's 6% flat tax, which means Massachusetts residents like myself that are earning more than a million dollars a year pay 10% tax on those gains. Combined with being at the top federal income tax bracket, making $6 million in one year subjects me to in excess of $2.5 million of income tax, state and federal combined every single year. Over the course of 10 years, we're talking about $25 million of tax until you think about Puerto Rico.
In 2012, Puerto Rico introduced incentives to encourage wealthy Americans to move right down here to the island and to bring their business with them. They introduced two separate acts. One is specific to moving a business and other is specific to capital gains. Now, capital gains is very interesting because this applies, as you might imagine, to trading profits and also to crypto profits. And so the island now has an enclave of investors not just in the US stock market but also in the crypto markets. And it is specifically US residents who are moving here for those tax incentives. So I'm going to break down those incentives for you in just a moment.
But let's talk about some of the other things that make Puerto Rico appealing. Well, number one, Puerto Rico is not far from the United States, and it is in fact a United States territory, which means moving from New York, Massachusetts, California, or any of the other high-income tax states down to Puerto Rico is not any different really than moving from state to state. You move from Vermont to Massachusetts, you get a new driver's license, you've made the move, and for that year that you're in two states, you typically would file a return in both states. And then after that, you're filing a return, tax return just in the state that you live in. So you can move to Puerto Rico and you can leave Puerto Rico and you are not giving up your US citizenship. Now this is very important. Certainly there have been US citizens that say, "Oh, maybe I should move to Dubai. Dubai is tax-free. Yes, it is, but not so fast." Because the United States has what's called worldwide income tax. So, if you're a US resident and you live in Dubai, you still have to pay United States income tax. Even though you're in Dubai, the only way you get around that is if you denounce your US citizenship. And that's not something many people are going to want to do without a lot of careful thought and planning on the tax liabilities that occur at the day that you denounce citizenship. But moving to Puerto Rico, you retain your US citizenship. So, it's very easy to move here and it's not far to fly down here. Certainly from Miami, but even from New York, it's only three and a half hours. So, it's a short flight from New York. It's a short flight from Miami. It's a little bit of a further flight from California, but it's a very easy place to move to. And is also a considerably well-developed nation in the Caribbean island chain. Certainly compared to some of the smaller Caribbean islands which also have favorable tax statutes but would require denouncing your US citizenship. So for instance, Antigga, St. Lucia, St. Kits, NeAs, even St. Martin or St. Barts. These are very popular islands, but they're very seasonal in terms of the reliance on tourism and they're smaller. And so living on a very small island would mean for all intents and purposes that if something happens like you get sick and you got to see a really good doctor, you would you would need to fly to a bigger island. In fact, I know someone on St. Kits who told me he said, "I wouldn't let them cut my hair here, let alone cut off my leg." And he in fact, this is a sad story, he did have to have his leg amputated. Serious moment, but he made light of it and he flew to Ireland to have that surgery. He didn't want to have it in St. Kits. So that goes to sort of show that if you're in some of the smaller islands, your access to the modern amenities that you may be accustomed to living in the states, you don't just get them.
But when you walk around old San Juan here in Puerto Rico, it feels to me very European. You can feel that Spanish influence. It's cobblestone, nice narrow streets, and it doesn't really feel like a small Caribbean island. And Puerto Rico, in fact, is also a popular destination for a lot of US insurance companies that have relocated here. So, there's a fairly built-up industry, not just of tourism, but also for a number of different um subsets and and sectors of the economy right here in Puerto Rico. So, if number one, it's easy to get here, number two, it's easy to move here and move back if you later decide that it's not a good fit for you, and number three is fairly well-developed as an island in uh the Caribbean region. Number four, internet access. This is very important. Some Caribbean islands don't have very reliable internet, but that has not been my experience here in Puerto Rico. Puerto Rico has high-speed fiber and for me as an active trader, this is something I pay attention to. So, in fact, whenever I travel, one of the first things I check before I go to a destination is I ask the concier at the hotel or whoever's at the Airbnb to run a speed test for me so I can actually see the latency from wherever I'm going back to the data centers in New Jersey, which is where most of the exchanges are pulling their data out of. For me, this is important because if I have really high latency, it's going to affect my ability to trade quickly. I'm a discretionary trader. I'm executing trades based on what I see in real time. And so, when I press that buy button, I want to make sure that it gets to the market instantaneously. And I want to make sure that the data that I'm seeing is accurate. And so, if I have a lot of latency, then by the time I see my signal, the the opportunity might have already gone by. In Puerto Rico, I don't have any issues with latency. So for me, having a well-built out infrastructure for internet is important, but we also have to talk about power and power infrastructure that has been a little bit of a challenge down here in Puerto Rico. In fact, when Hurricane Maria came through, this disrupted power not just for months, but for some people, they were out of power for over a year. That's pretty scary.
