You should be aware that although the federal tax
is the same everywhere, state income taxes vary
considerably. Some states, such as Nevada and Wyoming,
have no income tax at all, and for certain types of
businesses, you may be able to base in one of those tax
havens. State tax laws change frequently, and it is
important to obtain current advice from a tax
professional.
Manufacturing businesses, and some service
businesses, in Puerto Rico receive income tax
exemptions for up to ten years, but are within the
customs territory of the United States, so there is no
duty on selling your goods on the mainland. Traveling
between Puerto Rico and the mainland is just like
traveling between states. Almost all of the world's
largest pharmaceutical companies now have their
factories for the American market in Puerto Rico.
Puerto Rico is the only place in the United States that
is exempt from federal income taxes -- it is not part
of the U.S. for income tax purposes. Information on
the use of Puerto Rico, and other tax havens around the
world, is contained in The Tax Haven Report, available
from Scope International Ltd., 62 Murray Road,
Waterlooville, Hants., PO8 9JL, Great Britain. The
price is $125, including airmail postage, ($100 by
surface mail) or request their free catalog for more
information. They accept Visa & MasterCard.
Puerto Rico income tax law also exempts dividends
and capital gains from the shares of companies that
have been granted a tax holiday. A U.S. citizen who
resides for the entire calendar year in Puerto Rico
does not pay federal income tax, but normally pays
Puerto Rican income tax on his worldwide income. But
since the dividends and capital gains from these tax
holiday companies are exempt because of the Puerto
Rican tax incentive laws to attract business, you can
accumulate your profits, and then spend a year in
Puerto Rico. During that year you pay out a huge
dividend or sell the company. The money will not be
subject to either Puerto Rican or federal income taxes.
But be sure you have established your legal residence
in Puerto Rico -- well documented with a lease or house
purchase -- by December 31st of the preceding year and
maintain it until at least January 2nd of the following
year.
