Looking for a tax haven in a warm, friendly climate where you do not have to relinquish your passport? Well, the Cato Institute’s tax expert Dan Mitchell has a nifty option for you.
Physically moving (your body and your money) to a foreign fiscal paradise such as Bermuda, Monaco, or the Cayman Islands doesn’t provide much value since the United States has the world’s most aggressive and punitive worldwide tax system. You’re basically treated by the IRS like you’re living stateside.
You can join thousands of other people and give up your American passport. But even that step has big downsides since the IRS imposes very nasty exit taxes, notwithstanding the fact that the United States is a signatory to international agreements that supposedly protect the right to emigrate without undue hassle.
But there is still one legal and effective way of dramatically reducing your federal tax burden.
Here are some details from a Bloomberg report on the relatively unknown tax haven of Puerto Rico.
Struggling to emerge from an almost decade-long economic slump, the Puerto Rican government signed a law in early 2012 that creates a tax haven for U.S. citizens. If they live on the island for at least 183 days a year, they pay minimal or no taxes, and unlike Singapore or Bermuda, Americans don’t have to turn in their passports. ……Under Puerto Rico’s new rules, an individual who moves to the island pays no local or federal capital-gains tax — capital gains are charged based on your tax home rather than where you earn them — and no local taxes on dividend or interest income for 20 years. …Moving to the island won’t kill all taxes: U.S. citizens still have to pay federal taxes on dividend or interest income from stateside companies.