Puerto Rico (Act 60)

Act 60 — the former Acts 20 and 22, folded into one incentives code — is the only route that changes an American’s tax bill without touching the passport: a 4% rate on qualifying export-services income and 0% on Puerto Rico-source capital gains, inside a US jurisdiction with US courts and the US dollar. There is no immigration process to complete. A client can be on-island next month, and that ease of arrival is precisely why files fail: it lets people treat a move as a filing, and the three federal tests underneath Act 60 exist to tell the difference.

The rate side changed this year. Act 38-2026, signed by Governor Jenniffer González-Colón in March 2026, rewrote the Individual Resident Investor chapter. A complete decree application submitted on or before December 31, 2026 keeps the 0% regime, which runs until the old decrees expire at the end of 2035. An application submitted from January 1, 2027 gets a flat 4% Puerto Rico rate on interest, dividends and post-residency capital gains instead — and the program, previously due to sunset in 2035, now runs to December 31, 2055. Post-2026 applicants must also certify they were not Puerto Rico residents for the six years immediately before relocating. The 4% export-services rate is untouched either way.

One qualification before any of this is planned around. Act 38 is signed and on the books, but was still awaiting final endorsement from Puerto Rico’s Financial Oversight and Management Board — the body PROMESA gave authority over the island’s fiscal decisions — when my team last checked. Treat the December 31, 2026 filing date as real and the 2035 and 2055 end dates as provisional until that endorsement is on the record. I set the reform out at length in how the 2026 reform is ending the 0% crypto dream.

Families say “Act 60” and mean one of two things. The Individual Resident Investor decree — the benefit everyone still calls Act 22 — covers you: interest, dividends and capital gains arising after you become a bona fide resident. The Export Services decree — the old Act 20 — covers your business: services performed in Puerto Rico for clients located outside Puerto Rico, taxed at a fixed 4%, with distributions of decree income exempt from Puerto Rico income tax. Decrees of this kind typically run fifteen years with an option to request a fifteen-year renewal.

Most founders who call me need both and have been told about one. The investor decree does nothing for an operating business; the export decree does nothing for a portfolio. Which carries the weight depends on whether the money is earned or held, and that is the first question I ask, before anyone mentions San Juan.

Every founder asks this first, and the answer is narrower than the marketing suggests. The test is where your customer is. Services performed from Puerto Rico for clients outside Puerto Rico qualify — consulting, software development, marketing, financial services, engineering, research and development, education, creative and media work. Serve customers inside Puerto Rico and it is not an export; that revenue is ordinary business income at ordinary rates.

Two traps sit underneath. The entity is the first: a founder who moves to Dorado and keeps billing through his Delaware company has changed his address and nothing else, because the decree attaches to a Puerto Rico entity with genuine operations — an office, a bank account, work actually performed there. Compensation is the second. You still have to pay yourself, and a salary is taxed like a salary; the 4% attaches to decreed business income, not to every dollar passing through your hands. Where that line is drawn is a conversation for your Puerto Rico tax attorney, and it is not a small one.

Everything federal rests on one section. Section 933 of the Internal Revenue Code lets a bona fide resident of Puerto Rico exclude Puerto Rico-source income from US federal gross income. That exclusion, not the decree, is what makes the arithmetic work. Puerto Rico can legislate whatever local rate it likes; it cannot re-source your income for federal purposes.

Bona fide residency is defined federally, under Section 937, in three parts. You have to pass all three, in every year you claim it.

The presence test has more than one route through it, which almost nobody is told. The familiar one is 183 days in Puerto Rico during the tax year. There is a three-year alternative — 549 days across the current year and the two before it, with at least 60 days in Puerto Rico in each. And there is a mirror-image test counting the other side of the water: no more than 90 days present in the United States during the year. Lives that genuinely straddle a border sometimes clear the second or third when the first is out of reach.

The tax home test asks where your principal place of business is. The closer connection test asks the harder question: where your family is, where your homes are, where you bank, where your licences are issued, where your civic and social life sits.

So the day count is the easiest of the three to satisfy and the least likely to save you. Clear it, keep your real life on the mainland, and you fail. The residency litigation here, the Gajwani matter included, turns on these three tests rather than on the decree; in one case the IRS rejected the residency claim outright and asserted a 75% civil fraud penalty on a deficiency of roughly $5 million. It is the closer connection that fails people, and it fails them slowly, three years after the fact.

Act 60 covers gains that arise after you become a bona fide resident. The appreciation you are already sitting on stays taxable at mainland rates — which is why founders call me before the term sheet, not after it.

The mechanism is a sourcing rule rather than a rate. Treasury’s regulations under Section 937 apply a ten-year lookback: gain on property you owned before the move is not Puerto Rico-source if you sell within ten years of establishing residency. Flying to San Juan and selling a position held since 2017 does not convert years of US-source appreciation into exempt island income. Hold longer and a different rule appears — pre-residency appreciation recognised ten or more years after you establish residency is taxed at 5%, under the old regime and the new one alike.

