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Nave Bank Opens First Digital Bank in Puerto Rico

In a big moment for Puerto Rico’s financial sector, Nave Bank, thas obtained authorization from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Puerto Rico Office of the Commissioner of Financial Institutions (OCIF) to initiate operations. This approval is especially significant as it marks the establishment of the first new domestic bank […]


Common Reporting Standards (CRS) and Puerto Rico’s Special Status

Introduction to Common Reporting Standards (CRS) The Common Reporting Standard (CRS) is an information standard for the automatic exchange of information (AEOI) regarding bank accounts on a global level, between tax authorities. The aim of the CRS is to combat tax evasion. It was developed by the Organization for Economic Cooperation and Development (OECD) and […]


The IRS is Targeting Puerto Rico Act 20, 22 and 60

The IRS is targeting individuals who have taken advantage of tax incentives under Puerto Rico Act 20, 22 and 60, which exempts from taxation certain business and investment income of recently relocated Puerto Rican residents. The IRS has intensified its focus on individuals who may be erroneously reporting US source income as Puerto Rico source […]


Puerto Rico is the Only International Tax Plan for US Citizens

The IRS is targeting offshore tax plans, especially those in Malta. This is due to concerns that these plans are being used to avoid paying U.S. taxes. The IRS has been cracking down on offshore tax evasion in recent years, and this is likely to continue.

The IRS’s crackdown on offshore tax plans will have a negative consequence for those who have used these plans. These individuals may be subject to penalties and interest, and they may have to pay back taxes that they should have paid in the first place.

One of the only safe international tax plans for a U.S. citizen can be found in the U.S. territory of Puerto Rico. Under the Puerto Rico Act 60, U.S. citizens who move to Puerto Rico and become bona fide residents are exempt from federal income tax on their Puerto Rican source income. This includes income from employment, self-employment, and investments.

However, it is important to note that the Puerto Rico Act 60 is not a get-out-of-jail-free card. U.S. citizens who move to Puerto Rico and take advantage of the Act 60 tax benefits must still file U.S. federal income tax returns. They must also report all of their worldwide income on their U.S. tax returns, even if it is not subject to U.S. tax.

If you are considering moving to Puerto Rico to take advantage of the Act 60 tax benefits, you should speak with a tax advisor to make sure that you understand the rules and that you are complying with all applicable laws.

Act 60, also known as the Puerto Rico Tax Incentives Code, is a law that offers tax benefits to U.S. citizens who move to Puerto Rico and become bona fide residents. Some of the benefits of Act 60 include:

  • Exemption from federal income tax on Puerto Rican source income. This includes income from employment, self-employment, and investments.
  • Exemption from federal capital gains tax on gains realized on assets that are located in Puerto Rico.
  • Reduced corporate tax rate of 4%.
  • Exemption from municipal taxes.
  • Exemption from property taxes on certain types of property.

The requirements for eligibility under Act 60 include:

  • Becoming a bona fide resident of Puerto Rico. This means that you must spend at least 183 days in Puerto Rico during the taxable year.
  • Not being a resident of Puerto Rico at any time between January 17, 2006 and January 17, 2012.
  • **Not having been a resident of Puerto Rico for any part of the three taxable years immediately preceding the taxable year for which you are claiming benefits under Act 60.

If you are considering moving to Puerto Rico to take advantage of Act 60, you should speak with a tax advisor to make sure that you understand the rules and that you are complying with all applicable laws.

Here are some additional things to keep in mind about Act 60:

  • The benefits of Act 60 are not automatic. You must file a special tax election with the Puerto Rico Department of Treasury in order to claim the benefits.
  • The benefits of Act 60 are subject to change. The Puerto Rico government has the right to amend or repeal Act 60 at any time.
  • Act 60 does not apply to all U.S. citizens. There are certain categories of U.S. citizens who are not eligible for the benefits of Act 60, such as government employees and members of the military.

In summary, the IRS is targeting offshore tax plans, especially those in Malta. This will have a negative consequence for those who have used these plans. One of the only safe international tax plans for a U.S. citizen can be found in the U.S. territory of Puerto Rico. 

However, it is important to note that the Puerto Rico Act 60 is not a get-out-of-jail-free card. U.S. citizens who move to Puerto Rico and take advantage of the Act 60 tax benefits must still file U.S. federal income tax returns. They must also report all of their worldwide income on their U.S. tax returns, even if it is not subject to U.S. tax.

If you are interested in learning more about Act 60, please contact us at We’ll be happy to assist you to set up your business in Puerto Rico.


Operational International Bank for Sale in Puerto Rico

In a remarkable financial event, an operational international bank situated in the American territory of Puerto Rico is currently on the market for a moderate asking price of $5 million. Though the bank is presently unprofitable, the sale presents an exceptional turnkey opportunity for interested investors who are keen to make their mark in the banking industry.

This financial institution comes fully equipped with a highly competent staff of six, which includes a high-quality CEO with extensive experience in the industry. Other assets include an efficient core system, a SWIFT code for smooth international transactions, and a correspondent bank for effecting financial transactions on behalf of individuals or institutions.

The potential for profitability is high, contingent on a prospective buyer’s ability to bring in substantial deposits, upgrade the correspondent bank, integrate debit card services, and join the U.S Federal Reserve system by obtaining Fedwire and Automated Clearing House (ACH) access.

Though the bank currently falls short of profitability, its overall readiness to operate signifies a considerable investment opportunity. The turnkey bank provides an established operational base from which a potential buyer can expand and adjust the institution to their strategic preferences.

A crucial growth strategy would be attracting and retaining a robust customer base by encouraging substantial deposits. This strategy can be achieved through offering attractive rates, excellent customer service, and competitive banking products.

Upgrading the correspondent bank will be essential in improving the bank’s international transaction capabilities. A robust correspondent banking relationship can aid in offering diverse financial services, boosting customer satisfaction and, in turn, profitability.

An additional key consideration will be the implementation of debit card services. In our increasingly digital age, consumers value the convenience and flexibility provided by debit cards. Offering such services would not only cater to existing customer expectations but also potentially attract a broader customer base.

Lastly, the future owner should consider joining the U.S Federal Reserve system and applying for Fedwire and ACH access. This would allow the bank to directly send or receive funds via the Fedwire Funds Service, and it would facilitate the transfer of funds through the ACH network. The integration of these systems could significantly enhance the bank’s overall efficiency and reliability, making it a more appealing choice for potential customers and thereby increasing the likelihood of profitability.

Benefits of Puerto Rico 

In the world of international banking, Puerto Rico holds a unique position due to its hybrid status as a U.S. territory with significant fiscal autonomy. The territory offers a host of benefits that make it an attractive jurisdiction for international banking endeavors, inviting potential investors to explore opportunities. This article will unpack some of the advantages of owning an international bank in Puerto Rico and shed light on why this territory is an increasingly attractive banking hub.

