Puerto Rico Act 60 PDF: Incentives, Residency, and Federal Tax

The official text of Act 60-2019, the Puerto Rico Incentives Code, is available as a free PDF from the Puerto Rico Office of Management and Budget at bvirtualogp.pr.gov, and it consolidates dozens of older incentive laws, including the former Acts 20 and 22.¹ Downloading it is easy. Reading it usefully is the harder part, because the benefits on the page depend on federal tax rules, residency tests, and annual compliance duties the statute itself does not explain.

Where to Download the Official PDF

The consolidated English-language version is hosted by the Office of Management and Budget (Oficina de Gerencia y Presupuesto) at bvirtualogp.pr.gov. If the direct link changes, search the site for “Puerto Rico Incentives Code.” The file includes the original enacted text with bracketed annotations showing later amendments through Act 182-2024.¹

Watch the annotations closely. Several sections have been modified by Acts 40-2020, 52-2022, 1-2024, and 182-2024, and the English translations of the most recent amendments sometimes lag the Spanish versions. The Department of Economic Development and Commerce (DDEC) publishes separate guidance documents, but the OGP file is the statutory text itself.

What the Statute Offers

Individual Investors (Chapter 2)

Chapter 2 is aimed at individuals who relocate to Puerto Rico. The headline benefits are a complete exemption from Puerto Rico income tax on interest and dividend income from all sources — Puerto Rican, U.S., and foreign — during the exemption period.² Capital gains on assets acquired after you become a bona fide resident can also qualify for full exemption from Puerto Rico tax, though the treatment depends on when the asset was acquired and when it is sold. Gains on assets you already owned before moving are handled differently, as explained below.

Once the DDEC Secretary signs your decree, the rates are locked in for its duration. The decree is a contract. The government cannot unilaterally raise the rates on you.

Export Service Businesses (Chapter 3)

Chapter 3 covers businesses that provide services from Puerto Rico to clients located outside the territory. Qualifying entities pay a fixed 4% corporate income tax rate on eligible export income.¹ Export service businesses also receive a 75% exemption on property taxes and a 50% exemption on municipal license taxes for the first 15 years of exempt operations.

Eligible services include consulting, advertising, centralized management, research and development, and similar professional work. The critical restriction is that the income must come from clients outside Puerto Rico. Revenue from local customers does not qualify for the 4% rate, and the business must keep separate accounting records for local and export income.

Requirements the PDF Imposes on You

Bona Fide Residency

Chapter 2 benefits hinge entirely on becoming a bona fide resident of Puerto Rico. That means satisfying three tests: a presence test, a tax home test, and a closer connection test. The presence test generally requires spending at least 183 days on the island during the taxable year.¹ The tax home test requires that your principal place of business be in Puerto Rico. The closer connection test weighs personal ties: where your permanent home is, where your family lives, where you bank, where you vote, where you hold a driver’s license, where your belongings are, and where you maintain social and religious affiliations.

Residency is treated as all-or-nothing. Keeping a home on the mainland, maintaining U.S. club memberships, voting in a state election, or banking primarily with a mainland institution can each undercut the claim.³

Home Purchase Within Two Years

Within two years of the decree’s effective date, Chapter 2 individual investors must purchase residential real property in Puerto Rico and use it as their principal residence. The property must be owned by the investor individually or jointly with a spouse. Renting does not satisfy this requirement, and failing to close on a qualifying property within the two-year window can jeopardize the decree.

Annual Charitable Contribution

Individual investors must make an annual charitable donation of $10,000 to approved nonprofit organizations registered in Puerto Rico.¹ The split is mandatory: $5,000 goes to the Legislative Scholarship Program, and the remaining $5,000 supports organizations focused on preventing child abuse or aiding the homeless. You do not get to direct the full amount to a charity of your choosing. The obligation applies every year the decree is in effect.

Business Substance and Employment

Chapter 3 export service businesses must maintain a real office in Puerto Rico, not just a mailing address. Management and decision-making must happen on the island. The services cannot relate to commercial activities being carried out in Puerto Rico or involve advice about Puerto Rico’s own laws and regulations. Businesses with annual revenue exceeding $3 million must employ at least one full-time employee who is a Puerto Rico resident, and that employee can be an owner of the company.¹ Businesses under that threshold have no mandatory hiring rule, but real operational substance still matters if the DDEC or IRS examines the decree.

Annual Reports and Fees

Holding a decree is not a one-time event. Every year, both individual investors and export service businesses must file an annual report with the Office of Industrial Tax Exemption by November 15. If you received a filing extension for your income tax return, the annual report deadline shifts to one month after you actually filed the return.

Individual investor annual reports carry a statutory fee of $5,000, split between $300 payable to the Secretary of the Treasury for a special DDEC fund and $4,700 deposited into the General Fund of Puerto Rico.¹ Export service businesses pay a separate, lower annual report fee. Any entity organized as a Puerto Rico LLC also files a separate annual report and $150 fee with the Department of State to maintain good standing.

