It’s 2 a.m. at La Factoria in Puerto Rico’s Old San Juan, a hipster joint with a sagging couch, tile floors and Christmas lights that wouldn’t be out of place in Brooklyn’s Williamsburg. While “Get Lucky” plays, tipsy couples slink out the doors onto the colonial city’s cobblestone streets into this warm April night.

At the bar, a 28-year-old hedge fund trader -- the type of person who posts his SAT results on his LinkedIn page -- is ranting about the tax code. He’s obsessed with it, complaining that the U.S. is the only major country taxing citizens on their worldwide income, no matter where they reside. That’s why he moved here.

Struggling to emerge from an almost decade-long economic slump, the Puerto Rican government signed a law 18 months ago that creates a tax haven for U.S. citizens. If they live on the island for at least 183 days a year, they pay minimal or no taxes, and unlike Singapore or Bermuda, Americans don’t have to turn in their passports. About 200 traders, private-equity moguls and entrepreneurs have already moved or committed to moving, according to Puerto Rico’s Department of Economic Development and Commerce, and billionaire John Paulson is spearheading a drive to entice others to join them.

Puerto Rico’s low-tax welcome mat comes as some of the wealthiest Americans grow more anxious about tax increases and rhetoric directed at the rich. Tax bills have risen after a 10- year break under President George W. Bush that disproportionately favored the rich. The 2008 global financial crisis and the recession that followed also unleashed movements such as Occupy Wall Street that focused attention on growing inequality and the responsibility of large financial institutions in helping to create the mess.

Protesters Marching

In October 2011, protesters marched by the homes of Manhattan’s billionaires, including Paulson’s. A little more than a year later, President Barack Obama beat Mitt Romney in an election that highlighted the latter’s wealth and private-equity background.

“I’m worried about the shifting mentality among the electorate, people blaming problems on the rich, on business and on capitalism,” says Peter Schiff, a onetime candidate for the U.S. Senate from Connecticut and a former economic adviser to libertarian presidential hopeful Ron Paul. “I’m afraid that the tax rates that are already high will get higher in the years ahead,” maybe up to 60 percent or 70 percent, he adds.

Schiff, who runs Westport, Connecticut-based brokerage Euro Pacific Capital Inc., relocated his $900 million asset management arm from Newport Beach, California, to San Juan in 2013. He plans to move to the island within the next several years. For now, a son from a first marriage is keeping him in Connecticut.

New Rules

Under Puerto Rico’s new rules, an individual who moves to the island pays no local or federal capital-gains tax -- capital gains are charged based on your tax home rather than where you earn them -- and no local taxes on dividend or interest income for 20 years. Even someone working for a mainland company who is a resident of the island would be exempt from paying U.S. federal taxes on his salary.

Moving to the island won’t kill all taxes: U.S. citizens still have to pay federal taxes on dividend or interest income from stateside companies. But the savings can be extraordinary, especially given the effects of compounding, says Alex Daley, chief technology investment strategist at Casey Research, a firm that publishes reports for investors. Late last year, Daley moved from Stowe, Vermont, to Palmas del Mar, about 45 minutes from San Juan.

Tax Savings

Say you put $100,000 in a 5 percent certificate of deposit that compounds annually and reinvest the proceeds every year. If you lived in Puerto Rico, you’d earn $165,000 in interest over two decades, Daley calculates. If you lived in California, your state and federal taxes could reduce that to as little as $64,000.

Paulson, who made $15 billion for himself and his investors betting against U.S. mortgages during the financial crisis, helped start the wave of transplants last year, when he considered moving to the island. Paulson, 58, cited excessive media attention as his reason for staying put in the States. The press reports had an unintended consequence, though: Word quickly spread to other wealthy individuals that Puerto Rico wanted them.

Like the tax refugee at La Factoria, who asked that I not divulge his identity because his boss wouldn’t want to see his name in print, almost all say the incentive to move to a cash- strapped Caribbean island plagued by violent crime is simple: Pay Uncle Sam less.

Educating Expats

Robb Rill, 43, managing director of private-equity firm Strategic Group PR, relocated with his wife to Puerto Rico from Florida in February 2013. He started the 20/22 Act Society, named for the tax laws designed to encourage people and businesses to set up shop here, to help educate fellow expatriates and serve as a networking group.

“I’m talking to people every day who are moving here, and their No. 1 motivation is taxes,” he says.