  1. Favorable Tax Regime: Puerto Rico boasts a remarkable 4% corporate tax rate for international banks, thanks to its unique tax laws. This low tax rate provides a significant financial incentive and competitive advantage for banks, as it enhances profitability and provides more capital for reinvestment and growth.
  2. Access to the U.S. Banking System: International banks in Puerto Rico have the unique ability to integrate into the U.S. banking system due to the territory’s status within the U.S. This opens up opportunities to participate in a robust and reliable financial network, facilitating transactions and enhancing operational efficiency.
  3. Ease of Establishing Correspondent Banking Relationships: When compared to international banks in jurisdictions with lesser reputations, banks in Puerto Rico enjoy relative ease in establishing relationships with correspondent banks. These relationships are crucial in the global banking sector, allowing banks to access financial services beyond their immediate geographic reach.
  4. Joining Fedwire and ACH: International banks in Puerto Rico have the opportunity to join the Federal Reserve’s Fedwire and Automated Clearing House (ACH) systems. Membership in these networks enhances a bank’s payment and funds transfer capabilities, enabling them to provide a broader range of services to customers and increasing their competitiveness.

Beyond these clear-cut advantages, other benefits arise from Puerto Rico’s unique status and environment:

  1. Bilingual Workforce: Puerto Rico boasts a bilingual workforce fluent in both English and Spanish. This dual language proficiency can attract a diverse clientele, promoting the bank’s growth and reach in the increasingly globalized world of finance.
  2. Robust Regulatory Environment: Although lighter than on the mainland, Puerto Rico’s banking sector is still subject to rigorous oversight from U.S. banking authorities, which helps maintain high standards of transparency and reliability. This reputation can help to attract clients and partners who prioritize security and compliance.
  3. Geographic Proximity to the Mainland U.S. and Latin America: Puerto Rico’s strategic location provides easy access to both the U.S. and Latin American markets, which can be advantageous for banks aiming to expand their business and build a diverse client base.

In summary, the benefits of owning an international bank in Puerto Rico are plentiful. The territory’s combination of a favorable tax environment, access to the U.S. banking system, relative ease of establishing correspondent banking relationships, and other unique advantages make it a compelling choice for investors looking to establish or expand their footprint in the international banking industry.

The sale of this operational international bank in Puerto Rico provides an extraordinary opportunity for investors seeking to penetrate the banking industry. Despite the bank’s current lack of profitability, the potential for revenue generation through strategic enhancements is significant. Prospective buyers can utilize the turnkey setup to mold the bank into a profitable financial institution, leveraging the existing infrastructure and adding key enhancements to take full advantage of the opportunities this sale offers.

For more information on the operating international bank available in Puerto Rico, please contact me at


New International Banking Regulations for Puerto Rico in 2024

The Puerto Rico Office of the Commissioner of Financial Institutions (OCIFI) is expected to implement new international banking regulations in 2024. The regulations are designed to improve financial transparency and to prevent money laundering.

Some of the key provisions of the new regulations include:

  • Enhanced customer due diligence: Banks will be required to conduct more extensive customer due diligence, including collecting information on the source of funds and the purpose of the account.
  • Enhanced reporting requirements: Banks will be required to report more information on transactions, including the amount of the transaction, the type of transaction, and the parties involved.
  • Increased oversight: The OCIFI will be given more authority to oversee banks and to investigate potential violations of the regulations.

These new regulations are expected to have a significant impact on the international banking industry in Puerto Rico. Banks will need to invest in new systems and processes to comply with the regulations. The regulations are also expected to make it more difficult for criminals to launder money through Puerto Rican banks.

The new regulations are a positive development for the international banking industry in Puerto Rico. They will help to improve financial transparency and to prevent money laundering. This will make the financial system more secure and will help to protect consumers.

In addition to the regulations mentioned above, there are a number of other factors that are expected to impact the international banking industry in Puerto Rico in 2024. These include:

  • The ongoing economic recovery in Puerto Rico.
  • The increasing importance of digital banking.
  • The need for banks to comply with new regulations from the United States government.

These factors are expected to create new opportunities for banks in Puerto Rico, but they will also require banks to invest in new technologies and processes. Banks that are able to adapt to these changes will be well-positioned to succeed in the future.

Here are some additional details about the new regulations:

  • Enhanced customer due diligence: Banks will be required to collect information on the source of funds and the purpose of the account. This information will be used to assess the risk of money laundering or terrorist financing.
  • Enhanced reporting requirements: Banks will be required to report more information on transactions. This information will be used to track money flows and to identify suspicious activity.
  • Increased oversight: The OCIFI will be given more authority to oversee banks and to investigate potential violations of the regulations. This will help to ensure that banks are complying with the regulations and that they are not being used for illegal activities.

The new regulations are a significant step forward for the international banking industry in Puerto Rico. They will help to make the financial system more secure and will help to protect consumers.

If you are interested in setting up a bank in Puerto Rico, please contact us at 


A Terrible Tax Court Case for Puerto Rico Act 20, 22, and 60 Residents

In this post, I look at the recent US Tax Court Case Tice v IRS (April 10, 2023). This USVI case has major implications for those of us living and working in Puerto Rico under Acts 20, 22, and 60 (the more recent version of the law). Anyone in Puerto Rico using these tax decrees must be familiar with this case and take action immediately. 

Case Summary:

In TICE v. COMMISSIONER OF INTERNAL REVENUE, the United States Tax Court considered the timeliness of a notice of deficiency for a taxpayer who claimed to be a resident of the U.S. Virgin Islands (USVI) for 2002 and 2003. Petitioner David W. Tice argued that the notice of deficiency issued in 2015 was untimely because the three-year period of limitations in section 6501(a) began when he filed his returns with the Virgin Islands Bureau of Internal Revenue (VIBIR). The Internal Revenue Service (IRS) maintained that the filing with the VIBIR does not trigger the statute of limitations unless the taxpayer was a bona fide resident of the USVI under section 932.

The Tax Court held that a taxpayer’s filing of returns only with the VIBIR does not trigger the statute of limitations under section 6501(a) unless they are bona fide residents of the USVI to whom section 932(c) applies. As a taxpayer other than a bona fide USVI resident, the petitioner did not trigger the statute of limitations under section 6501(a) by filing returns only with the VIBIR; therefore, the notice of deficiency could be issued “at any time” under § 6501(c)(3). The court rejected the petitioner’s argument that merely claiming to be a bona fide USVI resident is sufficient to qualify for the single filing regime under section 932(c).

Furthermore, the court dismissed the petitioner’s alternative arguments that the Treasury violated the Administrative Procedure Act and the Fifth Amendment to the U.S. Constitution by giving taxpayers the option to apply the otherwise prospectively effective rule in Treasury Regulation § 1.932-1(c)(2) for tax years ending on or after December 31, 2006, but not for the years in issue. The court found that the petitioner failed to show that taxpayers with different open tax years were similarly situated or that the Treasury’s explanation for its action was unsatisfactory.

English Translation:

The IRS generally has three years to audit your tax returns and claim you owe them money. This three-year period starts when you file your return and can become six years in certain cases. 

The problem is, if you never file a tax return, the three years never start. For example, if you don’t file for ten years, and then file all ten years of returns tomorrow, the IRS has three years from tomorrow to audit all ten years of returns. That is to say, the three-year audit clock starts from the date the tax return was filed or the due date of filing, whichever is later.

Tice means that filing a tax return with the US Virgin Islands, and presumable filing a return in the US territory of Puerto Rico, does not start the three-year clock. Only filing a Federal tax return with the Internal Revenue Service starts this three-year statute of limitations. 

It also means that the IRS has an unlimited amount of time to contest your Act 20, 22, or 60 in Puerto Rico if you don’t file a US return. The Feds could come back on you 15 years from now claiming you owe them money, and the burden of proving that you don’t will likely be on you… you’re guilty until proven innocent after an assessment. Will you have the documents and evidence necessary?