Three more things stay where they were. Mainland-source income — US wages, rent on a US property, gain on US real estate — sits outside the decree and inside your federal return. Federal self-employment tax follows you: net earnings of $400 or more still carry Social Security and Medicare whether or not an income tax obligation survives. And Form 8898, the statement that you have begun or ended bona fide residence in a US territory, is mandatory in that year if worldwide gross income is more than $75,000. The GAO found only about half of the 2021 decree recipients filed it, and failing to file can hold the statute of limitations open indefinitely — a strange thing to volunteer for.

The obligations attached to the investor decree are not decorative, and compliance is where files quietly fail. A Puerto Rico residential property has to be acquired as your principal residence within two years of the decree; for applicants after 2026, title has to be recorded, or pending recordation, in the Puerto Rico Property Registry. There is an annual donation to Puerto Rico nonprofits you neither own nor control, split into two halves, at least half of it to an organisation on the legislature’s approved list. There are also application, acceptance and annual compliance fees that move often enough that I will not quote them here.

On the donation figure I will be plain about a disagreement in the sources. US$10,000 a year, as two US$5,000 halves, is the number Puerto Rico firms have quoted for years and are still quoting in 2026; at least one 2026 advisory reads the current rules as raising it to US$15,000. That is exactly the sort of number no family should budget from a website, including this one. Confirm the figure in force with DDEC or your Puerto Rico tax attorney in writing before you wire anything.

A word on where I sit. Puerto Rico is not a market I list in, and I am not affiliated with any Act 60 relocation service or decree consultant. Nobody sells a decree; DDEC grants it. What I insist on is that when the qualifying principal residence is bought, you are represented by someone who is not also acting for the seller — the rule I apply on every island I work in, and it matters more where the buyer has just arrived.

The statute changed this year; the climate changed earlier. The IRS opened a dedicated Act 22/60 compliance campaign in January 2021 and by mid-2023 had identified roughly 100 high-wealth individuals for civil audit and potential criminal referral alongside the Department of Justice. Puerto Rico’s own authorities have audited roughly 1,800 decree holders. A December 2025 GAO report put numbers on the program: 5,852 resident-investor decrees granted between 2012 and 2024, against only 2,236 holders filing Puerto Rico returns in 2021, with average federal taxable income down 39% after relocating and average federal tax paid down 46%. In October 2025 the Senate Finance Committee’s ranking member opened an investigation into a prominent crypto fund founder over Act 60 residency and referred his findings to the IRS in April 2026 — allegations rather than adjudicated facts, but a clear indication of where the searchlight points.

The counterweight belongs here too. The same GAO report found the campaign had lost 87 revenue agents, a 38% cut, with audits averaging two years, and that of 179 decree holders Puerto Rico referred in 2023 for undocumented residency, Washington largely never worked the files. Both things are true at once. If your plan depends on the auditor never arriving, that is not a plan — it is a bet with a 75% fraud penalty on the other side.

Act 60 is a real move to a real place. That is why it works, and why the people it burned treated it as paperwork. The texture is worth knowing before you commit: hurricane season runs June to November and the island’s power grid is a live consideration rather than a background one; places at the international and bilingual schools are finite and secured well ahead of a move; banking is US banking, a relief to anyone who has spent a year onboarding elsewhere in the region. The decree community is smaller and more visible than families picture, concentrated in a handful of municipalities and increasingly scrutinised.

Some families reverse the move. The ones who do describe the same thing almost word for word: they arrived expecting a filing and found a life. My job at the start is to make that outcome less likely by asking the day-count question honestly, before the price question.

My role is sequencing and coordination, not the decree. The application, the residency testing, the sourcing analysis and the filings belong to a Puerto Rico tax attorney and a CPA who do this daily; if you do not have one, finding one is the first thing I will tell you to do. What my team and I hold is the shape of the whole plan — where the family will genuinely be, in what order the moves happen, and how the property, the citizenship question and the tax base stay pointed the same direction. Same discipline as the rest of the international tax planning work.

Act 60 also has to be priced against the alternatives rather than assumed. Anguilla’s flat tax asks US$75,000 a year and a qualifying property of US$400,000 or more against zero income, capital-gains and inheritance tax — a different answer for a family whose wealth is held rather than earned. A territorial-tax base such as Panama’s changes the local bill and, for an American, nothing federal. Renouncing US citizenship is the only step that ends the federal claim outright: the last one, taken rarely, never before a second citizenship is settled. Exhaust Act 60 first, and read what the exit tax actually reaches before deciding it is unaffordable. The wider map sits on the tax residency page.

A Caribbean passport does something different, and the two get sold together often enough to be worth separating. Second citizenship for Americans is mobility and optionality: US citizens remain taxed by the United States on worldwide income regardless of a second citizenship, and none of the five Caribbean programs has a US income tax treaty. Buy the passport for what it does; price Act 60 separately. Where a requirement runs past coordination into structuring executed rather than designed, the associates and I introduce a dedicated specialist private-capital practice and stay on the real-estate and citizenship side of the file ourselves.