So, as I've been talking to the locals down here in Puerto Rico, I've been asking them what it was like going through Hurricane Maria. And many of them said that in those days you could go to the gas station, you could get a fixed amount of gas and you would get it just for your generator. But not everybody had a generator prior to the storm coming. So, the person that I talked to, he said he did have a small generator and he also had a small solar panel that he brought in during the storm and then he put back out once the storm cleared. But for him, it was over a year without power because he lived in a more rural part of Puerto Rico. Now, where wealthy Americans are going, they're going generally to resorts and/or buying properties in areas that have generators. So, if you went on Zillow right now, you would notice that there are properties right here in Puerto Rico that are competing in price at least against properties in Miami. There are properties here, $30 million, $40 million. These are luxury estates and they certainly have the amenities of a backup generator. In fact, there's luxury accommodations and and luxury properties sort of on all scales of the spectrum depending on the location. Dorado Beach is a very popular part of Puerto Rico for people that have moved here to take advantage of the tax incentives. In fact, there's a number of celebrities that live in Dorado Beach and own very large properties.
So, number one, it's easy to get to. Number two, it's easy to move here. It's easy to move out. Number three, it's relatively well-developed as far as the Caribbean nations go. You've got great access to high-speed fiber internet. The power that can be a little bit of a wild card, but with a generator, you're going to be able to stabilize that. And now, of course, last but certainly not least, are the tax incentives. So, in 2012, Puerto Rico introduced tax incentives to encourage US residents to move themselves and their companies and really their whole life down here to the island of Puerto Rico. They were consolidated into what's called Act 60, which is a group of tax incentives, but also there's a number of restrictions that include who can and who cannot take advantage of these various incentives.
So, for traders such as myself, here's the big advantage. If you come to Puerto Rico, you have zero federal capital gains tax on your trading profits, zero state income tax, you have no income tax. And that is obviously very compelling and that's what's brought so many traders certainly in the crypto markets where as we know over the past decade there have been people who have made enormous sums of money but even active traders such as myself will come down here because they're doing the calculation. They're realizing well gez $2.5 million a year over the course of 10 years that's $25 million. If I could buy a small uh you know beachside luxury home for four or five million dollars here, it's going to pay for itself after two years. It's kind of a no-brainer. And of course in the future you could resell that property presumably as long as you know uh inflation and prices continue going higher at a slightly higher price.
So here's the thing. In order to move to Puerto Rico and take advantage of these tax incentives, you have to stay here for at least 6 months out of the year. That sounds easy, especially if you live in Massachusetts like I do. 6 months out of the year. You mean I have to be down here in the sunny, warm climate during the terribly cold winters of New England? I'm not complaining at all. But that's not all. It's not just the residency in terms of numbers number of days. While that's commonly the case if you are going between, let's say, New York and Florida, which many people do, they talk about how if you go down to Florida, because there's no income tax in the state of Florida, state income tax, you've got to spend at least 6 months in a day in Florida. Otherwise, New York is going to try to claim you as a resident. So, people will count their days and they keep their records very organized to prove that they were in Florida for the majority of the year. But down here in Puerto Rico, it's not just the number of days that you stay here. There's what's called the closer connection test. And the closer connection test asks whether you or not you have a closer connection to another place other than Puerto Rico. Because the idea of this incentive is to reward you for relocating your entire life here to Puerto Rico. Not just a home for 6 months out of the year so you can benefit from the tax incentive. It's moving your entire life. And for some people moving their entire business.
