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"I got on a plane and moved in the same day." Why millionaire bitcoin investors move to Puerto Rico

2022-01-18T14:12:59.977Z


Tech entrepreneurs flock to the island thanks to the tax advantages and tropical lifestyle. But not everyone is happy with this trend.


By MacKenzie Sigalos -

CNBC

In March 2021, crypto entrepreneur and investor David Johnston moved his parents, wife, three daughters, and company to Puerto Rico.

The 36-year-old, who has been involved in the crypto ecosystem since 2012, says the decision to relocate from Austin, Texas was a no-brainer. 

Beyond the fact that Puerto Rico offers a year-round tropical backdrop with picturesque beaches, the US territory also has crypto-friendly policies, including huge tax breaks for those who spend at least 183 days on the island each year. .

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Residents can keep their US passports and, at the same time, do not have to pay any capital gains tax.

This undoubtedly helped seal the deal for Johnston, although for him, the biggest incentive was an overwhelming fear of missing out.

“My place is where all my friends are.

I don't have a single one left in New York, and the pandemic may have sped everything up, but every single one of them has moved to Puerto Rico,” he said, noting that many of his friends from California have also moved. 

Johnston tells our sister network CNBC that after seeing his friends and colleagues pull out, he went to check it out for himself in early 2021.

“I said, 'Wow, okay, I get it,'” recalls Johnston of his first impression of the small island territory, whose circumference can be covered in half a day.

“The island has three million inhabitants.

It is big enough to build a technology center,” he said.

Johnston says Puerto Rico reminds him a lot of Austin in 2012. Before Tesla, Samsung and Apple helped turn the Texas capital into one of the hottest tech hubs in the country, he says the city felt small.

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But, much like Puerto Rico today, Austin had a high energy and a lot of passionate people moving there, which accelerated over time.

That is why, for Johnston, moving to Puerto Rico is like entering the ground floor.

“My place is where my community is.

Where the people I know and love go, and they're going to build something great.

Something that helps ordinary people, and that's what I like about open source.

That's what I like about the blockchain.

It is open to everyone,” he explained.

The advantages of living on the island

Puerto Rico has quickly become the hot new destination for the crypto contingent. 

Facebook whistleblower Frances Haugen, who told the New York Times that she bought crypto “at the right time,” moved from San Francisco to Puerto Rico last year, in part to join her “crypto friends” on the island.

LoganPaul.

controversial YouTube star and investor of

non-fungible token

(NFT), a unique digital certificate that is associated with a file, has settled there, as has crypto-millionaire Brock Pierce, a child actor (from the famous

Mighty Ducks

movie ) turned independent presidential candidate in 2020. 

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Meanwhile, Johnston says his entire office building is filling up with startups and crypto companies.

“Pantera Capital (a cryptocurrency fund) is on the fifth floor and then there is a co-working space on the sixth floor.

My company, DLTx, took up the eighth floor, and NFT.com, the twelfth.

All of this has happened in the last 12 months,” Johnston explains to CNBC. 

Redwood City Ventures, a fund that invests in bitcoin and

blockchain

companies [a database of which everyone who participates in the network keeps a copy], has also opened an office in the US territory.

For many, the great attraction of the island has to do with Law 60, which offers significant tax savings to residents who meet the requirements. 

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In the United States, investors pay up to 37% on short-term capital gains and up to 20% on long-term capital gains, which applies to cryptocurrencies and other assets held for more than a year.

One of the tax exemptions of Law 60, known as the Individual Investors Law, reduces that tax obligation to zero if certain requirements are met.

This is especially important for entrepreneurs and cryptocurrency traders.

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There is also a significant tax incentive for business owners to put down roots in Puerto Rico.

Mainland companies are subject to a 21% federal corporate tax, plus a state tax, which varies.

If a company exports its services outside of Puerto Rico, to the United States, or really anywhere else, it pays a corporate tax rate of 4%. 

CPA Shehan Chandrasekera warns that any gains made before arriving in Puerto Rico are still subject to standard US capital gains tax rates.

It is only the earnings obtained after becoming a resident of Puerto Rico that are exempt from taxes.

"That's the part that people don't talk about," said Chandrasekera, who heads tax strategy at crypto tax

software

firm CoinTracker.io. 

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But there is a solution.

If an investor has a certain amount of profit, they can go to Puerto Rico, establish residency, sell their stake, and then buy it back as a new position.

In this way, they prevent profits taken from the US from muddying the waters.

Build it and they will come

Puerto Rico's fiscal rules, almost too good to be true, were devised a decade ago to help attract people and money at a time when the island was losing residents and money. 

In recent years, the territory has suffered a string of bad luck: earthquakes, hurricanes, a multi-year bankruptcy, and a global pandemic.

To the relief of the government, investors are arriving at a record pace. 

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Tax and business attorney Giovanni Méndez has been helping to incorporate new Puerto Ricans.

Nearly half of his clients right now are cryptocurrency investors or businesses, a number that has increased exponentially over the past six years.

Méndez, who grew up in a town two hours west of the Puerto Rican capital San Juan, says that in March 2020, just as the pandemic began shutting down countries around the world, he began talking to his clients about whether to relocate. to Florida (a tax free state) or to Puerto Rico.

In the end, many opted for Puerto Rico.

“I didn't expect a lot of people to move with everything that's going on with the pandemic, but on the contrary, a lot of people decided to make the decision,” Méndez said.

“That, without a doubt, is linked to an increase in the value of crypto assets,” he added.