Solution for Puerto Rico Residents Under Acts 20, 22 and 60:

So, what can you do so that the IRS sword isn’t hanging over your head forever? File a US tax return, even if you don’t think it’s necessary (you have no US source income). File something, anything, to get the statute of limitations on an audit started. 

Many of us living and working in Puerto Rico under a tax decree need to rethink our tax strategy and filing obligations under Tice. You should consult with a tax expert to prepare a US return sufficient to be considered “filed” and not discarded as frivolous.


Why Puerto Rico Banks are in the Pandora Papers

In this post, I’ll look at why international banks in Puerto Rico are in the Pandora Papers. While the left-leaning journalists try to spin these banks as somehow sinister, the truth is much more mundane. Here’s what you need to know about why Puerto Rico banks are in the Pandora Papers.

The Pandora Papers dwarf the Panama Papers and include more than 11.9 million records for a total of 2.97 terabytes of data. These records were stolen from 14 different incorporation firms, with the largest being Trident Trust. These files provided information on people from 200 countries, including more than 330 politicians and 130 Forbes billionaires, and several celebrities. 

The Pandora Papers included information on only a few international banks in Puerto Rico. Though, I can tell you that most of the banks in Puerto Rico were structured using an offshore holding company. They may also have an offshore broker-dealer, EMI license, or some other international processing company or payment rail. So, basically, all international banks in Puerto Rico could have been in the Pandora Papers.

There are a few reasons why banks in Puerto Rico must use offshore companies when setting up. The first is for the payment of dividends to non-US shareholders. The second is because many of these banks offer cross-border payments or non-USD accounts, so need access to foreign payment rails.


Puerto Rico Banks in Pandora Papers – Holding Companies

International banks in Puerto Rico with IBE licenses pay 0% tax and those with IFE licenses pay 4% in tax. There is no withholding tax on dividends paid to non-US persons or offshore holding companies. Dividends paid to US persons are taxable in the United States. 

  • IBE licenses were issued between 1989 and 2012 and the first IFE licenses were issued in 2013. The IFE law replaced the IBE law, increasing the tax rate to 4%.

IFEs and IBEs in Puerto Rico with non-US shareholders, or those that want to court foreign shareholders, require an offshore corporation. The international bank pays 4% tax on its net profits and pays out a tax-free dividend to the offshore holding company. Those dividends are held at the holding company or paid out to the shareholders per their wishes and in a tax-efficient manner.

There is no tax benefit to US shareholders in using an offshore holding company. US persons pay tax on dividends when they are distributed. Therefore, US shareholders prefer profits to be retained in the bank tax-deferred while foreign shareholders prefer that dividends are paid out as soon as possible. 

Of course, dividend payments are governed by the capital requirements and operational requirements of the IFE or IBE. For more on this topic, see: Puerto Rico Bank Capital Requirements.

For more on the topic of tax planning for an international bank in Puerto Rico for US shareholders, see: Puerto Rico Tax Incentives for Bank Owners.


Puerto Rico Banks in Pandora Papers – Payment Rails

Most international banks in Puerto Rico focus on international customers. Others focus on US clients with international transactions. For this reason, IFEs and IBEs need access to international payment rails. Most banks in Puerto Rico offer FX services along with accounts in USD, GBP, CHF, and other currencies. 

Also, many of these Fintech banks are looking to provide cost-effective cross-border payment services. This requires multiple correspondent accounts and other licensed or unlicensed structures which are typically held in an offshore company. 

For more information on setting up a bank in Puerto Rico, see: Start a Bank in Puerto Rico in 10 Steps

For information on purchasing a bank in Puerto Rico, see: Process to Purchase a Bank in Puerto Rico


Puerto Rico Banks in Pandora Papers – Broker-Dealer License

Again, banks in Puerto Rico typically focus on international clients. IFEs and IBEs provide banking and custody services to people from China, Latin American, and around the world. For more on custody services, see: International Banks in Puerto Rico May Provide Global Custody Services

Also, banks in the United States and Puerto Rico are prohibited from providing brokerage services. They are allowed to provide custody services, but can’t execute the trades. For this reason, banks in Puerto Rico will set up a separate broker-dealer in a jurisdiction such as the British Virgin Islands. 

Why don’t they set up the BD in the United States? First, the costs of operation are much higher in the US. Second, most clients are not US persons, so a US BD is not going to accept them as clients and will not be an efficient option.

For more on how to structure an international bank in Puerto Rico, see: How to Set up an Offshore Bank in 2022.


Puerto Rico Banks in Pandora Papers – Client Companies

The article below, which inspired this post, identified various non-US persons with offshore companies and accounts at various international banks in Puerto Rico. In fact, many non-US persons form offshore companies in order to open business accounts at banks in Puerto Rico.

While US persons are taxed on our worldwide income, most other persons and companies are not. There are many legitimate tax and business reasons a non-US person would form an offshore company and open an account in Puerto Rico. Also, there are several legitimate business reasons US persons might do the same.

For example, if a US person wants to invest in a foreign or offshore fund, they’ll need an offshore structure. Also, if a US person is selling into foreign countries, they will need an offshore company to facilitate that business. This would include using the bank in Puerto Rico for their cross-border payments for salaries, purchases, shipping, etc.


Why Target Puerto Rico Banks in the Pandora Papers?

So, why are banks in Puerto Rico the target of journalists writing on the Pandora Papers? Because they can get great headlines that make it appear that these banks are doing something nefarious. In fact, international banks in Puerto Rico are required to use offshore structures, but none of these “investigators” bother to mention that. Anyone associated with the offshore industry is guilty until proven innocent. 

The bottom line is that these Pandora Paper articles get clicks for the author. It doesn’t matter if the use of an offshore structure is 100% legitimate. It’s easy to cast anything with the word “offshore” in the name in a disparaging light. 

When you read these articles about Puerto Rico banks in the Pandora Papers, keep in mind that these are the most regulated international banks in the world. Yes, the regulator in Puerto Rico has just a few employees but uses a network of external auditors and banking experts (see the article below). 

Next, many banks in Puerto Rico are regulated by the US Federal Reserve Bank. This is the toughest regulator there is, and these Puerto Rico banks follow all the same reporting and compliance requirements of the largest national banks. 

Finally, all shareholders, investors, officers, directors, and key personnel of these banks go through stringent due diligence. They must provide three years of audited financial statements and complete a very rigorous background check which costs $6,500 to $15,000 per person depending on their nationality and other factors.

And the same is true for any corporation that’s a shareholder of the bank. These offshore corporations must either be newly formed or provide 3 years of US GAAP compliant audited financial statements. Any offshore company that appears in the Pandora papers has been fully vetted by regulators and a third-party due diligence provider such as Kroll or Berkeley Research.

When the Pandora Papers attack a shareholder of a bank in Puerto Rico because he was accused of wrongdoing in years past, you can be assured that this claim was thoroughly checked out by regulators and various investigative agencies. If he was allowed to become a shareholder, he was clean (see the article below). 

As someone in this industry since 2003, I can tell you that no high net-worth person actively involved in a business is without his or her detractors. As the expression goes, you haven’t made it until someone sues you (until you have enough money for someone to bother trying to take it from you). 

I’ve seen dozens of background reports, some over 100 pages long. I can tell you from experience that every successful person has a history of litigation and has some battle scars. 

