Tag: Peter Schiff

It’s been a little over a year since I sat down with Peter Schiff at his house in Connecticut to discuss the importance of international diversification. Since then, the options available to take protective measures have declined in many ways, especially as the destructive FATCA law comes into force.

While some doors have closed, others have opened. And perhaps one of the most significant new opportunities in the world today is the tax incentives in Puerto Rico.

In fact, Alex Daley and Louis James, two of my Casey Research colleagues, have already moved to Puerto Rico to take advantage of the tropical weather and low taxes.

Peter Schiff is also moving there. He has already moved one of his businesses there and plans to move personally sometime in the future.

It’s not an exaggeration to say that these new incentives in Puerto Rico have been life-changing.

Any American looking for relief from the suffocating burden of ever-increasing taxation should seriously look into the Puerto Rico option.

Peter and I discuss it in detail below. You won’t want to miss this fascinating discussion.

But first, I’d encourage you to check out the fully revised and updated version of Peter’s book The Real Crash, which just hit the shelves. It’s a must read if you want to understand the economic abyss that is staring the US in the face.

And now to our discussion on the stunning tax benefits of Puerto Rico.

Nick Giambruno: Peter, tell us about your take on the situation in Puerto Rico and some of the opportunities it offers.

Peter Schiff: The Puerto Rican situation is actually quite appealing for Americans who own businesses because the way they have reformed their tax law is very favorable to businesses that are generating their income out of Puerto Rico—Puerto Rican-sourced income.

So if you are doing something, if you go to Puerto Rico and do it—if you incorporate a business in Puerto Rico and operate your business from Puerto Rico—the tax treatment is very favorable. You basically pay a 4% effective tax rate.

If you incorporate in Puerto Rico, that corporation enjoys a 4% tax rate even if you yourself are not living in Puerto Rico, which is much better than being in the states, where it is subject to a 35% tax rate federally and then some. Depending on which state it might be incorporated in, you’d have another layer of corporate tax, so clearly you’re at a competitive advantage if you’re operating a business out of Puerto Rico. And you’ll also find that the cost of doing business—the labor costs and the rental costs—are going to be lower in Puerto Rico than the 50 states.

So you can move over there, you can operate a business at a lower cost, and you can keep a lot more of what you earn, which effectively is like a reduction in cost because you don’t have to make as much money. In the US, in order to generate a dollar of profit, you pretty much have to generate almost two pretax dollars to get a dollar after tax, whereas in Puerto Rico, you can get a dollar of after-tax profit by generating only $1.04.

Nick: So what makes Puerto Rico different than other low-tax jurisdictions like the Cayman Islands?

Peter: Well, the Cayman Islands is not part of the US. You can incorporate in the Caymans and you can enjoy a very low, maybe even a zero rate of tax. But the difference for an American is huge in that if you run a business in the Cayman Islands on the corporate level and you pay no taxes, as the owner of that business, if you want to enjoy the fruits of the profits, if you want to pay yourself a dividend or if you want to move to the Caymans and pay yourself a salary, all of that is going to be subject to US income tax. Even though the Caymans doesn’t impose an income tax, America still does. Now, if you are Canadian or German or anybody else, then it doesn’t really matter. You can move to the Cayman Islands and live a tax-free life.

But you can’t do that as an American citizen, because the US government says, “Uh-uh; we don’t care where you go on this planet.” In fact, they probably don’t care where you go in the universe. Wherever you are, if you’re earning money, the US government wants its cut.

But if you go to Puerto Rico, they don’t take a cut, and that is what is unique, because there is a tax treaty between the United States Government and Puerto Rico as part of the terms of the territorial agreement that we have with Puerto Rico. It says that if you’re an American citizen living in Puerto Rico, working in Puerto Rico, that the income that you earn while you were there is not subject to any US income tax.

