act 20 puerto rico: time is running out!
Born into a military family, it seems we spent my childhood constantly on the move. We never lived in one place for more than 2 years for the first 12 years of my life. This transient lifestyle of constantly leaving and then having to make new friends made me resolve at a young age to rule out joining the military. I wanted to put roots down in one place.
This decision served me well… for a while. Over time, however, I started to recognize the difference between being sent somewhere by an employer and actively choosing where I wanted to live. As Holly and I learned more and more about the many beautiful places we could choose to live, our dissatisfaction with the status quo grew, eventually overtaking our fear of the unknown.
Why root yourself to the soil on which you were born like a potted plant? We are fortunate to live at a time when travel is fast and affordable and information on even the most remote locations is readily available. You owe it to yourself to have a look around and see where you and your family will be happiest and treated best.
the BEST place on earth for US citizens
Obviously, what one considers “best” is subjective, based on an individual’s preferences. That said, for me there is no question. Puerto Rico is hands down the best place in the world to live, at least for US citizens. Here are my reason’s for saying this: (obviously, your mileage may vary)
- Climate: lush tropical environment with NO WINTERS
- World-class surfing beaches (this has become a prerequisite for anywhere I would consider living)
- Arm’s length from the United States allowing one to blend the best from both worlds (first world convenience and laid back Caribbean island living) while providing a measure of insulation from the less desirable attributes of each.
- a substantially lower tax burden via a number of unparalleled tax incentives.
That last bullet is the one that sealed the deal for me. Every dollar I earn that I legally withhold from the government reduces centralized power while increasing options for my family. I know that’s a mouthful, so see if the blocks below help explain my thinking. In short, I view option 2 as the more effective approach.
Remain in the states and surrender a not insignificant portion of my hard-earned money for the various levels of government to distribute as THEY see fit after skimming a generous chunk off the top for themselves
Legally starve the beast in Washington of my resources (which are a drop in the bucket for them) while keeping more of it available to my family and me to spend and invest in our community as we think best
Furthermore, for many, taxes are one of the biggest line-items in the family budget. Sure giving up your daily latte habit and cutting the cord on cable TV are reasonable ways of saving some money. However, these minor sacrifices barely move the needle in comparison making substantial cuts to your tax burden.
A tax incentive called Act 22 was what initially put Puerto Rico on our radar in 2013. If you are an investor or trader, Act 22 is what makes Puerto Rico the clear worldwide winner for you. However, for many others, including those who have lived in Puerto Rico their whole life, Act 20 can be the decisive factor.
act 20 puerto rico
Act 20 was implemented to encourage the creation of Puerto Rico based businesses that provide services to customers outside of Puerto Rico. Eligible and approved businesses pay only 4% in tax on corporate profits. It used to be that Act 20 businesses were required to hire 5 employees, effectively ruling it out as an option for solo entrepreneurs and digital nomads. Happily, in 2017 the minimum employee requirement was dropped*, paving the way for mom and pop shops as well as self-employed solo entrepreneurs to participate. (* see below)
When I started working through the process to get Act 20 and saw how amazing it was, I wanted to tell everyone I could about it. I get to live in a specularly beautiful place, go surfing or paddle-boarding every morning, AND I’m allowed to keep significantly more of the money I earn than I would be in pretty much any other place on earth. None of this would’ve been possible had I not expanded my gaze beyond the town I grew up in.
Now, I see Act 20 as an underappreciated way out of the rat race for the many thousands of unhappy cubicle workers in the states. Having taken a roundabout version of this path myself, I hate to see so many unnecessarily wasting their lives away at a soul-crushing job. These are professionals that have in-demand skills.
Moreover, ANYONE can jump online and learn just about anything for little to no money. If you wait for sales, you shouldn’t have to pay more than $11.99 for any course on Udemy, which is where I like to learn new skills. Then, you can create a profile on a freelancing site like Upwork and start bidding on jobs. Once you have a handful of regular clients, congratulations, you own a small business which is potentially a good candidate for Act 20! (As an aside, this is a perfect example of how permissionless technology, not politics, holds the greatest promise for leveling the playing field between the “haves” and “have nots”)
A self-employed sole proprietor in the states pushing about 100k in income would likely pay more than double the taxes the same company structured as Act 20 Puerto Rican LLC would. Additionally, if this proprietor in the states were to decide to work extra hard to grow the business, they would only get to keep about 60 cents of every additional dollar earned. This is before taking into account state and local taxes.
Under Act 20, as you grow your business, the government’s take doesn’t grow. You would get to keep 96 cents out of every additional dollar earned.
time is running out!
If you’re still on the fence and not sure if Act 20 makes sense for your situation, you’d better make up your mind in a hurry! *The Puerto Rican government recently reinstated the employee requirement for applications filed after December 31, 2019. The new requirement will be 2 to 5. It may still be a decent opportunity for solo entrepreneurs if there is enough revenue to potentially make a spouse an employee. However, with this change, Puerto Rico will no longer be the slam dunk it is now, as the foreign earned income exclusion starts to look a little better for digital nomads.
Furthermore, the application window is set to close completely after December 31, 2020.
As excellent (and urgent) as this opportunity is, I know most people reading this will not leave their “safe” but unfulfilling job. That said, if because of this post just one person steps out of their comfort zone and jumps on this, I will count it a huge success. Seriously, don’t hesitate to reach out with questions if you think I can help. I would love to see more people humming along to the song below!