Puerto Rico’s Act 60 offers bona fide residents a 0% tax rate on capital gains, dividends, and interest — but only on the portion earned after you actually move, and the IRS has opened roughly 100 criminal investigations into people who claimed the benefit without genuinely relocating. This article covers what Act 60 actually requires, what it doesn’t cover, what changes in 2026, and how it compares to the territorial-tax bases we work in across Latin America and Europe.
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Table of Contents
What Act 60 Actually Is
Act 60 isn’t one tax break — it’s a consolidation of dozens of them. Puerto Rico signed the “Incentives Code” into law on July 1, 2019, effective January 1, 2020, folding a decade of overlapping tax decrees into a single statute. The two provisions that matter for most people relocating are what used to be called Act 22 (individual investors) and Act 20 (export services businesses) — they didn’t disappear, they were renamed and renumbered as Chapters 2 and 3 of Act 60.
The underlying mechanism is federal, not just local: IRC Section 933 lets bona fide Puerto Rico residents exclude Puerto Rico-source income from US federal gross income. Act 60 is Puerto Rico’s local law layered on top, taxing that PR-source income at 0% or 4% instead of Puerto Rico’s normal rates. Get the residency piece wrong and the whole structure collapses — which is exactly what the IRS has been auditing for.
The Two Main Decrees
Almost everyone asking about “Act 60” means one of these two chapters. They solve different problems and most people qualify for at most one.
| Chapter 2 — Individual Resident Investor | Chapter 3 — Export Services | |
|---|---|---|
| Formerly | Act 22 | Act 20 |
| Who it’s for | Investors, traders, crypto holders with passive/portfolio income | Business owners exporting services (consulting, tech, finance) to clients outside PR |
| Core benefit | 0% PR tax on post-residency capital gains, dividends, interest | 4% flat corporate tax rate on qualifying export income; 100% exempt dividends to bona fide resident owners |
| Real estate requirement | Yes — primary residence in PR within 2 years | No |
| Employee requirement | No | Depends on revenue (see below) |
| Annual donation | $10,000/year to qualifying PR nonprofits | No |
Individual Resident Investor: Who It’s For
This is the decree behind most of the “move to Puerto Rico, pay 0% capital gains” content you’ve seen — and it’s the one driving Condado real estate prices in San Juan. It’s built for people whose income is investment-driven: stock and crypto traders, fund managers, people who’ve sold a business and are sitting on investment capital.
The benefit is real: capital gains, interest, and dividends that accrue after you become a bona fide Puerto Rico resident are taxed at 0% under Puerto Rico law, and excluded from US federal tax under Section 933. For a US citizen otherwise facing federal long-term capital gains rates up to 20% plus the 3.8% net investment income tax — without giving up US citizenship — that’s a genuine, legal structure. It is not, however, a way to sell an asset you already own next month tax-free. More on that below.
What You Have to Actually Do to Qualify
Qualifying is not a matter of filing paperwork and keeping your life in New York or Miami. You have to actually pass the bona fide residency test under IRC Section 937, which has three separate parts, all required:
- Physical presence: at least 183 days in Puerto Rico during the tax year (there are alternate tests, but 183 days is the one most people rely on)
- No tax home elsewhere: your regular place of business or employment can’t be outside Puerto Rico
- No closer connection elsewhere: your personal, family, and economic ties have to point to Puerto Rico more than to the US or anywhere else — where your doctor is, where your kids go to school, where you’re registered to vote, all of it
On top of the residency test, the Individual Resident Investor decree specifically requires:
- Not having been a Puerto Rico resident for the 10 years before your application (this changes in 2026 — see below)
- Buying Puerto Rico real estate as your primary residence within 2 years of approval — it has to stay your primary residence for the life of the decree, and you can’t rent it out
- Starting in year two, contributing at least $10,000 per year to Puerto Rico nonprofits, with at least $5,000 of that specifically to organizations addressing child poverty on the island
- Filing an annual compliance report with evidence of your donation attached
Miss any of these and you don’t have a defensible decree — you have a vacation home and an audit waiting to happen.