In fact, I’ve only seen one perfectly clean background report. And, as it turned out, that was an American who was fronting for some foreign investors. He was quickly found out and the bank purchase didn’t get past first base… but, my point is, if the report is perfectly clean, that’s when you need to be suspicious.

For more on how to structure an international bank in Puerto Rico, see: How to Set up an Offshore Bank in 2022.



I hope you’ve found this article on why Puerto Rico banks are in the Pandora Papers to be helpful. If you’re interested in forming an IFE in Puerto Rico or purchasing an existing bank in the territory, please contact me at I will personally prepare your business plan and handle your license application.


Translation of Article on Puerto Rico Banks in the Pandora Papers

The following is a translation of the Spanish language article that inspired this post. For the original version, click here.  

Note that this is an unofficial translation. Any grammatical issues, run-on sentences, poor or unclear writing, typos, or any other errors are mine. Any translations that I’m unsure of are in [brackets], as are my comments.

I’ve also deleted the names of the banks in the article and replaced them with XXXX. I don’t see any reason they need to be named here.




The international research in the Pandora Papers allows access to documents that show how some of these entities facilitate the opaque businesses of foreign millionaires, known as offshore companies.


From an office in San Juan, XXXX International Bank provides “Swiss expertise” to its clients. It offers banking services to foreigners who are not residents of Puerto Rico: receive deposits, open offshore bank accounts, and carry out transactions in any type of currency.

Their website highlights that they are discreet. It also says that they comply with the law and are committed to a culture of compliance. That is, they verify the identity of their clients and question the origin of the money, “when appropriate.”

The owner of XXXX International Holding LLC – the bank’s parent company – is XXXX, a French banker who lives in Miami. His LinkedIn mentions that he chairs the Board of Directors of International Rollet Capital and ExPAM Capital, founded a bank in Dubai called La Trésorerie, and worked at Goldman Sachs. He doesn’t mention XXXX.

XXXX’s contact person in Puerto Rico is Rafael Blanco Latorre, former commissioner of the Office of the Commissioner of Financial Institutions (OCIF) from 2012 to 2016. Blanco Latorre told the Center for Investigative Journalism (CPI) that he is an external legal consultant and that he chairs the Board of Directors of one of the International Financial Institutions (IFE), although he did not want to mention the name. In October 2016, two months before ending his duties as commissioner, he signed the license that allows XXXX to operate in Puerto Rico.

Blanco Latorre refused to give an interview about his management as a civil servant in the OCIF and about the role he exercises in one of the entities that he supervised while he was in the Government, referring to the fact that he is now a private citizen.

In 2012, under the government of Luis Fortuño, Puerto Rico [created the law which allowed the] island to become an international financial center. The Government offered tax exemptions of up to 45 years to anyone who set up a bank, insurer, subsidiary, or boutique firm dedicated to exporting financial services Act 20 [now referred to as Act 60]. The story is [standard]: capital would arrive, create thousands of jobs and generate economic development.

Since then, small banks have arrived in Puerto Rico that, by establishing themselves here, can open accounts directly with the Federal Reserve. This gives them direct access to the US market and facilitates transactions in US dollars. The owners of these entities are mostly foreigners and the law prohibits [IFEs and IBEs] from offering services to residents of Puerto Rico


Almost ten years later, the balance of this incentive has had a “modest” economic impact, less than 1,000 direct jobs according to OCIF, attracting the attention of federal and international authorities for money laundering and tax evasion cases, and a reputation as a [tax] paradise. These entities, whose owners often remain behind the scenes, can serve to hide assets from tax authorities or, in the worst case, money laundering and other illegal transactions.

Some of the directors, owners, and clients of these banks and international financial entities established in Puerto Rico appear in documents examined by the CPI are part of the Pandora Papers, a new delivery of 11.9 million documents from offshore companies obtained by the Consortium Investigative Journalists International (ICIJ). The leaked documents – most dated between 1996 and 2020 – come from 14 firms dedicated to incorporating and managing this type of business in tax havens. These include the Alemán, Cordero, Galindo & Lee (Alcogal) law firm, and the Overseas Management Corp. (OMC) law firm, both from Panama. In reaction to the ICIJ investigation, both companies stated that they are committed to compliance and that they act in accordance with laws and regulations.

The Pandora Papers reveal the financial secrets of 35 heads and former heads of state, more than 330 officials in more than 91 countries and territories, as well as fugitives, con artists, and murderers from around the world. It is the largest journalistic collaboration in history, with a team of more than 600 journalists from 150 media, led by ICIJ and including the CPI.

The leaked documents show how offshore entities have used some of these banking institutions to open accounts or transfer money.

Are these banks used in Puerto Rico to facilitate transactions between offshores, tax evasion or money laundering? The CPI asked Natalia Zequeira, Commissioner of Financial Institutions since January of this year.

“Doing business with‘ offshore ’companies is not illegal in itself. The vast majority of these companies are formed for legitimate purposes, among others, to hold shares or assets of other commercial entities, as well as to facilitate the transfers of assets and currencies ”, answered the lawyer.

She added that all financial entities in Puerto Rico are subject to different laws and regulations that include the obligation to report any suspicious transaction or activity that they identify. Failure to do so exposes the entity to sanctions and other penalties, Zequeira said.


Banks on Pandora Papers

In the case of XXXX, the CPI identified in the Pandora Papers Alcogal law firm documents related to the opening of accounts in this bank for the benefit of at least three offshore companies. XXXX did not respond to questions about their clients.

Another that appears in the Pandora Papers is XXXX, owned by Marcelino Bellosta Varady and Alejandra Bellosta Perea, according to a document presented to the Puerto Rico State Department.

Venezuelan businessman Carlos Marcelino José Bellosta Pallarés – Marcelino’s father – appears as a beneficiary of several offshore entities registered in the British Virgin Islands (BVI). At least three of them have bank accounts at XXXX, the leaked documents reveal.

According to the incorporator’s forms for registering companies, more than a dozen offshore entities, mostly from BVI, have bank accounts with XXXX.

XXXX assured the CPI that it is regulated by the OCIF and that it complies with all the laws and regulations that apply against money laundering and terrorism, among others. He said that he is continually working to improve his internal controls and that he has a bank officer who is dedicated exclusively to the compliance area.

XXXX did not answer questions from the CPI about the services it provides to the Venezuelan Bellosta family.

Marcelino has two brothers, Carlos José and Juan Manuel. Carlos José has had a decree of Act 22 since 2017 [now referred to as Act 60] and is listed as an official of Venequip Puerto Rico LLC, a supplier of equipment related to the energy industry. Juan Manuel manages several companies in Puerto Rico, including CH4 Systems, a technology provider with a decree of Act 20 since 2016 [now referred to as Act 60].

All these companies are registered at the same address as XXXX: Galería San Patricio B5 Calle Tabonuco, Suite 207-A, Guaynabo.

The Pandora Papers also mention Venezuelan Joan Manuel Fereira Rosillo, a businessman who received $2.2 million from the Brazilian company Odebrecht through his company Rote Energie, according to the multinational investigation into corruption Lava Jato.

According to a bank document on file with OMC, Fereira Rosillo maintains an account with XXXX Bank, a Puerto Rican IFE. [note that this is the third bank in Puerto Rico referenced in this article and not the same bank referenced above]

Agustín García Castilla serves as president of XXXX Bank, according to the bank’s website. García Castilla coincides with Fereira Rosillo in different companies in Florida and Panama, including one called XXXX Asset Holdings.

