What are the ways that people could explore if moving is worthwhile?
Clinton Donnelly: Let’s take the situation with someone who’s not an American.
I’d propose that the best place for your money is to invest in the United States.
It is the largest tax Haven in the world because the financial industry is an essential part of the US economy, and they’ve created powerful incentives to attract foreign money.
Notably, there are zero capital gains on your crypto assets in the US if you’re a foreigner.
If you go to Bank of America, Citibank, or Wells Fargo, or any of these major banks as a foreigner, you can easily open up a bank account. But you’ll have to go there physically and open one up.
It’s not going to be a question as to why somebody from Australia or Switzerland is coming to the US to open up a bank account because the US wants to be the world’s marketplace.
Opening a bank is not going to be a problem, and you’ll want to do it with these major banks because they’re accustomed to international wire transfers.
Suppose you have an account at a US bank. In that case, nobody will question it from an anti-money laundering perspective if you are trying to transfer money back to Australia. As you know, it’s widely respected as opposed to a BVI (British Virgin Islands) bank or credit card.
The US does information sharing between countries regarding how much money citizens have in foreign bank accounts.
The US has FATCA Law.
All the world’s banks have to tell the US (the IRS) twice a year about American bank accounts in foreign countries. In response to that, the OACD countries created common reporting standards, CRS.
I think about a hundred countries have signed up to where once a year, they will report back the total amount of each citizen’s bank account to their home country.
And the US didn’t sign that. The US did not sign the common reporting standards.
What that means if you have a bank account in the US, the US doesn’t tell any other country about it. So, it’s kind of ironic.
I guess maybe that’s like being the bully.
The U.S. demands that everybody gives information to them, but they won’t share it with anyone else. This is because the US is the most prominent financial player out there.
So they can have this, and whereas it is considered a bit of a tax haven or a low tax jurisdiction, but for everybody who’s not a United States citizen. Thus making it a great place to put your money because it’s a rich investment area.
You can move your money out of cryptos when you want to put it into some of the world’s safest banks and invest in some of the best real estate in the country and Wall Street.
There’s a lot of affluent financial areas with powerful incentives.
You’ve just got to use a US credit card, like a Bank of America credit card that you can use buying things all over the world for the rest of your life, and your local jurisdiction would have no visibility to it unless you disclosed it to them. So that’s a very attractive thing to do without having to change residents.
Stephan Livera: That could be one idea if you don’t even want to become a US citizen. All of that by just opening an account in the US.
Then there are the other options for moving or getting residents in BVI (British Virgin Islands) or multiple places. I presume that’s also an option that some of your clients might explore. For some of them it might be worthwhile to consider that.
Clinton Donnelly: I do a lot of consulting in this area. For virtually every country, the principle of taxation is that you’re subject to taxation if you’re in the country for more than six months.
Typically, you’re subject to taxation on your worldwide income in that jurisdiction where you’ve lived for six months.
Now, the US has a different tax law. They tax their citizens on their worldwide income, regardless of where they live in the world. So it’s a little different wrinkle for Americans, but a common underlying theme in international taxation is that it is based on residency.
Residency is typically defined six-months or approximately 183 or 185 days. It varies how you define it, but roughly the six-month thing.
This creates a massive international tax loophole, which I would call a three-country shuffle, where if you’re never more than six months in one country in a given period, you can keep moving around. It’s kind of like the digital nomad strategy.
You keep moving around, and you’re not going to have to report taxes to anyone. So, again that’s not for a US citizen. It is assuming you’re not a US citizen.
Now US citizens have a different problem. US citizens are taxed under income worldwide. However, two massive tax breaks are given to US citizens:
One is, for every dollar they pay in taxes to a foreign country. They get about a dollar to dollar credit back on their tax bill, which is nice.
The US taxes are lower than most other developed countries. I have clients living in Germany, and their German tax bill is higher than their US tax bill. We still do a US return. They take the German credit, and then they don’t owe anything back to the US.
That’s if you’re an American citizen living in a low jurisdiction where you are still going to have to report back to the US, and you’ll probably end up paying taxes back to the US.
Now for American citizens, there is a fantastic loophole called Puerto Rico. Puerto Rico is a little country South of Florida next to Cuba, and this area is a possession of the United States. It’s not a state, although there’s always talk about statehood. It’s a possession now in the US tax law.
Puerto Rico is treated as a possession, kind of like as though you’re living in a foreign country of all of US possessions, and they’ve negotiated the right to tax their citizens.
If you’re a Puerto Rican citizen, all your income comes from being in Puerto Rico. You do not file a US tax return. Puerto Rico pays its share to the US government on your behalf. So this creates an interesting loophole. Puerto Rico is a Caribbean country, not a lot of indigenous resources. Earthquakes, tsunamis, hurricanes have crushed them.
I mean, the country is bankrupt. However, they created an incentive called act 60 formerly, act 22, where it’s a 0% tax on your capital gains.
So if you’re an American whale and want to do this, you can move to Puerto Rico, which does mean actually moving there.
It’s not like, visit for a day and then go back to California. No, you are moving to Puerto Rico for at least six months of the year, in which case, 0% tax on your capital gains on the Bitcoin that you sell when you’re in Puerto Rico. This is a fantastic thing.
Now, there are some costs. You have to make a $10,000 donation to Puerto Rican charities. There’s a $5,000 annual fee you pay. And you’ve got to buy a house or apartment in Puerto Rico, and you can’t rent it out. There are some serious out-of-pocket costs, but it’s probably worth it for that extra 15% savings. If you were a whale Bitcoin holder in the US, that’d be the movement for you.
Stephan Livera: Fantastic. So that’s a very nice breakdown there.
So if you’re a non-US person, it might make sense for you to do this whole three different countries, different residencies, etc. But if you’re in the US potentially, one idea is moving to Puerto Rico.
One other idea I was interested in discussing related to what we were just saying is what it takes to break your nexus with your home country.
So, as I understand, it’s like you have to break that six months or 180 days aspect.
Are there any other things there that people have to think about when breaking that connection so that they can access the lower tax rate?
Clinton Donnelly: Usually, getting a divorce helps.
I’m just being silly.
Usually, it is the “Let me go back to visit mother” and that sort of thing, you know. There is a bit of travel to it. If you take that strategy, you’re at least saying I’m going to be outside.
Depending on which country you’re from, staying outside that home country for, you know, 9 to 11 months of the year, at least to break the connection.
A couple of things to think about are think of the cost of living.
You can think about creating awareness of other cultures for your family and speaking other languages.
There are several websites where you plug in two cities, and they’ll tell you the comparative cost of living.
And I will tell you, it’s the cost of living that changes a lot between different countries. I just think it’s a great thing to do is once you start traveling, you get the bug.
What I find is I’ve worked with digital nomads as they travel a bit, and then they decided to have a home base, and they stay there, you know, five months a year, and then they move around or that sort of thing.