The Pre-Residency Gains Trap
This is the part most marketing content about Act 60 leaves out, and it’s the single most common misunderstanding we see: Act 60 does not make your existing portfolio tax-free the moment you land.
Under Treasury Regulation 1.937-2, gains on property you already owned before becoming a Puerto Rico resident are subject to a 10-year lookback rule. If you sell that pre-move asset within 10 years of establishing residency, the portion of the gain that accrued before your move is treated as US-source income and taxed federally at normal rates — only the gain that accrued after you became a resident gets the 0% treatment. For marketable securities, this is done through a split-sourcing calculation using the asset’s value on the date your Puerto Rico residency began.
In practice: if you moved to Puerto Rico holding Bitcoin bought years earlier, and you sell it 18 months after arriving, most of the appreciation is still taxed as if you’d never left the mainland. The 0% rate is real — but it’s a rate on future appreciation, not a retroactive exemption on gains you already have. This is exactly the kind of detail worth confirming with a PR tax attorney using your actual numbers before you assume any figure applies to your situation.
Export Services: The 4% Corporate Route
Chapter 3 is a different tool for a different problem: business owners who provide services to clients outside Puerto Rico — consulting, software, financial services, management, other professional services — can run that business through a Puerto Rico entity taxed at a flat 4% corporate rate, instead of standard Puerto Rico or mainland US corporate rates. Dividends the business pays out to bona fide Puerto Rico resident owners are 100% exempt from PR tax.
The employee requirement scales with revenue: businesses with annual volume of $3 million or less have no minimum employee requirement. Above that threshold, you need at least one full-time Puerto Rico resident employee — which can be you, as the owner. Either way, you need a genuine bona fide office in Puerto Rico and real operational substance there, not a mailing address.
The IRS has been specifically focused on income-sourcing discipline here: if you perform services while physically in New York or Miami, that portion of income is US-source and taxed accordingly, regardless of where your company is incorporated. Travel logs, contracts, and billing records that show where the work actually happened have become standard documentation for anyone serious about defending a Chapter 3 position.
Real Costs
Act 60 is not free to obtain or maintain. For the Individual Resident Investor decree specifically, the recurring costs run:
| Item | Cost | When |
|---|---|---|
| Application fee | $5,005 | One-time, at filing |
| Acceptance fee | $105 | One-time, on approval |
| Annual compliance report fee | ~$5,000 | Every year |
| Charitable donation | $10,000/year minimum | Every year from year 2 onward |
| Approximate ongoing annual cost | ~$15,000/year | Not including legal/CPA fees or the real estate purchase itself |
None of that includes the professional fees for the attorney and CPA you’ll need to prepare the application and defend your position in an audit — both of which are not optional line items for a decree that the IRS is actively scrutinizing.
What’s Changing in 2026
Puerto Rico’s legislature passed Act 38-2026, extending the Individual Resident Investor program’s overall window from its prior 2035 expiration out to 2055 — a real signal of durability for a program that periodically faces expiration questions. At the same time, separate legislation (HB 505, approved by the legislature on February 17, 2026) changes the terms for new applicants going forward:
- Applications filed by December 31, 2026 keep the current 0% rate structure, locked in through 2035
- Applications filed January 1, 2027 or later get a 4% rate instead of 0% on interest, dividends, and post-residency capital gains — still meaningfully below standard federal rates, but not the headline 0% figure
- Post-2026 applicants also face a shorter prior-residency lookback — 6 years of not having been a Puerto Rico resident, down from the current 10-year requirement
That last point is worth sitting with: the new rules are not uniformly stricter. The tax rate benefit shrinks for new applicants, but the residency lookback actually gets easier to satisfy. Treat none of these figures as final — Puerto Rico tax legislation has moved multiple times in the last few years, and a PR-based tax attorney will have the current status by the time you’re actually filing.