Nick: I think that’s the one point that needs to be emphasized. Americans can find these kind of benefits nowhere else in the world because of the system of citizenship-based taxation which no other country effectively imposes on their citizens. So for Americans, Puerto Rico really is the only escape hatch for this kind of tax relief short of renouncing your US citizenship.

Peter: If you’re a Canadian, you can pretty much go to any of the tax havens all around the world—it doesn’t really matter, you can take your pick—but if you’re an American, you really don’t have a choice. It’s Puerto Rico, or that’s it.

Nick: What’s the situation with your company in Puerto Rico?

Peter: So far, I’ve moved one company there, which is my asset management company, Euro Pacific Asset Management. It used to be based in Newport Beach, California. So the immediate benefit to my company from that move is that the tax goes down from the tax in California, the marginal tax is upwards of 50% when you combine the state income tax with the federal income tax, so my income tax liability goes down by upwards of 90%.

Also, the office space I’ve leased in San Juan is considerably cheaper than the office space that I leased in Newport Beach, so my rent is lower.

I have four employees who have since relocated there. They’re still working from home until they get the office fully ready, but once it is up and we do hire some local Puerto Rican labor, I am sure that we will be able to hire somebody working in Puerto Rico, clerical-type work that will be a lot less expensive than what we were paying for that kind of work in California.

So the labor cost will be lower, the taxes will be lower, so it’s just a lowering overall of the operating expenses of the company, and of course, you know the plan for me—I am ultimately planning on moving there.

Nick: Yes, it’s also individuals who can directly benefit. You have the two laws, Act 20 and Act 22. One pertains to service businesses and the other pertains to individual investors. So when you move to Puerto Rico, tell us about the kind of benefits you can get.

Peter: Once I officially move to Puerto Rico, then I can get tax-free dividends on Puerto Rican-sourced income, which would include my business that has moved to Puerto Rico.

I can also make investments in the stock market and enjoy zero capital gains tax. Right now, living in America, if I buy 100 shares of IBM at $100 and sell it at $110, I have a $10 capital gain. There’s a tax rate if it’s short-term, it’s higher than the long-term rate. But once I move to Puerto Rico, I can trade IBM as often as I want, and no matter how much money I make, I pay zero capital gain taxes in Puerto Rico, and I pay zero capital gain taxes in the United States.

And any other businesses that I operate—you know, I do my radio show and right now, it really doesn’t generate much of a profit, but to the extent that it was able to generate a profit, I won’t pay any taxes if I’m doing it out of a studio in Puerto Rico as opposed to in the US.

So pretty much anything that you can do via the Internet, via the telephone, if you do it from Puerto Rico, you’re going to hardly pay any income tax, which is kind of the way it used to be in America. It’s kind of like turning back the clock to the olden days, when you got to keep what you earned, where you really were free, when you didn’t pay a lot of tax, and that’s the way it is now. If you want to move to Puerto Rico, you can reclaim the freedom that was once enjoyed here on the mainland by our great-grandparents.

Nick: Yeah, it’s really an amazing opportunity. Isn’t Puerto Rico in many ways perfectly suited for American startups and entrepreneurs?

Peter: If you can start up a company, do it from Puerto Rico—especially if it’s an online company. Then in a few years you can turn around and sell it for $5 million or $10 million or $20 million.

Let’s say you sell your business for $5 million. That’s a lot of money, but after taxes you’re left with $3 million. But if you do it in Puerto Rico, you get to keep the whole thing. So that could be a big difference.

Let’s say you’re operating a business from the US right now, but it’s small—maybe it’s an online company or whatever you’re doing and maybe you’re earning $500,000 a year—and that’s all you’re earning, and by the time you finished paying all your taxes, you’re left with $250,000 a year. Well, if you decide to move to Puerto Rico, your income would probably be more like $450,000 a year, so you’d give yourself a $200,000 a year raise, and your overhead expenses would be lower and you’d also reduce your cost of living.

