Income Tax Savings Offshore?
Many businessmen who are interested in asset protection also are concerned about reducing income taxes. Some people mistakenly believe that asset protection involves tax reduction by utilization of offshore entities. Asset protection and tax planning are for the most part separate issues. When asked about income tax savings in offshore planning I quickly explain to people that I am not experienced in income tax law and cannot offer competent tax planning advice. Last week, I had lunch with a local tax attorney who gave me interesting information about how some of his wealthy business clients have substantially reduced their income tax.
The tax attorney told me that these people have greatly reduced their tax bills by establishing residency and their business locale in Puerto Rico. Apparently, one can qualify as a permanent resident of Puerto Rico ("PR") by living on the island for a period of six months. The requirement is not six months each year, but six months residency in any one year. The attorney further explained that if you run your business out of Puerto Rico thereafter there is a way for you to get a huge U.S. income tax credit. He said use the island to host ancillary businesses that can be used to apply the tax credit. One example he gave was a client that set up a Puerto Rican equipment leasing company and had his U.S. based manufacturing company pay tax deductible lease payments to the PR entity which sheltered the income under the PR tax credit law.
Readers who may be more expert in income tax may take issue with my shortened, layman explanation of this income tax planning technique. In the event anyone wants to know more about the PR provisions or other offshore income tax planning send me an email and I will refer you to my attorney friend for more reliable income tax advice.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