If you're younger, this is actually pretty easy. You may not already have a home. Maybe you have an apartment. Okay? So, you cancel your lease. You move here. It's easy to move from state to state. It's easy to move back. So, moving to Puerto Rico is no different. So, all of a sudden, you're able to detach very easily. You get rid of your lease. You sell your car. You move here. And you settle down. Once you're a little bit older, you're in my position. You've got kids. You've got a house. You've got a family. To move down here and really fully relocate your whole life to Puerto Rico, it means putting your kids in school down here. It means selling your home, you know, back east or wherever you happen to be and moving everything down here, your whole life. And so when it comes to going to the doctor, you're going to the doctor down here, your kids are going to school down here, everything is down here. And while there is a huge tax incentive with making that move, that is a more substantial move when you're later in life or you're in a period of life like I am where you have kids. So there's sort of two windows where moving to Puerto Rico is very interesting. When you're younger and you've got less responsibility and it's easier to get up and move and when you're a bit older and the kids have moved out and it's also a little bit easier to get up and move. But in those middle life years, that's the crunch time and that's when it is harder to make this move down to Puerto Rico.
Now, there's certainly people have done it and there's a bunch of um videos right here on YouTube of other uh other people who have talked about making the move, not as much uh just in the trading space, but entrepreneurs, business owners who have decided to relocate their entire business to Puerto Rico. For some businesses that rely on remote uh that are really fully remote businesses, that works very well. But for a business like a plumbing business where you know you've got 10 trucks and you actually have a in-person presence in New Hampshire, for instance, you can't move that business to Puerto Rico. I mean, you could start a new plumbing business in Puerto Rico, but you couldn't move that existing business down here. So this move to Puerto Rico very attractive for an elite group of people.
And when I've talked to locals here in Puerto Rico, they've expressed exactly that. I've said, "What is the population change looked like over the last 5 10 years?" And they said, "After Hurricane Maria, a lot of people left. They left because everything got wiped out." And so they said, "Well, if I'm starting over, I might as well start over in Florida. I might as well start over somewhere where they have a family member where they can get settled in the United States for a better job, better opportunity, and not with the fear of another hurricane coming through." So he said right after Hurricane Maria about half a million people left the island. Now some of them have come back but in 2012 with this introduction of this tax incentive which has continued to gain popularity as the crypto market surged in the last 5 years and even as the overall equities market has surged. He said that there's been this um departure of lower income people leaving to go to the United States to work and then very very high income, very wealthy people, including celebrities coming to Puerto Rico in order to benefit from the tax incentives. So that's an interesting shift in demographics that you're seeing here on the island. And you know, the fact is people that are moving down here that are buying 30 $40 million properties. They'll say that look, every time one of these properties is built, it employs a lot of people. There's a lot of people actually doing the building. There's a lot of contractors that are helping support the building. You know, once it's been built, the plumbers, the HVAC, da da da. And so there's a sort of cottage industry around supporting these very wealthy Americans who now reside in Puerto Rico.
So, I'm sure there's some of you watching this video right now in Puerto Rico. Some of you are local, born and raised from Puerto Rico. Others are US residents who have moved to Puerto Rico. And tell me, what has your experience been? What have you seen in the shift in population? What is it you love about being here? What is it that is challenging about being here? And I suppose a question some of you may be asking is, Russ, are you going to move to Puerto Rico? Well, as many of you know, all of my trading at this point is in a retirement account. So, I didn't pay income tax on the $6 million that I made last year. That's great, but I can't spend that money until I'm 59 and a half years old. So, I am saving for retirement, which is great, but there is part of me that dreams of the life down here in Puerto Rico, but it's not for me just yet. At the my stage of life with kids and school and everything else, it's just not happening. So, I'll come here on vacation. It's a beautiful place to visit and I'll keep sharing with you these things that I'm learning about Puerto Rico and perhaps other places that may be attractive for US residents, but for me, it's not going to be the time just yet. Thank you guys as always for tuning into this episode. Any questions, comments, please leave them down below. If you enjoyed, I hope you hit that thumbs up and subscribe to the channel.