So it’s a big, big difference, and especially if you compound it over years. Because you just don’t have that savings one year, you have it year after year. And now you have that extra money that you didn’t pay in taxes—you can then take that money and invest it. And now those returns are going to compound tax-free.

So if you think about it from an ability to retire—when can you retire and how much income can you have in your retirement savings—it’s so much easier, because all the checks that you would have written to the IRS you can now invest it and compound the returns tax-free.

Nick: So what do you say to the skeptics? Are you afraid the US government could force Puerto Rico to change, or the incentives could otherwise disappear?

Peter: Well, the incentives aren’t going to disappear because they’re working. Puerto Rico is already benefiting from a lot of people moving to the island, setting up businesses on the island, and so this benefits Puerto Rico because this is tax revenue they never would have received. Four percent of something is better than 50% of nothing, and in addition, when these businesses are moving to Puerto Rico, they hire people, they spend money, and they do other things that impact the local economy where the government does collect additional tax revenue. So it’s nothing but a plus for Puerto Rico; they would have no reason to end this.

Plus when you go down there they write a contract with you. So even if they end it in the future, if you’re already there, you’re locked in until 2035. So no matter what they do, once they approve your status, you’ve got a guaranteed zero-tax situation until 2035, which is another value—tax certainty.

I mean, who knows what the income tax is going to be in the United States? You have no idea how much they might jack it up in the future. At least if you live in Puerto Rico, you know what it’s going to be until 2035—and for a lot of people, that’s beyond their life expectancy. That’s a nice certainty to have.

Nick: What about the US federal government?

Peter: Puerto Rico needs to do something. The economy is in a lot of trouble—they have a lot of debt. I mean, what else can Puerto Rico do to try to improve their economy but try to expand their tax base?

So I don’t know that the US is going to try to put pressure on Puerto Rico to end something that’s actually working for Puerto Rico, unless the US government is willing to come up with a lot of cash for Puerto Rico. If the US loses a few billion dollars a year in tax revenue, well, that might be politically better than having to spend a few billion dollars in bailout money.

If Puerto Rico had simply taken this particular policy position 20, 30 years ago, Puerto Rico would now be like Singapore or the Cayman Islands.

Nick: So what areas of the island do you like personally from a lifestyle standpoint?

Peter: I bought a condominium personally in an area of Dorado Beach. And I’m in the Ritz Carlton Reserve, which just built a spectacular resort in Dorado Beach. It’s part of a larger community, which is gated and has lots of private homes that share the Dorado Beach Club, which is the beach and four 18-hole golf courses, and it’s just a beautiful community. Around the community there’s lots of stores, there’s really good private schools, English private schools; so for people who have families and want to relocate, I think it’s very family friendly. You see kids at night walking around, riding their bikes to each other’s houses, you don’t have to lock your doors; it’s a very, very safe, beautiful community. And of course, you’ve got great weather. So if you like the water, if you like sailing and scuba diving and playing golf, and tennis and stuff like that, it’s a nice place to be.

There’s also a big city, so if you’re young and single you can be in the San Juan area. I mean, it’s not like a remote little island—there’s a vibrant urban population there. There’s stuff going on, there’s a vibe to the place.

So when you have a vacation you can go to New York, or you can go to London or Paris, you can go to a show, you can see a play, you can go to the symphony, you can see a museum. That’s your vacation. Your normal life is what everybody else’s vacation is.

There are people who try to retire to Arizona or Florida, but they are still subject to federal income taxes. Even in Florida where there’s no state income tax, there’s still the federal income tax which is pretty high. You’ve got guys like Rick Perry in Texas trying to convince businesses to move to Texas because they have no state income tax, but they still have the federal income tax. Puerto Rico can out-Texas Texas, they can out-Florida Florida. I mean, nobody has what they have to offer, which is exemption from the US federal income tax.

