From the founder – Edmund:
Hi,
The ICO madness goes mainstream.
Since we started writing about the topic of ICO’s we’ve been inundated with interesting projects hoping to do an initial token offering.
It seems like if I go to a conference, there are multiple panels on the topic (as there was last weekend at TechSauce in Bangkok). If I look at my phone, multiple group chats are going on about the benefits and potential perils. I am waiting for the day when I see an ICO billboard driving down the street.
However, the regulators are starting to take notice as well.
This last week we had a piece of news from the SEC, who released an investigative report about the DAO – which they declared was a security, but at this point they were taking no action.
The takeaway I got from this report was that some tokens are securities, and others are not. This is something we really already knew before, but it’s helpful to hear a regulator clarify on this point.
An ICO has definite risks for both investors and proprietors. Investors need to evaluate if the token has any intrinsic use case they are interested in (if it’s a ‘for use’ token). And if it’s a security token, investors need to assess whether it will appreciate in value.
I also came across this very nice spreadsheet to help entrepreneurs evaluate whether their token may be considered a security, or not. In particular this helps evaluate the token against the “Howey Test” which is the test used at the federal level in the US to evaluate a security.
I manipulated the numbers a little (since this is interpretation of laws and by no means, legal advice or the laws themselves). I also added a section to include risk capital test – the test applied in some states including California.
In other news we also heard from the Singaporean regulator MAS on token sales. Previously, on March 13th 2014, the regulator wrote that virtual currencies were not regulated per se, and they are not securities
Now, from 2014 the position was very clear – tokens are not securities. Today’s memo states that tokens may be considered securities, depending on the individual circumstances. Now this doesn’t officially change anything (a token could have been a security before) but clarifies and specifies the point that tokens may at times, fall under securities regulation – basically the same as the SEC ruling.
Here is the report from MAS in it’s entirety.
From Flag Theory:
Puerto Rico’s Act 20 amendment
Last newsletter we talked about how living abroad and claiming for the Foreign Earned Income Exclusion, you can earn $102,100 foreign-US source income tax free (and up to $250,000 filing jointly with your spouse and including housing benefits).
But FEIE only applies to income derived from wages and self-employment services. US investors may have other options to legally reduce their tax liability and some of these options go through Puerto Rico.Under the Section 933 of the U.S. Tax Code, Puerto Rico-source income is exempt from US federal tax.
That said, according to the Puerto Rico’s Acts 22 and 138, the so-called Individual Investors Act, residents may be eligible for a tax-exemption on their passive income such as dividends, interests and capital gains.
So, by moving your investments or your company to Puerto Rico, investment income may be exempt from local taxes, and if it is not sourced from the mainland U.S, it may not be subject to US Federal personal income taxes.
To qualify for the exemptions, you must not have resided in Puerto Rico in the previous 6 years and become a bona-fide resident of Puerto Rico. This implies residing in the island for more than 183 days per year, filling out IRS forms, such as form 8898 and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico.
The tax exemption decree will provide details of the tax treatment and shall be considered a contract between you, as Resident Individual Investor, and the Puerto Rico government.
Once granted, the tax-exemption will be valid until 2035.
In addition, if you are an entrepreneur with a service-oriented online business, you may move and incorporate to Puerto Rico.
Puerto Rico’s Act 20, provides a 4% corporate tax rate on qualifying export services income or 3% CIT when more than 90% of the eligible business’s gross income is derived from export services and such services are considered strategic services, according to the criteria established in Act No. 20.
Puerto Rico has recently amended Act 20, waiving the 5 employees requirement for businesses to qualify for this tax regime.
So you can set up your international business in Puerto Rico pay 4% corporate income tax and get the dividends tax-free.
However, Puerto Rico faces its threats. The territory is heavily indebted, owing $123 billion, which represents approximately $34,000 in debt per man, woman and child.
Its tax-exempt bonds have been appetizing for the Wall Street hedge funds and other institutions, where many IRA funds are invested…and since 2016, the island effectively has run out of cash and does not have means to pay its debt.
Recently Puerto Rico filed for a form of bankruptcy under Title III of Promesa, a federal law enacted by the US Congress to deal with Puerto Rico’s debt crisis.
It remains to be seen how much of the debt would be restructured in court and what would be left to negotiate with bondholders.
Despite the clear tax incentives by moving or incorporating in Puerto Rico, its financial instability and government bankruptcy makes the territory a risky environment to move assets to.
But, the US total public debt will surpass US$23.4 Trillion at the end of 2017, riding on the same road to a debt collapse, as Puerto Rico…
However, if you are considering moving yourself and your business to Puerto Rico and benefit from the aforementioned tax incentives, at Flag Theory we will assess your personal and business situation to determine the feasibility of this option according to your specific situation, handle all paperwork and guide you through each step of the process to ensure that it is as fast, efficient and pain free as possible.
Apply now for a 30-minute consultation with our US experienced CPA for just $49 to discuss the suitability of Puerto Rico according to your business circumstances and if necessary consider other options.
The above is not, nor intends to be legal or tax advice. Before taking action, always speak with your accountant. You can contact us to engage with a US CPA, who can give you the proper advice according to your specific circumstances. The above should not be used to evade taxes.
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