Repeated noncompliance can lead to revocation. If a decree is revoked, the holder must remit to the Department of the Treasury an amount equal to all unpaid income taxes on previously exempt income for the three taxable years preceding revocation, or for the entire decree period, whichever is shorter. Payment is due within 60 days of the revocation’s effective date.¹

What the PDF Does Not Tell You: Federal Tax Rules

Act 60 is Puerto Rico law. It exempts you from Puerto Rico taxes. It does not exempt you from anything on your federal return, and that gap is where costly assumptions get made.

Section 933 Exclusion

Federal law provides a separate benefit under 26 U.S.C. § 933: if you are a bona fide resident of Puerto Rico for the entire taxable year, you can exclude income derived from sources within Puerto Rico from your federal gross income.⁴ The federal exclusion is what makes Act 60 powerful in practice. Income that Puerto Rico exempts and that Section 933 also excludes goes untaxed. But the exclusion applies only to Puerto Rico-source income. Any income sourced to the U.S. mainland or a foreign country remains subject to regular federal tax, regardless of your decree. Employees of the U.S. federal government or any federal agency cannot use the Section 933 exclusion for their employment income, even if they live and work in Puerto Rico.⁵

Form 8898

When you establish or end bona fide residence in a U.S. territory, you must file IRS Form 8898 if your worldwide gross income exceeds $75,000 for that year. For married couples, the threshold applies to each spouse individually. The form is filed separately from your tax return and mailed to the IRS in Austin, Texas. Skipping it can trigger a $1,000 penalty.⁶ Most Act 60 applicants easily clear the $75,000 threshold, so this filing is effectively mandatory.

Pre-Move Capital Gains

Selling a portfolio or a business interest you built up before the move does not become tax-free just because you relocated. Under Treasury Regulation § 1.937-2, appreciation that accrued before you became a bona fide resident is not Puerto Rico-source income. If you sell within 10 years of moving, a lookback rule keeps the pre-move portion of the gain U.S.-sourced and federally taxable. Puerto Rico may also tax a portion of the gain depending on the holding period and timing. The general sourcing rule under IRC § 865(a)(2) ties gain to your tax home at the time of sale, but the bifurcation rules override that default for property acquired before the move. Rushing to sell appreciated assets shortly after relocation is exactly the pattern the IRS looks for.

GILTI for Business Owners

U.S. shareholders who own 10% or more of a Puerto Rico corporation face an additional federal complication. Because Puerto Rico entities are treated as foreign corporations under the Internal Revenue Code, a Puerto Rico company with majority U.S. ownership is a controlled foreign corporation. That classification triggers the Global Intangible Low-Taxed Income rules under 26 U.S.C. § 951A, which require U.S. shareholders to include certain CFC income on their federal returns even if no dividends are distributed.⁷ The impact varies with entity structure. A U.S. C-corporation shareholder can reduce GILTI inclusion by 50% and claim foreign tax credits. Individual shareholders and those using pass-through structures get no such deduction and can face effective federal rates well above 30% on the Puerto Rico company’s income.

IRS Audit Exposure

The IRS runs an active compliance campaign targeting individuals who claimed benefits under the former Act 22 and the current Act 60. The campaign, housed in the Large Business and International division’s Withholding, Exchange, and International Individual Compliance practice area, focuses on two issues: taxpayers who claim Act 60 benefits without actually meeting the bona fide residency requirements under IRC § 937, and taxpayers who mischaracterize U.S.-source income as Puerto Rico-source income.³

Residency in an audit is all-or-nothing. If the IRS successfully challenges your bona fide residence, every dollar you excluded from federal tax comes back onto the table, plus interest and penalties. There is no partial credit for spending 160 days on the island instead of 183, or for having most of your ties in Puerto Rico while keeping a home on the mainland. Common triggers include a residence in a mainland state, state voter registration, a state driver’s license, children enrolled in mainland schools, and financial accounts with U.S.-based advisors showing regular mainland activity.

Recent Amendments and Translation Lag

The Act 60 PDF on the OGP website reflects several rounds of amendments. Act 40-2020 modified provisions on excise tax exemptions and processing fees. Act 52-2022 and Act 1-2024 amended sections related to tax exemption parameters. Act 182-2024 added new provisions to Chapter 2’s individual investor requirements, though as of this writing the official English translation of those changes has not yet been published; the Spanish version should be consulted for the latest language.¹ Reports indicate that the most recent legislation extended the program’s acceptance window through 2055 and introduced a new 4% tax rate on certain individual investor income for future applicants, with grandfathering provisions for existing decree holders. Because the English consolidated text lags, anyone applying in 2026 should verify current requirements directly with the DDEC or through counsel familiar with the latest amendments.

1
Office of Management and Budget of Puerto Rico. Puerto Rico Incentives Code
2
Internal Revenue Service. Introduction to Puerto Rico Acts 20 and 22
3
Internal Revenue Service. LBI Active Campaigns
4
Office of the Law Revision Counsel. 26 USC 933 – Income From Sources Within Puerto Rico
5
eCFR. 26 CFR 1.933-1 – Exclusion of Certain Income From Sources Within Puerto Rico
6
Internal Revenue Service. Residents of U.S. Territories / Possessions – Form 8898 Bona Fide Residence
7
Office of the Law Revision Counsel. 26 USC 951A – Global Intangible Low-Taxed Income Included in Gross Income