And that is the big enchilada—not only what the US income tax is today, which is 39% plus the Obamacare, so it’s about 44%, but who knows what it’s going to be? What if Hillary Clinton is the next president and we’re still in recession; and what if Hillary says, we need another tax bracket, maybe we have to go to a 60% or 70% tax bracket?

Nick: Peter, I know you’re a busy guy. I appreciate you taking the time to explain to our readers this exciting and unique opportunity and wish you the best on your endeavors in Puerto Rico.

Editor’s Note: Puerto Rico’s Stunning New Tax Advantages is the authoritative guide on the Puerto Rico option. It’s been reviewed by dozens of professional sources in Puerto Rico and the mainland US, including top law firms and accountants. It’s an A-Z guide with information you won’t find anywhere else. If you’re considering taking advantage of these incentives, get started with this guide. It will save you a lot of time and money in the process. Click here to learn more.

The article Peter Schiff Goes to Puerto Rico was originally published at internationalman.com.

I’d bet that most International Man readers are familiar with Peter Schiff. He is a financial commentator and author, CEO of Euro Pacific Capital, and is known for accurately predicting the 2008 financial crisis.

He also has a very keen understanding of internationalization. Peter shares with me his strategies in this must-read discussion below that I am happy to bring exclusively to International Man readers. (If you are not already a member, you can join for free here.)

Nick Giambruno: Peter, do you see the potential for another financial crisis in the US playing out in the not-so-distant future?

Peter Schiff: Unfortunately, yes. I mean, how soon is very difficult to tell. In fact, right now you’ve got a high level of complacency. The stock markets are rallying to new highs, nominal highs. People seem to be convinced that the worst is behind us, that the central banks of the world have solved their problems by papering them over. But, you know, I don’t think they’ve solved anything. I think they’ve compounded the underlying problems that caused the last crisis, and so now the next crisis will be that much worse because of what the central banks did, in particular the Federal Reserve.

The Fed is right now trying to prop the economy up, the housing market up with cheap money, and it is operating under the delusion that one day it can take that cheap money away and the economy and the housing market will just sustain on their own, but that’s not possible. The Fed is building an economy that is completely dependent on that cheap money. And so if you take it away, the economy implodes, but if you don’t take it away, then it’s worse.

Nick Giambruno: So what measures do you see coming into place—things such as capital controls?

Peter Schiff: Well, certainly as currencies depreciate, governments look to try to find ways to stop the bleeding. What’s really is going on with inflation is that you have a huge transfer of wealth from savers and lenders to debtors, and of course the US government is the world’s biggest debtor, but a lot of American voters are in debt too.

If you’re a saver and you don’t want to watch your assets confiscated through the printing press, then you’re going to try to protect yourself. You might do that by moving your dollars abroad, converting them to foreign currencies, trying to get out of harm’s way, and that’s when you have the government potentially coming in with capital controls.

Putting taxes on foreign currency transactions or maybe outright prohibiting them altogether, that will make it more difficult for you or more expensive to take protective measures. I think we’ve already got the beginnings of capital controls in the United States. The government is making it very difficult for Americans to do business abroad. Many foreign financial institutions, banks, and even bullion depositories are refusing to do business with American citizens for fear of retaliation by the IRS or other government agencies.

Nick Giambruno: So what can Americans and others living under a desperate government do to minimize this risk?

Peter Schiff: Well, the first thing that you could do is minimize your purchasing power risk. So you don’t have to get your money into a foreign bank or foreign brokerage account to get out of the dollar. I help Americans diversify globally within a US account, but their portfolio consists of foreign assets, whether it’s foreign bonds, government bonds, corporate bonds, foreign stocks, dividend-paying stocks, commodities, or precious metals. These are all things that will protect purchasing power in an inflationary time period, and things that the federal government—the Federal Reserve—can’t levy the inflation tax on.

If you’re more worried about political risk—about the US government seizing your assets—then you want to take the next step. This is not just getting out of the dollar, but getting your money out of the country. But again, the US government is making that more difficult right now.

