Prosecutors and the Internal Revenue Service (IRS) in the United States are reportedly conducting investigations into wealthy individuals involved in cryptocurrency trading and fund management, suspecting them of illegally benefiting from Puerto Rico’s tax incentives.
Bloomberg’s report on June 12 revealed that civil and criminal cases are being built against hedge fund managers, crypto traders, and other affluent Americans who may have misrepresented their residency and income to exploit the tax breaks.
The investigations extend to attorneys and accountants who promoted Puerto Rico’s tax program, and it is anticipated that at least two criminal investigations will lead to charges in the near future. Charges under scrutiny include conspiracy and wire fraud.
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Attorney Carlos Ortiz shared insights from a conversation with a U.S. federal prosecutor, stating that they are collaborating with IRS agents and Puerto Rico officials. Ortiz summarized the situation by saying, “The message is the noose is tightening.”
Since the implementation of Puerto Rico’s new tax policy in 2012, over 5,000 U.S. individuals have relocated to the territory, attracted by the potential savings in federal income tax.
The tax policy provides a 100% exemption on dividends, a 60% exemption on municipal taxes, and zero federal taxes on income earned within Puerto Rico.
Furthermore, more than 3,600 businesses have enjoyed exemption from taxes on dividends, only paying a 4% tax on exports.
While these tax benefits are among the most lenient globally, the requirements to qualify for them are stringent.
Applicants must prove residency on the island for a minimum of 183 days annually and establish Puerto Rico as their “tax home.”
According to lawyers familiar with the tax regime, the strict eligibility criteria have tempted many individuals to manipulate numbers and engage in fraudulent activities on their tax returns.
Renowned figures such as gold enthusiast Peter Schiff and crypto investor Michael Terpin have relocated to Puerto Rico for tax purposes.
However, Schiff’s bank was recently shut down by Puerto Rican regulators for failing to meet minimum capital requirements.
Speaking at Miami’s annual Bitcoin Conference, Terpin praised Puerto Rico as the only place where one can avoid paying global taxes without relinquishing U.S. citizenship.
Despite the potential scrutiny, Terpin expressed confidence in his meticulous record-keeping and willingness to face an audit.
While wealthy residents laud the tax breaks for attracting top fund managers and entrepreneurs to the island, protests have arisen, claiming that the influx of low-tax “colonizers” has raised living costs.
The tax program remains a subject of contention in Puerto Rico.