The CPI asked XXXX Bank if, according to the documents, it provides services to Fereira and if it owns the institution, but received no response. Fereira Rosillo, who also worked for the oil company PDVSA, is also listed with offshore companies in Aruba and the BVI.

[The section below refers to South Bank, which was closed by regulators in 2019. For more on this, click here (Spanish language only). For a list of current IFEs, click here. For a list of current IBEs, click here.] 

Another bank featured in the leak is South Bank International. According to a reference letter prepared by the Alcogal law firm, one of South Bank’s clients was Tag Bank S.A., an investment bank registered in Panama. This entity is in the process of voluntary liquidation according to its website. Last August, the Brazilian Eduardo Plass, president of TAG Bank, was accused and arrested in Brazil for tax evasion, in relation to Lava Jato.

In 2019, the FBI raided the offices of South Bank International in Guaynabo after a federal judge found probable cause for fraud and money laundering crimes. The OCIF canceled his license that same year, after the intervention.


The offshore dilemma

Owning offshore assets or using paper entities to do cross-border business is not illegal.

“There is a distinction to be made between reducing the payment of taxes and avoiding taxes. Reducing the payment of taxes is a goal of everyone who pays taxes. There are thousands of ways to reduce taxes legally. What should not be done is to evade taxes, “said Eduardo Colón, president of the Association of International Banks of Puerto Rico.

But many use this system to manage, move and often hide their fortunes, proof that not all people play by the same rules when complying with their tax liability. Governments lose more than $800 billion a year due to offshore business, according to the International Monetary Fund. They are also used for crimes such as tax evasion and money laundering, and it is a mechanism generally used by the rich and powerful.

Colón recalled the Panama Papers, the ICIJ investigation published in 2016 that exposed the complex and dark offshore financial system.

“One of the important things about world-class financial centers is that they have a strong structure from a regulatory point of view and are well regulated because if not, they can collapse very easily, as happened with Panama and the Panama Papers”, Colón told the CPI.

In Puerto Rico, international banks and financial entities are subject to US federal laws and regulations such as the Bank Secrecy Act, the USA Patriot Act, and the Know Your Customer rule, an international standard for obtaining detailed information about customers. Regulations of the Office of Foreign Assets Control (OFAC) also apply.

But what different offshore forums and some of the banks themselves promote is the Common Reporting Standard, or CRS, of the Organization for Economic Cooperation and Development, which requires participating countries to share tax information from their clients.

This also makes Puerto Rico an attractive option for those seeking privacy in their businesses.


Trouble with the law

In February 2019, the European Commission added Puerto Rico to a list of countries highly prone to tax crimes, but it was later removed at the request of the US Treasury Department.

The CPI identified half a dozen cases of international banks whose shareholders, directors or clients have faced problems with the law or have been singled out in journalistic investigations for irregularities in their businesses.

Uruguayan bankers Marcelo Gutiérrez and Juan Ignacio Cabrera established the XXXX in Puerto Rico in 2015. They obtained an account with the FED, which facilitated transactions in US dollars. Three years later, in 2018, Gutiérrez was accused by the Florida Federal Prosecutor’s Office along with a group of businessmen of laundering $1.2 billion from PDVSA through a bank in Puerto Rico.

Later, a group of Chinese investors acquired XXXX Bank in 2018 and changed their name to XXXX International Bank. The new owners of the IFE said in 2019 that they have nothing to do with XXXX’s operations or with Gutiérrez or Venezuela.

In 2019, the Federal Reserve System (FED) stopped the opening of accounts from these Puerto Rican banks due to their use as intermediaries for Venezuelan businessmen connected to the Government of that country. That same year, the offices of two international banks – XXXX and South Bank – were raided by the FBI as part of investigations related to money laundering.

Regarding the latter, Colón said that there are few cases like these on the island, that crimes occur even in the largest banks and it means that the sector works as it should.

He also recognized that “the worst thing that can happen to a financial center is that one or more of those that are operating, are operating on the fringes or outside the law and that is found.”

The Commissioner for Financial Institutions, Natalia Zequeira, said that the FED has already lifted the restriction on international banks, which are in the process of complying with a new guide from the federal agency.

In an interview with the CPI, she revealed that the OCIF currently audits 100% of the entities with Venezuelan capital in Puerto Rico.

Since she came to the office in January of this year, she said that she seeks a “culture of compliance.”

“I want people who know the system, not people who take their license and start playing at the bank here. I am not saying that it has happened, but simply that under this administration, there is no space for that, ” said Zequeira.

For her, Puerto Rico is not a tax haven either. But she acknowledges that initially there was a trend of small banks and financial entities with few assets or no banking experience.

“Before it was seen a lot that there was a person who maybe had a banking history in another jurisdiction, decided to set up a bank from scratch and what he had was a parent company with very few assets or an affiliate that were other personal assets of that individual. And little by little it became a bank for their family and friends, to have an account in dollars, because perhaps in an American bank they did not know how to open the account in dollars, or they could not because they did not have a passport or a Social Security number, among other things. Well, there was a [need or demand] for that type of institution, ” she said.

This type of entity is no longer endorsed, according to the commissioner. 

[In addition, the capital requirements have been greatly increased, pushing out small and undercapitalized banks. See: Puerto Rico Bank Capital Requirements.]


They ask to increase the tax rate

There are two corporate models for establishing these banks. Although they provide the same banking services and work the same when handling deposits, international banking entities (IBE) and international financial entities (IFE) are different in some areas. IBEs are 100% tax-exempt, while IFEs only pay 4% in income taxes and 0% in CRIM and other municipal taxes.

[The IBE law was in place from 1989 to 2012 and the IFE law replaced the IBE law in 2012. The first IFE banks became operational in 2013.]



Regarding the public policy of encouraging these international banks, the study commissioned by the Government of Puerto Rico recommends increasing the tax rate of these entities from 4% to 10%. Also the minimum number of jobs required by law, from four new jobs to 10.

James Hickman has had an IFE since 2017 called XXXX Bank. A “safe, transparent, and responsible” entity, according to his website. The former US military and investor also has a decree of Law 22 [now Act 60]. He shares his time between Puerto Rico and Chile, where he has an agricultural company of blueberries and walnuts. He writes under the pseudonym Simon Black and his articles talk about obtaining passports in tax havens and “optimizing” the payment of contributions. He also discussed how to move to Puerto Rico and receive tax benefits as he did.

In a podcast, Hickman cautions that this type of business is not for everyone. The person concerned must have “a substantial level of wealth,” he says. Having a bank on the island requires more than half a million dollars in capital to operate. Still, Puerto Rico is one of the cheapest and most attractive jurisdictions to do so. 

[$5 million is more realistic in 2021 and going forward].

At one point, Hickman recalls that a federal agency asked for changes to its corporate structure to be in compliance. But still, having a bank in Puerto Rico has been beneficial for him and his business, he says.

“I was actually pleasantly surprised at the amount of business that started coming to me just because people found out that I had a bank. People were saying, ‘Oh, now James has a bank. We’re going to call him and see if he wants to do this business, ‘” he said.

According to a document in the Puerto Rico Registry of Corporations, the XXXX Bank Board of Directors includes Gligor Tashkovich, former Minister of Foreign Investments of Macedonia. In 2020, in a lawsuit filed by the New York City Attorney’s Office against a supplier of anti-COVID masks, Tashkovich was named in a fraudulent sale to New York City. His attorney told The New York Times that his client did not participate in any fraudulent scheme and that he cooperated with authorities.

