Puerto Rico Act 60 Explained: A Quick Guide for U.S. Citizens (2026 Update)
What Is Puerto Rico Act 60?
Puerto Rico Act 60 — formally known as the Puerto Rico Incentives Code (Act 60-2019) — consolidates prior incentive programs (including former Acts 20 and 22) into a single statutory framework designed to attract:
Individual investors
Export service businesses
Entrepreneurs
Financial professionals
Creative industries
Puerto Rico’s unique status as a U.S. territory creates a powerful tax interaction with Internal Revenue Code §933, which allows bona fide residents of Puerto Rico to exclude Puerto Rico-source income from U.S. federal taxation. This is not a loophole. It is federal law.
Why Puerto Rico Is Different from Moving Abroad
If a U.S. citizen moves to France or Dubai, they remain subject to U.S. federal income tax on worldwide income. Puerto Rico is different. Under IRC §933: A bona fide resident of Puerto Rico may exclude Puerto Rico-source income from U.S. federal income tax. However, income sourced to the United States remains fully taxable federally. That sourcing distinction is material.
Two Primary Incentives Under Act 60 (though not all)
1) Chapter 3 – Export Services (4% Corporate Tax)
Qualifying businesses providing eligible services from Puerto Rico to clients outside Puerto Rico may benefit from:
4% fixed Puerto Rico corporate income tax rate
75% exemption on property taxes
50% exemption on municipal taxes
100% exemption on dividends distributed from exempt operations
The exemption grant may last up to 15 years, renewable for another 15 years.
2) Chapter 2 – Individual Investors (0% on Certain Capital Gains)
Qualified Resident Individual Investors may receive:
100% Puerto Rico tax exemption on interest and dividends
100% Puerto Rico tax exemption on capital gains accrued after becoming a resident
Reduced 5% Puerto Rico tax on certain pre-residency gains recognized after 10 years (if recognized before January 1, 2036)
The Most Important Requirement: Bona Fide Residency
To benefit, you must pass three IRS tests under IRC §937:
Physical Presence Test (typically 183 days)
Tax Home Test
Closer Connection Test
Failure to meet these tests can trigger full U.S. federal taxation. The IRS has an active audit campaign targeting improper Act 60 claims.
Common Misconceptions
“You just need to spend 183 days.” - False. You must pass all three tests.
“All capital gains become tax-free.” - False. Only post-residency appreciation qualifies for 0% Puerto Rico treatment.
“You can run a U.S. business through Puerto Rico and pay 4%.” - False. Only Puerto Rico-source eligible service income qualifies.
Is Act 60 Right for You?
Act 60 works best for:
Hedge fund managers
Consultants
Tech founders
Digital asset traders
IP-driven service companies
Early-stage companies with growth potential
It does not work for:
Retail businesses selling products into the U.S.
Businesses with operational nexus in the mainland
Conclusion
Puerto Rico offers extraordinary tax efficiency — but only if structured correctly. Done improperly, it can create dual-tax exposure and IRS risk. If you are evaluating relocation or restructuring, the analysis must consider:
Sourcing rules
Corporate structure
Capital gain timing
Pre-move appreciation
IRS compliance
State exit implications
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*This article is provided for informational purposes only, and does not constitute legal advice, counsel or representation.
