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Hedge Funds in PR under Acts 20/22

If you have any information regarding PR based hedge funds that present investment opportunity where capital gains are not subject to US income tax, please post here.   :cheers:

We are looking for sound investments in PR under Act 20/22 that would be sheltered from taxation.

Good question. Also keep in mind that you generally have to have at least $5 million to invest in a hedge fund. This isn't because they're snobs - it's because they are prevented by federal law from accepting investors who are not "accredited investors" and even if they could take on an investor with, say, $400,000 to invest, it wouldn't be worth their compliance and administration costs.

To invest in a hedge fund, you need to receive a private offering from the fund (known as a Private Placement Memorandum or PPM). They cannot market to the general public.

If your wealth is currently being managed by an asset manager, then these asset managers receive PPMs on a regular basis and will consider them for their clients if they meet their requirements, tax and otherwise.

If you refer to my other post on hedge funds in a different thread, you'll see where most of these funds are sitused (located for legal purposes). They're not sitused in PR. I wonder what PR law is concerning private offerings. I wonder if they're allowed under PR law at all (Cayman hedge funds are generally forbidden from marketing to Cayman residents, for instance). If they are allowed, then a PR based asset manager can certainly accept an investment from an accredited investor for a fund that they've established in a common law jurisdiction like one of the ones I list in my other post on hedge funds.

Interesting stuff!

I think a lot of people using act 22 are self traders, like a day trader is. They bring their money and buy and sell in the exchanges. So there is no minimum if you have a brokerage account. I could be wrong.

That makes sense, Rey, which means you cannot invest with them (nor should you want to - waaaaaaaaay too risky).

I'm confused Sitka.  Are you looking for a PR-based hedge fund, established under Act20/22, thinking that investments in that fund would be sheltered from capital gains?  I don't see that happening.  The income of the fund (from management fees) would be tax-exempt, but the capital gains realized by the investors would still be taxed.

Or are you looking for a fund that invests in ACT20/22 businesses, thinking if you invest in an ACT20/22 business that any capital gains you realize will be tax-exempt?  In the first place, ACT20/22 businesses are as a rule, small and privately held.  I doubt there's much in the way of publicly financed, not to say publicly traded ACT20/22 businesses.  I'd be surprised if there was enough market activity to justify the interest of a hedge fund.  Secondly, as above, I don't see how the tax-exempt nature of the income of the ACT20/22 businesses would make your capital gains tax exempt as well.

Thanks for the info, I'm trying to learn more about this subject.   

If a PR citizen is a day trader, is he/she exempt from capital gains on and individual account?

Sitka :

Thanks for the info, I'm trying to learn more about this subject.   

If a PR citizen is a day trader, is he/she exempt from capital gains on and individual account?

If he has been accepted for act 22 I believe that is correct.

NomadLawyer :

That makes sense, Rey, which means you cannot invest with them (nor should you want to - waaaaaaaaay too risky).

I do stock trading with my money that is in my IRA I am considering options in the future.
Long term not a day trader

I think (could be wrong, if so tell me) if you retire in PR, and become a PR citizen, the funds from your 401k or 403b plan (not a Roth plan) is still subject the US taxes when you withdraw your funds over time. 

An individual trading account self funded, may be sheltered from capital gains by Acts 20/22??

My understanding is that taxable investments (401K/403b and the like) will be subject to federal tax on the island.  Roth will not.   In effect, normal rules apply.

I don't see how PR can shield you from paying federal capital gains.  PR can waive PR taxes (which it does), but cannot waive federal taxes.

Sitka :

I think (could be wrong, if so tell me) if you retire in PR, and become a PR citizen, the funds from your 401k or 403b plan (not a Roth plan) is still subject the US taxes when you withdraw your funds over time. 

An individual trading account self funded, may be sheltered from capital gains by Acts 20/22??

Based on my understanding yes to the above, your money from 401, 403, IRA when withdrawn are subject to US IRA / federal taxes.

As to the second one .... To my knowledge you need to bring the money to the island so it can no longer be an IRA or 401 or 403. It can be cash, it can be Roth or some other post tax account. This means you need to pay the US a lump sum to move the money. PR is a different TAX entity so you have to do the transfer. Once in PR you would need to open an account with some broker firm in the island and use it for trading with the benefits of act 22. Because the money legal exited US and is now under PR tax entity, it no longer pays Federal. But it is complex and it has to be done right. A good place for these types of questions is in Facebook group "Puerto Rico Act 20/22 Resource Group Service Providers and Jobs Board" but as I understand you do not use Facebook.

Thanks, yes this is as close to social media that I get.   Why must a person pay the US govt to take your own money (already paid taxes on it when earned) from one part of the US to another part?

I don't have a tax obligation when transferring funds from an account in the US to my bank in PR??

Too complex for me to answer, not that up on tax separation. But it has to do with the arrangement PR has with the US. Because of that arrangement a regular joe the bartender pays no federal taxes for income from a job in PR. If he was military or some other federal job he would.

Money you get from the bank already payed taxes and have with you in PR does not get dividents or grow so neither has an interest on taxes. It is when it can grow or pay dividents that they want a piece of the action.

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