Carmen Szendrey, chief executive of XXXX Bank, told the CPI that the bank is subject to independent audits and that it invests money to ensure that “our institution does not serve as an instrument for criminal entities.”

On Tashkovich, she indicated that he is a “valued member of our Board” and that he has never been charged with any crime.

The executive did not answer whether Hickman continues to own the institution.


Eight OCIF employees to supervise 85 banks

OCIF’s 70 employees sit on the sixth floor of the Centro Europa building. The glossy dark wood furniture, the gold frames with black and white photos, the wine-colored cushioned chairs, take the mind back to the 80s. The most technological thing that there is at first glance is the machine that takes the temperature in times of COVID. From here the banks are audited.

“This year we requested an additional $1.2 million [of the operational budget] they granted us. That additional $1.2 million was divided into two priority projects that the Office has. One of them is a new system for the registry of securities because the operating systems of this office are from the 90s,” said Zequeira.

The second project he is proposing to do with the $1.2 million is to recruit more examiners. Currently, only eight OCIF employees are in charge of supervising the 85 financial institutions in Puerto Rico.

“While my examiners are with the FDIC seeing First Bank or Banco Popular with the Federal Reserve, at the same time they are running parallel on four or five exams to international institutions,” said Zequeira.

These people’s pay also stayed in the 1990s. Each examiner earns $24,000 annually and is required to have a bachelor’s degree in accounting or finance. It is not difficult to conclude that it’s an uphill battle for OCIF to ensure that all of these entities comply with the standards and the law.

The agency has never revoked a license after it was issued. Prior to 2017, there is no evidence of a single sanction issued against any IFE in Puerto Rico. Since then, OCIF has imposed 63 fines totaling $439,400. 

[What? This article notes that South Bank’s license was revoked in 2019. I’m aware of two other licenses that were revoked and the chart above shows canceled licenses by year. Also, when a bank is in trouble, regulators will force them to sell and only cancel the license as a last resort. For a list of current IFEs, click here. For a list of current IBEs, click here.]


Financial and banking entities of all colors

The main banks with a historical presence on the Island have had IBE subsidiaries, including Banco Popular, Firstbank, Citi, Oriental, and UBS. But in addition to these financial institutions, there are other lesser-known faces in this industry. The multinationals General Electric (1996-present), GlaxoSmithKline (1998-2008), and Wyeth (2004-2010) have had IBEs in Puerto Rico, according to OCIF data. General Electric is the only one that still has an active IBE. OCIF indicated that it provides financing services for the purchase of household goods from people outside of Puerto Rico.

In the case of IFEs, the law allows them to do much more than an international bank. The list of activities allowed under IFE is extensive and flexible: investment management, financial advisory, real estate, metal buying, and selling, usurious loans [what??], insurance, and cryptocurrencies.

The first two IFEs established in Puerto Rico – PR Asset Portfolio 2013-1 International, LLC and PR Asset Portfolio Servicing International, LLC – are dedicated to the sale of delinquent loans in the real estate sector. Both belong to the same company, Caribbean Property Group (CPG), one of the main investors in Dorado Beach Ritz Reserve and Paseo Caribe. It also has three hotels and a corporate complex in Costa Rica.

Other IFEs in the same line of business include Blackheath, a subsidiary of the Blackstone Group, who owned the Ritz Carlton hotel in Isla Verde, VRM, owned by businessman Rafael Rojo Montilla, and Blue Water, registered under Jim Taubenfeld, owner of Me Salvé.

Between 2013 and 2018, OCIF issued 58 IFE licenses. And in just two years, 2017 and 2018, it approved 24 applications. Then the volume fell dramatically: in the last two years, only four licenses have been granted.

“I have seen a change in OCIF and the first specific change is the rigor they apply to applications for an IFE. At one point, many licenses were approved in a short period of time, ”said Colón.

Zequeira attributed the decrease to recent changes in tax rates that came into effect under the new 2019 Incentive Code and that apply prospectively.

In nearly 10 years, OCIF has only denied eight IFE requests, according to data provided by the agency. [Because they give unworthy applicants the choice to withdraw their application.]

There are also those who, despite obtaining their license, gave up on the idea.

In February 2014, Venezuelan David Brillembourg Capriles registered an international bank in Puerto Rico under the name Brilla Bank International LLC. It never complied with the annual reporting requirement and the State Department canceled the entity in December 2018. IFE’s license was canceled in 2016.

Brilla Bank also obtained a license on the island of Dominica, but it was revoked in 2017.

Asked by the CPI, Brillembourg Capriles said that he intended to open an investment bank in Puerto Rico, but that he never operated. Since 2018, he has a decree of Law 22 that exempts foreigners residing on the Island from contributions. He is also the developer of Loopland, a tourist-residential project for millennials in the old Roosevelt Roads naval base in Fajardo.

The Pandora Papers place the businessman as director of STG SA, a public limited company in Panama. Although the entity remains in force and appoints him as president, Brillembourg Capriles assured that he has not maintained any business in Panama for more than 10 years.

Brillembourg Capriles is also listed with offshore companies in Barbados, according to the Paradise Papers investigation. In 2017, he was sued by Luis Benshimol, who alleged that he created an “elaborate shell game” by using money from a hotel sale for his personal benefit. Brillembourg Capriles denied the complaint and the claim was dismissed for lack of jurisdiction.


Puerto Rico’s Act 60

If you operate a successful and portable business, you might consider relocating to Puerto Rico for the tax benefits under Act 60. This article will consider Puerto Rico’s Act 60 and how it might benefit you, the US entrepreneur operating a business that can be relocated. 

The three criteria for Puerto Rico’s Act 60 are: 

  1. You are a US person. That means a US citizen, green card holder, or another legal resident of the United States who pays US tax on their business income. It’s possible to immigrate to the US under an EB-5 visa (for example) and set up a business in Puerto Rico, but that’s beyond the scope of this article.
  2. Your business is successful. In the case of Puerto Rico’s Act 60, a successful business is one that nets more than $300,000 to $500,000. I will look at this in detail below. 

  3. You operate a qualifying portable business. A portable business is an operation that can be moved from the United States to Puerto Rico. Thus, it is typically one that is not dependent upon a large number of employees in the US. A qualifying business is basically one that provides services from Puerto Rico to persons and/or companies outside of Puerto Rico. I will also consider this in detail below. 


Puerto Rico’s Act 60: A Successful Business 

There is nothing in the law that defines what a successful business is. So, the purpose of this section is to suggest when it’s tax-efficient to use Puerto Rico’s Act 60. As your income increases, the tax savings increases significantly. Here’s why: 

When you move a business to Puerto Rico and use Act 60, you must pay yourself a base salary which is taxed at ordinary rates. A base salary is usually $50,000 to $100,000 depending on your gross income. 

After your salary, the net profits of your business are taxed at 4%. That’s to say, the tax benefits of Puerto Rico’s Act 60 apply to your net profits after you take a reasonable salary.

So, if you net $100,000, and you pay ordinary tax on $50,000, the 4% rate applies to the remaining $50,000 only. Plus, you might have trouble justifying a salary of only $50,000. 

If you were to move this same business outside of the United States, and into a foreign country, you could use the Foreign Earned Income Exclusion (FEIE) to eliminate 100% of your US tax. For the tax year 2021, the FEIE is $108,700, so a qualifying entrepreneur making less than this in 2021 pays zero tax to the United States. 