Margaret Peña Juvelier, who grew up in New York City, the daughter of Puerto Rican immigrants, moved to San Juan in 2012 to open a Sotheby’s real estate office. Driving around, she shows me a few of San Juan’s top apartments. We cross a small bridge to a six-block area surrounded by water.

“This is Waco,” Juvelier says, pointing out the window.

“Sorry?” I ask, thinking of the Branch Davidians.

“WeCo -- West Condado,” Juvelier says, pointing out the window and explaining that she and her daughter, also a Sotheby’s broker, have decided to give some of the neighborhoods catchy names, such as New York’s SoHo and Tribeca.

Relatively Cheap

By New York standards, prices are cheap: A 3,800-square- foot penthouse with water views from every room is listed for $1.99 million; and a four-bedroom duplex with two terraces in the city’s financial district is on sale for $900,000. Yet the housing isn’t enough to lure potential converts.

The real challenge, she says, is convincing people they can replicate their life. Will they have well-traveled, well- educated friends? Are there decent schools for their kids? Are there charities that wives can join? Is crime an issue? She takes her clients to dinner at outdoor cafes to show them it’s safe at night, and she organizes luncheons to introduce newcomers to native Puerto Ricans.

In late April, Puerto Rican officials helped set up a conference in San Juan to educate potential residents about the new laws and tell the world that Puerto Rico is a fine place to live -- at least if you’ve got dough.

Beaches, Restaurants

The conference was the brainchild of Alberto Bacó Bagué, secretary of economic development and commerce, and Paulson, who the territory’s government says plans to invest about $1 billion in real estate this year and next. Two hundred people showed up for panels, tours and information sessions with private schools, real estate brokers and a tax expert.

The message from every speaker was the same: Puerto Rico isn’t just about low taxes. It has white-sand beaches and temperatures in the 80s year-round. There’s an art museum with a world-renowned pre-Raphaelite collection. It has luxury apartment buildings, over-the-top resorts such as Dorado Beach, and a handful of private international schools that send their graduates to Ivy League colleges. It has restaurants with award- winning chefs. It’s a four-hour flight to New York. And the island operates under U.S. law.

Paulson Plan

Paulson is betting that millionaires will come in droves. In his presentation, in which he forecast that Puerto Rico would become “the Singapore of the Caribbean,” he said he plans to develop residential and office properties to go beyond the current high-end offerings.

The government gives a tax break for businesses that move to Puerto Rico and provide services outside the country, perfect for a hedge fund with clients in New York and London. These firms pay only a 4 percent corporate tax, compared with 35 percent on the mainland. About 270 companies have applied for this incentive, according to officials.

Governor Alejandro García Padilla, elected in November 2012 by a margin of 11,000 votes -- he likes to joke that he should have asked for a recount -- is promoting the laws in the hope they will help spur an economy that’s barely seen any growth since 2007. The statistics are grim. The territory of 3.7 million people has $73 billion of debt and a median income of $19,429, about half that of Mississippi, the poorest state in the union. Unemployment is 13.8 percent, compared with 6.3 percent stateside; and income inequality, as measured by the Gini index, is higher than in any of the 50 states.

Island Exodus

Puerto Ricans were given U.S. citizenship in 1917, meaning they can easily leave the island for better jobs stateside. And they have. A net 280,000 engineers, doctors and other citizens emigrated from 2005 to 2012, according to the Puerto Rico Institute of Statistics. The government is hoping the campaign to lure the rich from the mainland will bring more jobs to the island and raise GDP.

“Our plan is not just about keeping government spending in line, but it is about generating wealth in Puerto Rico -- jobs, investment and trade,” García Padilla said at the April conference. The government estimates that the two tax laws could create 90,000 jobs and add $7 billion to the economy by 2016.

One hedge-fund manager, who requested I not use his name, gave a less-than-rosy view as he drove around the narrow streets of Santurce in San Juan. He’d moved from New York a few months ago, and although he likes living in San Juan, he calls it a bombed-out version of Miami.

Worst Aspects

In many respects, he says, Puerto Rico is the worst of the mainland and the Caribbean. There are more Walmarts and Walgreens per square mile than in any other place in the U.S., according to the Puerto Rico Center for Investigative Journalism, and it has the inefficiencies of most Caribbean islands, including power outages and quirky laws. Married couples must buy property together unless they have a prenuptial agreement. He complains that it takes 20 minutes to get a Quiznos sandwich. Service is often on “island time.”