The IRS Is Watching
This is the part every Act 60 sales pitch skips, and it’s the part we’d want to know if we were reading this article ourselves. Starting around 2023, the IRS announced it was pursuing as many as 100 criminal and civil investigations of Act 20/22/60 participants — high-income individuals claiming the benefit while, in the IRS’s assessment, never actually establishing genuine Puerto Rico residency. The DOJ has subpoenaed law firms for client files on residency analysis and income-sourcing positions. Separately, Puerto Rico’s own tax authority (Hacienda) has audited roughly 1,800 Act 20/22 decree holders and tightened background checks on new applicants.
The through-line in every enforcement action we’ve seen reported: people who treated Act 60 as a mailing-address trick instead of an actual relocation. The 183-day presence test, the closer-connection test, the real estate requirement — these aren’t bureaucratic hoops, they’re the exact things the IRS checks first. If you’re not prepared to genuinely live in Puerto Rico more than half the year and restructure your life around it, Act 60 is a liability, not a tax strategy.
Puerto Rico vs. Territorial Tax Elsewhere
We’ve helped 1,500+ clients build residency and tax strategies across Latin America and, more recently, Latin Europe — and Puerto Rico is a genuinely different animal from every option we cover directly, for one simple reason: it requires US citizens to move somewhere and restructure their actual life, the same as any of these routes, but it keeps them inside the US banking, healthcare, and legal system the whole time. That’s a real advantage for some people and irrelevant to others.
| Option | Headline rate | Requires leaving US legal system? | Physical presence required? |
|---|---|---|---|
| Puerto Rico Act 60 (Individual Investor) | 0% (2026 filers) / 4% (2027+) | No — still US territory | 183+ days/year in PR |
| Panama territorial tax | 0% on foreign-source income | Yes | Minimal for some residency categories |
| Paraguay territorial tax | 0% on foreign-source income | Yes | No minimum stay to maintain residency |
| Portugal (NHR/IFICI successor) | Flat rate on qualifying foreign income | Yes | Varies by regime |
| Italy flat tax (Art. 24-bis) | €100,000/year flat, foreign income | Yes | Standard EU residency rules |
If you’re weighing Puerto Rico against a territorial-tax base outside the US, that comparison — not the Act 60 filing itself — is exactly what we help with. See our Panama, Paraguay, Spain, and Italy flat tax coverage for the alternatives.
Ready to take the next step? Book a consultation call — we’ll map out the right path for your situation.
FAQ
Does Act 60 make my existing stock or crypto portfolio tax-free?
No. Only gains that accrue after you become a bona fide Puerto Rico resident get the 0% rate. Gains on assets you already owned before moving are subject to a 10-year lookback rule and remain largely taxable as US-source income if sold within that window.
How many days do I need to spend in Puerto Rico for Act 60?
At least 183 days per year is the presence test most people rely on, but you also need to pass the “no tax home elsewhere” and “no closer connection elsewhere” tests — all three together, not just the day count.
What’s the deadline to get the current 0% rate?
As of this writing, proposed legislation sets December 31, 2026 as the cutoff for the current 0% terms on the Individual Resident Investor decree. Applicants after that date would face a 4% rate instead. Confirm the current status with PR tax counsel before relying on this date.
Is the IRS actually auditing Act 60 participants?
Yes. The IRS has pursued roughly 100 criminal and civil investigations of Act 20/22/60 participants since 2023, and Puerto Rico’s Hacienda has separately audited around 1,800 decree holders. Enforcement focuses on people claiming the benefit without genuinely establishing bona fide residency.
Do I need to buy real estate in Puerto Rico to qualify?
For the Individual Resident Investor decree, yes — a primary residence purchased within 2 years of approval, which must remain your primary residence and cannot be rented out. The Export Services decree has no real estate requirement.
Can My Latin Life help me file an Act 60 decree?
No — we don’t prepare Act 60 applications, and that work requires a Puerto Rico-licensed tax attorney or CPA. What we do help with is comparing Puerto Rico against territorial-tax residency options across Latin America and Europe, where we’ve built our practice.
Related: Ponce, Puerto Rico Guide · San Juan, Puerto Rico Guide · US Banking via Puerto Rico · Italy Flat Tax · Spain Residency
