Retiring to Puerto Rico for Tax Purposes, the Pros and Cons

• Moving to Puerto Rico comes with some nice financial perks.
• Most of the advantages may only be seen by wealthier individuals and businesses.
• The downside is the healthcare which might dissuade older people and those with medical conditions.

In February 2021, when a rare snowstorm knocked out power for more than 4.5 million homes in Texas, Austin residents Sarah Lindsey and Sean Flynn were looking for a change of scenery. That experience made them realize they wanted to go south.

“I was just at that point where I wanted a change from where I lived in Austin for 20 years,” Flynn said. “We were looking for an adventure of some sort, a pirate adventure, and Puerto Rico was perfect.”

Lindsey, a former teacher, and Flynn, a semi-retired IT consultant, moved to Humacoa, Puerto Rico, in 2021. While they live in a condo a few hundred feet from the beach, they say there are also financial incentives for people moving from other parts of the US.

However, the island may not be for everybody, especially if you are older or have health issues that require regular medical attention, as the island is in a healthcare crisis, the couple said.

The lure of Puerto Rico comes with some strict guidelines

For Lindsey and Flynn, an incentive to move to Puerto Rico was the territory’s tax incentive Act 60.

Under Act 60, for people who move to the island, there is no tax on capital gains realized while living in Puerto Rico. That is huge for Flynn and Lindsey, who have lots of stock and cryptocurrency investments. If crypto takes off while they live there, they won’t have to pay tax on their profits. The same goes for the condo they purchased on the island.

Additionally, there is a 4% tax on income for individuals and businesses, compared to a rate that ranges from 10% to 37% for individuals and small businesses on the mainland. There is also a 75% exemption on property taxes. These benefits last for 15 years, but Flynn and Lindsey have been told that renewing after 15 years might be possible.

There is no official minimum residency requirement for the tax breaks. However, Flynn was advised that if his business were on the island for less than three years, it would likely draw some heightened scrutiny from the IRS.

The catch is that to take advantage of these perks, you must be what Puerto Rico calls a “bonafide” resident. That includes registering to vote in Puerto Rico, obtaining a local driver’s license, and having all your major belongings on the island, including cars, boats, and, of course, a residence. To be eligible for the tax benefits, the resident must also show they spend more than half of the year — at least 183 days — in Puerto Rico.

The benefits attract wealthier people to invest in Puerto Rico

The benefits of living in Puerto Rico are enticing more affluent Americans to move to the island, buy homes, spend money, and even incorporate their businesses on the island, as Flynn did. He runs an IT consulting business, AFI Technologies.

To further emphasize the desire for wealthier American residents, Puerto Rico requires people who sign up for the 15-year decree to give $5,000 to the government and an additional $10,000 to a qualifying charity on the island annually.

As Lindsey explained, any benefit from the tax breaks could be wiped out for people with lower incomes by the annual $15,000 contributions back to the island.

The move is not for everybody

The other issue that might dissuade some from moving to Puerto Rico is the state of the healthcare system.

The island was already in the midst of a “healthcare crisis” in 2015, with the system on the brink of collapse. The situation was compounded after Hurricane Maria hit the island in 2017 and about 15% of Puerto Rico’s healthcare professionals left the territory in the following year.

While Lindsey and Flynn have health insurance, they have not been to a doctor in the three years since moving there. They also have a special provision in their insurance coverage to fly them back to the mainland if there is a major medical emergency.

The local and US governments are working to improve healthcare, but moving to Puerto Rico right now is still not ideal for everyone.

The issue may even force Lindsey and Flynn to give up on living full-time in Puerto Rico in a few years and switch to the half-year model.

The couple had to make some adjustments to island life

Moving to Puerto Rico came with other adjustments also.

Some of their favorite products from mainland grocery stores are harder to find, such as Pillsbury crescent rolls, Lindsey said.

Even shopping on Amazon is a new experience as it can often take packages a month to arrive.

Lindsey noted that you have to get a bit “MacGyver-ish” and creative to obtain some things you want or need. For example, the couple has an older dog, Max, who needed a special medication they couldn’t find on the island and struggled to get it mailed to Puerto Rico from the mainland. They eventually found the medication at Tractor Supply Co., a retailer selling farm supplies and pet goods.

Despite the challenges, it is still paradise

Of course, living on the island has plenty of other perks.

The couple noted that there are plenty of activities they didn’t have back in Austin, like sailing, surfing, snorkeling, and swimming with sea turtles, nurse sharks, and dolphins.

There are also plenty of WhatsApp groups in their area for people with similar tastes and hobbies to make new friends. For example, if you are a mediocre golfer from outside Puerto Rico and are looking for similar people in Puerto Rico, there is a WhatsApp group for that.

They also noted the appeal of the diversity of the geography, which includes mountains, rainforests, jungles, and beaches.

“There’s a little bit of everything in kind of a tiny island,” Lindsey said.

No regrets, but come prepared

After three years, Lindsey and Flynn don’t have any regrets and would do it again. However, they encourage people thinking about relocating to consider how they’ll adjust to island life.

“Realize you’re getting into an adventure and be flexible,” Flynn said, adding that it took him three years to get his business decree. “If that’s going to stress you out, don’t do it. Everything just moves at its own pace down here.”

The couple suggests weighing the pros and cons before moving to the beach.

“The financial reasons were big and that’s all working out in our favor, but it’s all of the niceties around it and getting to do all these things we couldn’t back in Austin,” Flynn said. “And if you’re a nature lover, this place is like your paradise.”

If you moved to Puerto Rico for tax incentives and want to share your experiences, contact this reporter at cgaines@businessinsider.com.