Likewise, if a husband and wife operate a business, live abroad, and both qualify for the FEIE, they can earn over $200,000 tax-free. So, the FEIE is the best option for anyone making $100,000 single or $200,000 married. It might be close, but a single person making $200,000 a year may pay more tax in Puerto Rico than they would abroad… and their operating expenses would certainly be higher than in a low-cost country. 

A single person making $500,000 or above clearly pays less tax in Puerto Rico. Between $200,000 to $500,000 can depend on your circumstances. Here’s the calculation on $500,000 in net income assuming a US rate of 35% and an ordinary rate of 30% in Puerto Rico. This calculation does not account for any state tax, which is also eliminated in moving to Puerto Rico.

Puerto Rico’s Act 60: 30% tax on first $100,000 = $30,000 and 4% of $400,000 = $16,000, for a total tax of $46,000. 

Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. This assumes you’re using an offshore company and thus not subject to Self Employment Tax in the United States. 

Therefore, I recommend business owners taking home $100,000 to $200,000 will benefit from living abroad. Then, when you grow the business to $300,000 to $500,000, they should move to Puerto Rico under Act 60. 

The exception to this is someone with significant capital gains. You pay 0% tax on capital gains on assets acquired AFTER you move to Puerto Rico. No, you can’t have bought crypto back in the day, move to Puerto Rico for a year, and take the tax break. 

But, if you’re day trading or otherwise have capital gains on recently acquired assets, Puerto Rico’s Act 60 might be a benefit to you no matter your net business income. 

Editors Note: The current tax deal in Puerto Rico is Act 60. Prior to 2019, it was referred to Act 20 for businesses and Act 22 for individuals and capital gains. So, when you research this matter in 2021 and 2022, look for articles on Act 60. 

For more on this topic, see: Foreign Earned Income Exclusion or Puerto Rico Tax Deal?


Act 60: Qualifying Business

The basic idea behind Puerto Rico’s Act 60 is to bring high net worth individuals and quality jobs to the island. These businesses should not compete with existing businesses, thus a qualifying business is one that provides services to people and companies outside of Puerto Rico.

According to Act 60, the following services qualify for the tax exemption: 

  • Advertising and Internet Marketing, which is the most popular of the export services
  • Call Centers, which has not really taken off, but call center management where you have your employees in a low-cost country is popular. See Where to Hire Employees
  • Consulting, which is the broadest of the available categories
  • Business Management and Corporate Headquarters
  • Creative Industries (design, art, music, publications, development of apps and video games, creative education)
  • Software Development
  • Distribution of Software,
  • Income from Licensing or Subscription Services.
  • Education Services and Training Performed Online 
  • Electronic Data Processing Centers
  • Engineering, Architecture, Project Management
  • Hospital and Laboratory Services, including Telemedicine
  • Investment Banking and other Financial Services (including advisory and broker-dealer operations performed from Puerto Rico)
  • Marketing Centers
  • Professional Services (law and accounting)
  • Research and Development
  • Shared Service Centers
    • Assembly, Bottling, and Packaging of Products for Export
    • Commercial and Mercantile Distribution of Products Manufactured in P.R.
    • Commissions on the Sale of Products to Customers outside P.R.
    • Purchase of Products for Resale to Customers outside P.R.
    • Sale of Intangible Products to Customers outside P.R.
    • Storage and Distribution CentersVoice and Data Telecommunications

      Act 60 also includes a section for manufacturing. Among the eligible Export Commerce activities are the following:

    In addition, Puerto Rico offers a free trade zone for import and export. For more on this, see Free Trade Zone #61

    Finally, Puerto Rico offers an international banking license with a 4% rate under Act 273. For more on this see Start a Bank in Puerto Rico in 10 Steps. Considering the tax rate, and the fact that there is no tax or withholding tax on dividends, Act 273 is basically Act 60 for banks.

    Act 60: How is this Legal?

    I’m often asked, how is Act 60 legal? I’ve always heard that US citizens are taxed on their worldwide income no matter where they live.

    Yes, that’s true…and the only exception to this in the entire world are the US territories. And, Puerto Rico is the only territory with a significant tax deal, so Act 60 is literally the only option for Americans looking to save on their taxes when the FEIE is not sufficient. 

    Section 933 of the US tax code states that income earned by bonafide residents of Puerto Rico, which is earned in Puerto Rico, is exempted from US tax. Money is earned in Puerto Rico if it is generated by the work you perform on the island.

    Thus, Puerto Rico is free to make whatever tax laws it likes. The territory can offer new residents a 4% rate on export services and a 0% rate on capital gains on assets acquired after you become a bonafide resident. 

    A bonafide resident is someone that moves out of the United States and to Puerto Rico for the foreseeable future. You should spend at least 183 days a year on the island and make it your home base. You should also purchase a home, which will be your primary residence, within two years of moving to Puerto Rico.

    Act 60: Requirements to Maintain the Tax Decree

    There are three primary requirements to maintain your Act 60 tax decree once it’s granted. These are: 

    1. Make an annual donation of $10,000 to a local nonprofit or charity. This is usually a 501(c)(3) charity and can’t be one that you own or control. Note that the donation must be to a nonprofit in Puerto Rico. At least 50% of this donation must go to a charity that works to stop child poverty. 

    1. You need to buy a home within 2 years of receiving your tax decree. This home must be your primary residence and must be in your name or in the name of you and your spouse. The purpose here is that you really must commit to Puerto Rico and make it your primary home within 2 years of getting your tax deal.

    1. File an annual report and pay a fee of $5,000 per year. 


    I hope you’ve found this article helpful. For more information on filing for Puerto Rico’s Act 60, please contact me at I will be happy to work with you to negotiate your tax deal and compare the savings to the FEIE. 


Puerto Rico Bank Capital Requirements

In this post, I’ll review the Tier 1 capital you should have at the ready before filing an application for a new bank license, or before attempting to purchase a bank, in the US territory of Puerto Rico. That is, I will consider the Puerto Rico bank capital requirements for 2022 and not the misinformation floating around the internet. 

The reason I’m writing this article is that there is a great deal of false information on the web and many scammers promoting banks in Puerto Rico and elsewhere that have no idea what they’re doing. Agents promising low capital requirements and quick approvals are everywhere online and are giving the industry a bad name with their BS. 

The reality is very different from the hype. The market in Puerto Rico is competitive. Only the best capitalized and the best equipped to operate a compliant bank will be approved for a bank license in Puerto Rico

There was a time when it was easy to get a bank license in Puerto Rico. And, when that was the case, I wrote articles such as Lowest Cost Offshore Bank License is Puerto Rico. This was true in 2016 and before. But, this is absolutely not the case today and in 2022. Puerto Rico is the most difficult of the offshore bank licenses to get. 

Back in the day, you could set up a bank with only $550,000 in Tier 1 capital, the lowest in the industry and the minimum amount written into the law (Act 273). Several banks were licensed in Puerto Rico with this level of capital. 