Crypto investor George Burke had been thinking about making the move since 2018, but it was finally launched last year.

“With the performance of how 2021 was going with bitcoin, and the performance of my company, I knew I needed to make a change, so Puerto Rico became a really good option,” Burke explained.

Although Burke would not share an exact dollar figure with CNBC, he did say that his cryptocurrency holdings run into the seven-figure range.

“I was at the ethereum [a platform for programming smart contracts] crowdsale… There were only like 6,000 people who could do it,” said Burke, who also worked on the first bitcoin debit card back in 2013.

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As for the move itself, Burke says the process was relatively easy.

"I got on a plane, established my residence the same day I got off the plane just renting a room at a friend's house, and started the clock," he said. 

Burke added that he didn't have to apply before he arrived.

He applied for the individual investor exemption himself and paid a lawyer $15,000 to help him with the business exemption.

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It was a similar experience for Johnston, who says it took six to nine months to go through all the cursory checks, though "it didn't take much effort."

"It's America," Johnston said.

“You don't need a visa.

You do not have to apply for residency.

You don't need a passport.

You can take a domestic flight and show up in San Juan, get a driver's license, buy a house and open an office downtown.”

"It was pretty easy," he added. 

Inside the Puerto Rico Cryptocurrency Cabal

Before making the move to Puerto Rico, Theodore Agranat knew little about Puerto Rico, other than the fact that it was a US territory.

He also recalled seeing footage of former President Donald Trump throwing paper towels into a crowd as Hurricane Maria hit.

But after talking to friends who had made the move and going on a scouting trip himself last spring, the 45-year-old felt that Puerto Rico might be the kind of place he had been looking for since his first child was born in 2003.

A community of entrepreneurial families with children, made up of open-minded people who embrace homeschooling and alternative diets - Agranat himself is into raw food - and, at the same time, functions as a business incubator, bringing together to creative and business-savvy minds.

That is what he found in the city of Humacao, in southeastern Puerto Rico.

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Agranat, who runs an early-stage blockchain

investment fund

that poured money into more than 225 projects last year, says the financial incentives were also a big draw. 

A beach in the Condado neighborhood of San Juan, Puerto Rico, on Thursday, May 6, 2021. Xavier García / Bloomberg via Getty Images

So far, life on the island is working out pretty well. 

Agranat and his wife homeschool their three children, and for their 14-year-old son they have adapted the curriculum to include crypto-related topics such as NFTs, crypto games and token trading.

Johnston, who lives in Guaynabo, a suburb of San Juan, has taken a similar approach.

He and his wife homeschool their three children, and crypto has been part of the lesson plan since day one.

“My children have had crypto wallets since they were born.

When they were doing chores for Grandma, Grandma tried to pay them cash once, and they said, 'No thanks, Grandma.

I prefer bitcoin," Johnston said.

Outside the suburbs, many gather for Crypto Mondays, a weekly gathering held in nice hotels and restaurants in the capital, as well as Crypto Curious, which attracts people new to the space and covers topics such as NFTs, DeFi, and crypto. how to open your own crypto wallet

Hundreds of people have begun participating in these meetings, which are now also offered in Spanish. 

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Burke, who says his crypto friends and colleagues have been moving to Puerto Rico since the last bitcoin bull run in 2017, recounts that every Thursday he attends a lunch with around 30 to 40 other people from his guild who live in Condado Beach or in Old San Juan. 

Some residents are not happy

Not everyone is happy with the influx of new residents.

First, the islanders are unhappy that they cannot qualify for the capital gains tax exemption, which is designed for non-Puerto Ricans.

Méndez explains that the local rate in Puerto Rico is 15% for long-term capital gains, and the disparity has strained relations between some locals and new residents.

An organization known as #AbolishAct60 has been challenging tax breaks through social media.

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It is also questioned whether the tax breaks are doing what the government set out to do, including, among other things, creating jobs, and sinking more money into the local economy.

Nobel laureate economist Joseph Stiglitz told a crowd in San Juan in December that he was skeptical of the economic benefits of the tax plan.

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The avalanche of cryptocurrencies in Puerto Rico has also contributed to raising real estate prices. 

“The lack of inventory and high demand has led to prices that we have never seen before in Puerto Rico,” said Francisco Díaz Fournier, of Luxury Collection Real Estate.

“I have been following the markets for several years, and I did not expect this.

You have properties in Dorado Beach that have been sold for more than 20 million dollars,” said Fournier, who points out that there are other properties listed on the market right now for 27 million dollars, 30 million dollars and 34 million dollars, figures that have become more and more common.

Rising property prices and the rising cost of living have fueled resentment.

But Keiko Yoshino, who was a government employee in Washington DC for seven years before moving to Puerto Rico, is trying to bridge this gap by running programs that bring the two groups together to facilitate a transfer of knowledge.

Which, in theory, is part of what the tax incentive program was intended to do in the first place.

Yoshino, who runs the Puerto Rico Blockchain Trade Association, plays a major role in planning and executing the Crypto Curious meetups.

But much of what he tries to do is dispel stereotypes.

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“I have been called a cryptocolonialist,” says Yoshino.

“I am not crypto-rich.

I was a government employee for seven years.

I don't even have incentives.

You have to work on the stereotypes that go in both directions.

That's what I really like about crypto: it's not a political issue.

It doesn't have to be a social issue.

It is an opportunity to build a community,” he said.

Source: telemundo

All news articles on 2022-01-18

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