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.