Puerto Rico’s Act 60 tax benefits combine a very low Puerto Rico tax rate on certain income with a federal exclusion for income sourced on the island. For individuals with a decree issued before 2026, that means a 0% Puerto Rico rate on qualifying capital gains, interest, and dividends; for decrees issued in 2026 and later, the rate is 4%. Export services businesses pay a flat 4% Puerto Rico corporate income tax rate, dropping to 2% in some cases. The benefits are real, but they only apply if you become a genuine resident of Puerto Rico and correctly source your income, and the IRS is actively auditing people who get either piece wrong.
Tax Benefits for Individual Investors
Chapter 2 of Act 60 targets high-net-worth individuals who relocate to Puerto Rico. For anyone who obtained a decree before 2026, the core benefit is a 100% exemption from Puerto Rico income tax on interest, dividends, and certain capital gains that accrue after they become a bona fide resident.1Government of Puerto Rico. Puerto Rico Act 60-2019 Incentives Code New applicants in 2026 and beyond receive a 4% Puerto Rico rate on those same income types instead of a full exemption.
The federal layer is what makes these numbers meaningful. Under Section 933 of the Internal Revenue Code, a bona fide resident of Puerto Rico can exclude Puerto Rico-sourced income from U.S. federal gross income.2Office of the Law Revision Counsel. 26 USC 933 – Income From Sources Within Puerto Rico Stack Section 933 on top of Act 60, and income that would otherwise face combined federal and state tax rates above 30% can drop to near zero for grandfathered investors, or roughly 4% for newer decree holders.
This works only for income genuinely sourced in Puerto Rico. Gains on assets you already owned when you moved receive very different treatment, covered further down.
Tax Benefits for Export Services Businesses
Chapter 3 offers a flat 4% Puerto Rico corporate income tax rate on income from eligible export services performed in Puerto Rico for clients outside the island. That rate drops to 2% for the first five years if the business qualifies as a small or medium-sized enterprise or operates in Vieques or Culebra.1Government of Puerto Rico. Puerto Rico Act 60-2019 Incentives Code
Chapter 3 also delivers several other exemptions:
- 100% exemption on dividend distributions from earnings and profits of exempt operations.
- 75% exemption on personal and real property tax for property used in exempt operations, for the first 15 years.
- 50% exemption from municipal license tax, for the first 15 years.
Eligible services include consulting, software development, financial services, digital marketing, and design work, among others. The service must be performed from Puerto Rico and delivered to clients outside Puerto Rico.
What Changed for Applicants in 2026
Puerto Rico’s legislature amended Act 60 in 2025, and the changes took effect in 2026. If you already hold a decree, or if you’re considering applying now, the version of the law that governs you depends entirely on when your decree issues.
The key changes for new applicants:
- New individual investor decrees carry a 4% Puerto Rico tax rate on capital gains, interest, and dividends. The previous rate was 0%.
- Decrees issued before 2026 are grandfathered. The 0% rate on passive income remains intact for the life of the existing decree.
- The incentive window was extended by 20 years, to 2055.
- New applicants must certify they have not been Puerto Rico residents for the prior six years, replacing a longer lookback.
Even at 4%, the rate sits far below what most high-income individuals pay at the federal level on capital gains. The difference between “free” and “4%” is still large enough that the timing of a decree matters for long-term planning.
Qualifying as a Bona Fide Resident of Puerto Rico
Every individual benefit under Act 60 hinges on being a genuine resident of Puerto Rico. The IRS evaluates this under Section 937 of the Internal Revenue Code through three overlapping tests.3Internal Revenue Service. IRC 937(a) Residency
The presence test requires you to be physically present in Puerto Rico for at least 183 days during the tax year. Alternative paths exist for people whose travel patterns don’t fit the straight 183-day rule, including a 549-day rule over three years, but the 183-day rule is the standard benchmark.
The tax home test requires your principal place of business or employment to be in Puerto Rico. Running operations from an office in Miami or New York breaks this test.
The closer connection test asks whether your ties to Puerto Rico are stronger than to any other jurisdiction. Where your family lives, where your personal belongings sit, where you vote, and where you hold a driver’s license all count.
New applicants under the 2025 reform must also certify they were not bona fide residents of Puerto Rico during the six years immediately preceding their application.
Qualifying as an Export Services Business
A Chapter 3 business must provide services from Puerto Rico to clients located outside the island, and those services cannot have a direct economic connection to Puerto Rico. You cannot advise clients on Puerto Rico law, lobby the Puerto Rico government, or sell property for use on the island and call it an export service.1Government of Puerto Rico. Puerto Rico Act 60-2019 Incentives Code Retail sales are excluded. Working as someone’s employee does not count; the business itself must be the entity providing the service.