  • Tier 1 capital is the amount of paid-in capital or the amount of money to be deposited into your corporate bank account when the license is issued. It does not include capital to be maintained to support your deposits, which is usually about 8.5% to 20%. 
  • At the time, from 2014 to 2016, the lowest requirement of a competing jurisdiction in the Caribbean was $1m to $1.5m.
  • Competing jurisdictions include the likes of St. Lucia, Dominica, and the Cayman Islands. I don’t include scam jurisdictions like Comoros. For more, see: Scams in the Offshore Bank License Market

And, what happened to many of these undercapitalized banks? They didn’t have enough money to grow the business, to keep up with their compliance obligations, to hire quality staff, etc. So, they were forced to sell or are just sitting around doing nothing. While most have sold,  there are one or two of these banks still holding on hoping for a big valuation or a purchase.

For example, as stated above, a bank must have Tier 2 capital of about 8.5% to 20% (see Section 4 of Act 273). Undercapitalized banks have trouble accepting large deposits because they don’t have sufficient capital to support large clients. Thus, they also have trouble making a profit in an industry with high capital requirements and which relies on high dollar clients to make a profit.

As the industry in Puerto Rico grew, and the demand for these licenses increased, regulators were able to increase the Tier 1 capital requirement (the amount of money you should have ready when you apply for a license). There are about 50 applications pending today, and only the very best of these will be approved. And, keep in mind that the law lists the minimum capital allowed, but regulators can require whatever amount they wish. 

I suggest that a new applicant should have between $2.5m and $5m in Tier 1 capital available when they file for a new banking license in Puerto Rico. The ultimate amount will depend on your business model and how much backup capital you can show to regulators. Of course, the more Tier 1 capital you have available, the better your application will look.

Another way to look at it is: 

1) Regulators want to see enough cash to carry the bank through startup and at least 2 years of operations. That is to say, you should have the amount required to build out the business and cover all expenses, including quality employees, for 24 months. 

2) Regulators also want to see enough available and liquid cash from the investment group to support the Tier 2 capital requirements and cover the bank’s burn rate during an economic downturn. If you don’t hit your numbers, does the owner or owners have enough liquid cash to ensure the continuation of the bank? If you grow, how is your capital ratio?

Note that a great deal of effort will go into proving that the investment group has the capital as described above and the source of those funds. You must prove the origin of the money that goes into the bank and the source can’t be from a loan… the funds must belong free and clear to the investor or investment group.

As stated herein, regulators will focus on liquid assets. They will ignore assets such as real estate and your home, as these can’t be easily converted into cash to support your international bank should it run into issues. They are looking at the capital you have available and which you might add to the project if necessary.

Each investor, shareholder, director, officer, and key person will need to provide 3 years of audited financial statements. These audited reports are meant to show where your wealth came from and that you have enough liquid cash to support the operation of a bank in Puerto Rico.

Likewise, if a corporation is the owner of the bank, both the corporation and the shareholders of that corporation must provide 3 years of US GAAP-compliant audited financial statements. If the company has many shareholders, the top ownership group and the promoter must provide this information.

For more information on applying for a bank license in Puerto Rico, see Start a Bank in Puerto Rico in 10 Steps and How to Set up an Offshore Bank in 2022.

I hope you’ve found this article on the Puerto Rico Bank Capital Requirements to be helpful. If anyone tells you that they can get you a license in the Territory with $550,000, or in less than 12 months, they are lying or have not filed an application in many years. For more information on setting up a bank in Puerto Rico, please contact me at


Foreign Earned Income Exclusion or Puerto Rico Tax Deal?

In this post, I will consider whether to live abroad and take the foreign earned income exclusion to save on US taxes or to live in the US territory of Puerto Rico. Both Puerto Rico and the foreign earned income exclusion are great tools for reducing your US tax bill. But, which one is right for you?

I should also mention that the foreign earned income exclusion and the tax deals available in Puerto Rico are the best and (basically) the only ways Americans can save on their taxes. Year after year, our tools are taken from us and we end up paying more and more simply because we have a blue passport. 

The foreign earned income exclusion allows you to exclude up to $108,700 in ordinary or business income in 2021. If a husband and wife both work abroad, and both qualify for the exclusion, they can earn a combined $217,400 tax-free. 

Any amount that you earn in excess of the FEIE will be taxable at your ordinary rate. I will assume that to be 30% for ease of calculation. I also note that you are taxed at the highest tax bracket. For example, if you earn $208,700 in 2021, you pay tax on only $100,000 but using the tax brackets as if you had earned the full $208,700. 

I should point out that we expats are no longer able to hold income in excess of the FEIE in our offshore corporations tax-deferred. That benefit went out with the Trump tax cuts and is not coming back. 

Puerto Rico basically has the opposite tax deal compared to the foreign earned income exclusion. You pay ordinary tax to Puerto Rico on your base salary, whatever that is, and then you pay 4% on all income over this amount. 

Most determine their base salary to be $100,000, which is taxed at 30% (again, for ease of calculation). Then, all qualifying business income over this amount is taxed at only 4%.

  • Note that you also pay 0% tax on capital gains on assets purchased after you move to Puerto Rico. This article is focused on business income. 

So, someone earning $100,000 a year would pay zero tax using the foreign earned income exclusion and $30,000 in tax using the Puerto Rico tax deals.

If that same person made $500,000 from a qualifying business, they would pay $120,000 (30% of $400,000) using the foreign earned income exclusion and $46,000 ($30,000 on the first $100,000 and $16,000 on the remaining $400,000) using the Puerto Rico tax deal. As your income goes up, so does the value of Puerto Rico’s tax program.

To qualify for the FEIE, most need to spend 330 days a year outside of the United States, especially during their first year abroad. To qualify for the Puerto Rico tax deal, you need to move to Puerto Rico, make that your home base, and spend at least 183 days a year on the island. 

Many find the Puerto Rico requirements easier to manage. However, in both cases, you need to be willing to move and spend a considerable amount of time in your new home base. The key to success, and being audit-proof, is committing to the expat lifestyle.

Note that the Puerto Rico tax deal does not only eliminate your State tax. It eliminates both your Federal and State tax. While moving from California to Texas has become popular, how about moving to Puerto Rico and going from a 45% rate (CA and Federal) to a 4% rate?

The Puerto Rico tax deal is focused on those who move a business to the island. The purpose of the program is to bring high-net-worth individuals and quality jobs to the territory. In contrast, the FEIE applies to business income as well as a salary you earn from an employer. 

The problem with the FEIE is that you might still get stuck paying 15% self-employment tax. If you operate a business, and file using a Schedule C, you must pay self-employment tax to the IRS. 

You can eliminate this tax by setting up an offshore corporation. Income goes into the foreign corporation and you draw out a salary. This salary will not be subject to self-employment or payroll taxes. 

So, which is right for you? The FEIE or Puerto Rico’s tax deal? In years gone by, this was a challenging question. When we could hold income in excess of the FEIE tax-deferred in an offshore corporation, the calculation was complex.

Today, it’s simple. If you’re single and make $100,000, then it’s the FEIE for you. If you’re married, and both work in the business, then this increases to $200,000 and you should stick with the foreign earned income exclusion.

Because your expenses will be higher in Puerto Rico, there is some room for debate regarding a single person making $200,000. However, if you are making $300,000, then Puerto Rico should be an easy decision.

Likewise, if you expect your business to net $500,000, then why bother with the FEIE? Get yourself to Puerto Rico immediately. If you will have capital gains on assets purchased after the move, Puerto Rico will look even better.

I hope this article comparing the foreign earned income and the Puerto Rico tax deal have been helpful. For assistance setting up an offshore corporation, or with moving to Puerto Rico, please contact me at


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