The hedge fund manager brings me to Santaella restaurant, where we join a table of 10 or so newcomers eating the island’s comida criolla and drinking cocktails and beer. No one wants to speak on the record. They aren’t much different from any group of young traders -- cracking jokes and checking out women at the bar -- except for their obsession for minimizing taxes.

Downplaying Problems

One considered giving up his citizenship to move to Singapore, where the government has also lured hedge funds with low taxes. Another trader, who hasn’t been in town long enough to acquire a decent tan, says that from a tax perspective he was embarrassed to have lived in New York City, where the marginal rate for affluent New Yorkers can exceed 50 percent on ordinary income.

Most of the new arrivals downplay Puerto Rico’s fiscal problems, which include runaway pension obligations and an underground economy that leads to low tax collection rates. They’re also convinced their 20-year contracts with the government guaranteeing the tax benefits are sacrosanct. They will survive the inevitable Internal Revenue Service audits, they say, as long as they follow the residency rules.

But there may also be financial drawbacks to moving to the island. Brad Alford, who runs Atlanta-based Alpha Capital Management LLC, which farms out more than $200 million to alternative mutual funds, was all set to invest $10 million with portfolio manager Randy Swan until he learned that Swan was moving to Puerto Rico to cut his tax bill.

‘Deal Killer’

“I told Swan’s sales guy that was a deal killer,” Alford says. “It’s morally wrong and un-American not to pay your fair share of taxes.”

Swan says taxes were only one of the reasons he moved and that he’s received no complaints from any current or potential clients.

Not every émigré from the states is motivated solely by tax savings. One of the wealthiest recent arrivals is Toby Neugebauer, co-founder of Quantum Energy Partners, a Houston private-equity firm that oversees more than $7 billion. He’s opening a family office and recently bought a house at Dorado Beach, where he lives with his wife and two teenage sons. The Ritz-Carlton resort there boasts rooms that start at $800 a night and a plantation house where Amelia Earhart stayed that goes for $30,000 a day.

Neugebauer, who arrived in March, cited the chance for his sons to learn Spanish and attend a top school, along with better-priced investment opportunities than in Texas as his main incentives.

“I wouldn’t have moved for the taxes, but it is an interesting proposition,” he says.

Cool Adventure

John Helmers, a hedge-fund manager who spent time at Citadel LLC and Tudor Investment Corp., says he would never have moved from Greenville, South Carolina to San Juan with his wife, Glenn, and three of his five children, if they hadn’t all been on board.

“When my wife said this could be a cool adventure for the family, that was the go switch,” he says. Helmers is setting up Long Focus Capital Partners LLC, a macro fund that also trades individual stocks. “Before I spent 30 percent of my time thinking about taxes, and now I don’t have to do that.”

Yet Helmers, a fit 49-year-old with close-cropped hair and a slight Southern drawl, is now spending time thinking about Puerto Rico’s poor. He’s interested in following the lead of his former boss, Paul Tudor Jones, who created the Robin Hood Foundation to fight poverty in New York City. Helmers’s wife is involved with the Foundation for Puerto Rico, an organization focused on economic development.

Real Difference

“You don’t have the same support network here as you have in the greater New York area,” Helmers says. “There’s an opportunity to make a real difference.” Yet not all the new residents have the same reflex to give back, he says. “It’s our job to get the opportunists over to our side.”

The biggest question is whether Puerto Rico’s plan will improve its economy.

“This place is in dire straits,” says Rill of Strategic Group PR. He calls the tax laws a glimmer of hope for the island. “We’re buying cars and getting office space and contributing to the economy.”

He spent about $1 million, on top of his house purchase to relocate, he says.

“It’s a slightly disturbing way to pursue economic development,” says Kim Reuben, a senior fellow at the Urban Institute in Washington, who has spent 10 years studying policy and spending by state and local governments. “There can be a multiplier effect, but you are dealing with one of the lowest- income populations in the U.S. on a per-capita basis. How much does it really help to import billionaires?”

No-Brainer

Denver Dale, who runs private-equity firm On-Point Capital in Monterey, California, ponders the same question in April as he sips a drink at a preconference cocktail party held at the Condado Vanderbilt Hotel, one of Paulson’s recent acquisitions.

Dale, a Goldman Sachs Group Inc. alum, says he and his wife, a gynecologist, are seriously considering relocating, calling it a no-brainer as long as he could ensure that his business would be eligible for the island’s tax breaks. He wasn’t so sure whether it was a no-brainer for Puerto Ricans: “We’ll know in five years if you end up with a couple of areas of haves amid a whole bunch of have-nots.”