I know personally. I set up a foreign brokerage firm as a subsidiary of my foreign bank, which I also set up, called Euro Pacific Bank. I did this predominantly for foreigners who were having trouble investing with my US brokerage firm. The securities rules and regulations are now so onerous that it almost caused me to view any foreigner as a terrorist. So if somebody in Australia wanted to open up an account with me, there was so much paperwork involved that oftentimes they would just give up halfway through the process. So what I did is I set up this foreign bank so that I wouldn’t have to operate under those confines, so I can be more competitive to a foreign investor, but I can’t offer these services to Americans.

My foreign bank is no different than many other foreign banks. In order to really protect the privacy of my foreign customers, I can’t accept American customers. And if I accepted American customers, my compliance cost would be so high that I would have to charge my foreign customers more for transactions to try to stay in business. So to mitigate all that regulation and the potential of having to share all the information on my foreign clients with the US government, I’m just not taking American customers with my foreign bank.

Nick Giambruno: So Euro Pacific Bank, where is it headquartered and why did you choose that jurisdiction?

Peter Schiff: It’s in St Vincent and the Grenadines (the Caribbean). I did it for a number of reasons: it’s close to me, but also because of the banking laws. You have secrecy, privacy, and you have no tax. They’re not going to impose any income tax on my company as an offshore bank, they’re also not going to impose any taxes, any withholding taxes on my bank’s customers’ interest income or their capital gains. And no one is going to pierce the wall of secrecy. You’re going to have to go in to a St. Vincent’s court and get a local court order to get any information from my bank.

The bank is regulated, but it’s not nearly as onerous as the type of regulations that I would face trying to do this business from the United States. In fact, some of the things we’re doing offshore might be completely impossible because they would no longer be economically viable if I tried to do them in America, but I can do them offshore because the government doesn’t impose these artificial barriers.

(Editor’s Note: You can find out more about Euro Pacific Bank here.)

Nick Giambruno: Generally speaking, which countries are you particularly bullish on?

Peter Schiff: It’s kind of like a monetary or economic triage; I’m always looking around the world to see which countries are in the least bad shape, which countries are the least reckless and the least irresponsible. You really can’t find any one country that’s doing it perfectly. You just have to find the ones that are making the fewest mistakes.

And I think high on that list are Singapore and Hong Kong. Those markets are relatively free of regulation, free of taxation. I mean, it’s not nonexistent, but on a relative basis you have a lot more freedom there, and so you have a lot more prosperity there. You have much better economic fundamentals. And not just in those two places, but in Southeast Asia in general, in a lot of the emerging economies, you’ll find a lot less government and a lot more freedom. People are working harder, they’re saving, they’re producing, and they’re exporting. You don’t have these trade deficits, budget deficits, and you don’t have armies of people looking to retire on government entitlements. In Europe, we still like Switzerland even though they are making mistakes tying their currency to the euro. I think eventually they will change that policy. Scandinavia, we have been investors in Norway, we’ve been investors in Sweden. Also Australia and New Zealand have been longtime favorites. We’ve been investing down there or even closer to home in Canada. We do have some investments in South America. We’re diversifying around the world trying to get into the right countries, the right currencies, the right asset classes.

Nick Giambruno: On a different note, we’ve seen the number of US citizens renouncing their citizenship sharply increase. We have also seen high-profile people like Tina Turner and Eduardo Saverin give up their US citizenship. Would Tina be eligible to use Euro Pacific Bank?

Peter Schiff: Yes, once you renounce your US citizenship. The only people who can’t bank with me are American citizens, or green card holders. So once you are no longer an American citizen, as long as you don’t reside in the United States, then you are welcome at the bank.

