Puerto Rico LLC as US Estate Tax blocker
I've been looking into cheapest way to block US estate tax for non-residents and came across Puerto Rico LLC which is only slightly more expensive than US LLCs
My findings:
  • It has PR corporate taxation by default but can elect pass-through (partnership-like) taxation even with single member (DE treatment status is only for PR-owned LLCs) - so if it's not engaged in trade or business in PR and doesn't have PR resident members it shouldn't be taxed in PR
  • Puerto Rico pass-through entity tax return instructions indicated that only entities engaged in trade or business in PR have to file that return and as far as I know there is no equivalent of form 5472/1120
  • Under federal tax law PR LLC is foreign - IRC § 7701(a)(5) and corporation by default - Treas. Reg. § 301.7701-3(b)(2)(i)).
  • Changing tax status in PR doesn't change federal tax status causing hybrid entity mismatch
  • Stock in non-US corporation is not US situs asset under Treas. Reg. § 20.2105-1(f)
I haven't been able to confirm not having to file PR tax return as it looks like this exemption only exists in instructions - https://hacienda.pr.gov/sites/default/files/documentos/inst_pass-through_entity_2022.pdf
Anything I'm missing?
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13 comments
Michal Opoka
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Puerto Rico LLC as US Estate Tax blocker
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