The business needs a physical office in Puerto Rico and must generate most of its income from clients who are not Puerto Rico residents. For businesses with annual revenue above $3 million, Act 60 requires at least one full-time employee who is a Puerto Rico resident, and the owner can fill that role. Businesses earning $3 million or less have no minimum headcount requirement.
The 10-Year Capital Gains Trap
This is where most of the tax mistakes happen. If you owned stocks, cryptocurrency, real estate, or other appreciated assets before moving to Puerto Rico, the gains that accrued before your move are not Puerto Rico-sourced income. They remain U.S.-sourced for federal tax purposes for up to 10 years after you become a bona fide resident.4eCFR. 26 CFR 1.937-2 – Income From Sources Within a Possession
In practical terms, if you owned $5 million in stock before relocating, and $3 million of that gain accrued before your move, selling within 10 years means that $3 million is taxed at regular U.S. federal capital gains rates. Only the appreciation that occurred after you became a bona fide Puerto Rico resident qualifies for the Act 60 exemption or the 4% rate. Puerto Rico also taxes the pre-move portion of the gain.
You’ll need professional help establishing the fair market value of your assets on the date you became a bona fide resident, so the gain can be split correctly between pre-move and post-move periods.
Federal Filing Obligations and IRS Enforcement
Moving to Puerto Rico does not eliminate your U.S. federal filing obligation. You remain a U.S. citizen, and you still file a federal income tax return. Section 933 lets you exclude Puerto Rico-sourced income, but you must properly report what you are excluding and why.2Office of the Law Revision Counsel. 26 USC 933 – Income From Sources Within Puerto Rico Income that is not sourced in Puerto Rico, such as U.S. rental income, dividends from mainland businesses, or retirement account distributions, remains fully taxable at the federal level.
If your worldwide gross income exceeds $75,000 in the year you become a bona fide resident, you must file Form 8898 to notify the IRS of your residency change. The form is filed separately from your tax return and is due by the same deadline as Form 1040, including extensions. Failing to file carries a $1,000 penalty absent reasonable cause.5Internal Revenue Service. Instructions for Form 8898
The IRS Large Business and International Division runs a compliance campaign specifically targeting individuals who have claimed Act 22 and Act 60 benefits. The campaign focuses on three scenarios: people excluding income that is actually subject to U.S. tax, people failing to file and report taxable income entirely, and people who meet the residency requirements but are mischaracterizing U.S.-sourced income as Puerto Rico-sourced. Enforcement tools include full examinations, soft letters, and outreach.6Internal Revenue Service. LB&I Active Campaigns
The people who draw the most scrutiny tend to keep significant business ties to the mainland, spend large portions of the year in the U.S., or sell pre-move assets shortly after establishing residency.
Ongoing Compliance to Keep the Benefits
A decree is only the start. Act 60 imposes continuing obligations, and falling short can lead to fines or revocation.
Annual Report and Filing Fee
Both individual investors and export services businesses file an annual report with the Puerto Rico Department of Economic Development and Commerce (DDEC) through the Incentives Portal. For Act 60 decree holders, the deadline is November 15, or the 15th day of the 11th month following the close of the business’s tax year.7Departamento de Desarrollo Económico y Comercio. Notification for Businesses and Investors Holding Grants – Reminder for Filing of Exempt Annual Reports Individual investors pay a $5,000 filing fee with each report.
Annual Charitable Donation
Chapter 2 individual investors must donate at least $10,000 each year to Puerto Rico nonprofits certified under the Puerto Rico Internal Revenue Code. Half of the donation must go to organizations working to eradicate child poverty. The nonprofits cannot be controlled by the investor.
Property Purchase
Individual investors must purchase a primary residence in Puerto Rico within two years of receiving their decree. Renting does not satisfy this requirement, and the property must serve as your principal residence.
Employment for Export Services
Export services businesses with annual revenue above $3 million must employ at least one full-time Puerto Rico resident, and the owner can count. Businesses at or below $3 million have no minimum employment obligation.
How to Apply
Applications are filed electronically through DDEC’s Incentives Portal. The application must describe the services or products involved, identify the specific incentive requested, project the expected economic benefits, and state the legal basis for the requested incentive.1Government of Puerto Rico. Puerto Rico Act 60-2019 Incentives Code DDEC may request additional documentation. Processing fees are set by DDEC regulation rather than in the statute, and the regulations are revised every three years.
The application itself is straightforward. The complexity lies in structuring your affairs to qualify, sourcing your income correctly, and avoiding the traps described above. Working with a Puerto Rico tax attorney or CPA before you move, rather than after, is what separates a legitimate tax strategy from one the IRS will eventually unwind.