I think a lot of people are doing this obviously for tax reasons, although they can’t necessarily claim it’s for tax reasons. You have to fill out a form if you want to renounce your citizenship—which, by the way, you can only get from a foreign embassy or consulate. Those forms used to be free. Now they’re $500 apiece. So think about that. If they can charge you $500 for that form, they could charge $5,000, they could charge $5,000,000. They could basically make it impossible for you to leave. And they’re trying to make it more difficult ever since Eduardo Saverin from Facebook went to Singapore. Now the government is trying to come up with all sorts of ways to punish Americans who try to give up their citizenship, and this really is the sign of a nation in decay. Fifty years ago, nobody would want to give up American citizenship. They would cherish it. The fact that so many people are paying tremendous amounts of money to get this albatross off their neck shows you how much times have changed, that an American passport is not an asset to be cherished but a liability that people are willing to pay to get rid of.

Nick Giambruno: And what about yourself? Do you believe you are adequately diversified internationally?

Peter Schiff: I think my investments are; I own a lot of foreign stocks. I have a lot of precious metals, I have a lot of mining shares. But I still live in the United States, so I’m obviously still vulnerable here. My family is here, so I haven’t done anything about a physical exit strategy. Although I do think I have financial resources that would afford me the ability to relocate, but I haven’t actually taken any steps other than setting up a foreign business. I have the foreign bank in the Caribbean. I have a brokerage firm Euro Pacific Canada, and so I’ve got offices up there. I’m also thinking about opening up an office in Singapore and trying to move more of my business—particularly my asset management business—to move it from the US. Not only because of favorable tax treatment outside the US, but because of the regulatory environment. If you want to be globally competitive, you need to be in an area where you can minimize these costs because if I have those costs and my competitors don’t, then I am at a disadvantage. And also because I think that over time people are going to be more and more hesitant about sending their money to the United States. So if I’m going to manage money, I might have to manage it offshore, because I think people will be worried about sending it here. They might be worried that the US government might take it.

If it ever gets really, really bad that you feel that you have to leave, by then it might be illegal to take any gold or silver out of the country. Right now you can take more than $10,000 worth of cash or cash equivalents—which would include gold bullion—out of the country as long as you tell the government that you’re taking it. And if you don’t tell them and they catch you, there’s a big fine and jail penalty. But one day it might not be the case. It might be that you are prohibited from taking any significant amount of money out of the country, and who knows what the penalty might be if they catch you. But if it’s already out of the country, then you don’t have to worry, because you’re leaving with nothing and the money is on the other side of the border waiting for you.

Nick Giambruno: So the idea is to preempt capital controls?

Peter Schiff: Yeah, well, you get out the window before they slam it shut. That’s the whole idea, and right now those windows are shutting all around as more and more offshore institutions are saying “no thank you” to an American customer. But the other reason that you want to act sooner too is if they impose exchange controls or fees on purchasing precious metals. They don’t ban them, but they have a big tax on the transaction or a big tax on the foreign exchange. If you want to buy Swiss francs, they can have a transaction tax. You want to get your money out of the dollar before those taxes are imposed, because if you wait until they’re imposed, then you can’t get as much money out, because a lot of it is being lost to taxes. In getting out of the dollar, you’re trying to avoid the inflation tax, but they’re hitting you with some other kind of tax in the process because that’s really what they are trying to do. A lot of people are worrying about the income tax or the estate tax and they go through elaborate means to try to minimize those taxes, but then they leave themselves vulnerable to what might be the biggest tax of all: and that’s the inflation tax. So you have to act to protect yourself before so many people are trying to protect themselves that the government makes it almost impossible to do so.

Editor’s Note: Internationalization is your ultimate insurance policy. Whether it’s with a second passport, offshore physical gold storage, or other measures, it is critically important that you dilute the amount of control the bureaucrats in your home country wield over you by diversifying your political risk. You can find Casey Research’s A-Z guide on internationalization by clicking here.

The article Peter Schiff Shares His Offshore Strategies was originally published at internationalman.com.