Puerto Rico · Tax regime
Act 60 Individual Resident Investor Decree
Reformed
Last verified July 2026
Open but fundamentally reformed by Act 38-2026, signed in March 2026 by Governor Jenniffer González-Colón. CRITICAL: Act 38-2026 remains PENDING FINAL ENDORSEMENT by the Financial Oversight and Management Board (FOMB) under PROMESA, and we could not confirm that endorsement has been granted. The 2055 extension is not yet final. Verify at the date of any advice.
Act 60 answers exactly one question: how does a US citizen or green-card holder legally stop paying US federal income tax on investment income without expatriating. The benefit flows entirely from IRC §933, which excludes Puerto Rico-source income from US federal gross income for a bona fide resident. For a non-US person it offers nothing they could not get better elsewhere. And the thing most clients want it for — liquidating an existing appreciated portfolio tax-free — is precisely what it does NOT do.
Qualifying routes
$10k
Individual Resident Investor decree — applications filed on or before 31 December 2026
0% Puerto Rico tax on interest, dividends and post-residency capital gains — but ONLY through 31 December 2035. Annual USD 10,000 donation required. The trigger is the APPLICATION SUBMISSION DATE, not the date residency is established or the decree issues.
$10k
Individual Resident Investor decree — applications filed on or after 1 January 2027
4% on interest, dividends and post-residency capital gains, running through 31 December 2055. Requires no Puerto Rico residency during the 6 years immediately preceding relocation. Principal residence must be held directly or via trust — LLCs no longer permitted.
The facts
- Qualifying figure
- $10k
- Total landed cost
- Year one government and compliance: USD 5,000 filing fee + USD 10,000 annual donation + USD 5,000 annual report fee, roughly USD 20,000. Legal and advisory realistically USD 15,000–50,000+. Ongoing roughly USD 15,000/yr before professional fees. Plus the mandatory purchase of a residential primary residence in Puerto Rico within two years of decree issuance — the largest item, unavoidable, and no longer permitted to be held through an LLC. For an audited client, defence costs dwarf all of the above.
- Timeline
- 2–6 months — DDEC processing typically 60–120 days, 3–6 months if complex. Practitioners advise a 12–18 month preparation runway — meaning any client not already in motion is very late for the 31 December 2026 filing cliff.
- Physical presence
- Governed by the three cumulative bona fide residence tests under IRC §937(a) and Treas. Reg. §1.937-1, applied EVERY year. Presence test: satisfy any ONE of (i) 183 days in Puerto Rico; (ii) 549 days across the current and 2 preceding years with a minimum 60 days in EACH year; (iii) no more than 90 days in the US; (iv) US earned income of USD 3,000 or less AND more days in Puerto Rico than the US; (v) no significant connection to the US. PLUS the tax home test and the closer connection test — see watchOuts.
- Family
- spousedependent children — but note that family whose principal abode is in the US creates a 'significant connection' that defeats presence-test alternative (v)
- Permanent residency
- n/a — Puerto Rico is the United States for immigration purposes. Act 60 confers no immigration status whatsoever.
- Citizenship
- n/a — there is no Puerto Rican citizenship. Act 60 is a tax decree, not a migration route.
- Language test
- n/a
- Dual citizenship
- Permitted
- Requirements
- US citizen or green-card holder — the benefit flows from IRC §933 and is unavailable to othersbecome and remain a bona fide resident of Puerto Rico under all three tests of IRC §937(a), every yearno Puerto Rico residency in the 6 years immediately preceding relocation (2027+ applicants)purchase a residential primary residence in Puerto Rico within 2 years of decree issuance, held directly or via trust — not through an LLCUSD 10,000 annual donation: USD 5,000 to a CECFL-listed child-poverty charity and USD 5,000 to any Puerto Rico nonprofit certified under §1101.01USD 5,000 filing fee and USD 5,000 annual report feefile Form 8898 in the year bona fide residence begins
What can go wrong
- THE 10-YEAR RULE DESTROYS THE MOST COMMON REASON CLIENTS WANT THIS. Under IRC §937(b) and Treas. Reg. §1.937-2, gain on property owned BEFORE you established Puerto Rico residency is US-source if sold within 10 years of the move — therefore not excludable under §933, therefore fully federally taxable. The fantasy being sold is 'I have USD 50m of unrealised gain, I'll move to San Juan, sell, and pay 0%'. The reality is that every dollar accrued before bona fide residency is US-source and federally taxable, and filing as though it were not is a CRIMINAL fact pattern, not an aggressive position. Puerto Rico's own 5% rate on pre-residency long-term gains is a PUERTO RICO rate — it does not and cannot override US federal treatment. Two different taxing authorities. Clients and some promoters conflate them.
- ACT 38-2026 IS PENDING FOMB ENDORSEMENT. Under PROMESA the Board can block legislation inconsistent with the fiscal plan, and a bill that cuts future revenue by extending exemptions is exactly what it scrutinises. The entire 2055 extension is not yet final.
- THE 2035 TRAP. The market messaging is 'apply before 31 December 2026 to lock in 0%'. What you actually lock in is 0% that DIES on 31 December 2035 — nine and a half years away. A 2027 applicant gets 4% running to 2055 — twenty-nine years. The real question is not '0% or 4%' but '0% for 9 years or 4% for 29 years', and for a young client or one whose liquidity event is a decade out, the 2027 regime is plausibly better. The countdown-clock marketing inverts the analysis. Act 38-2026 does permit existing and pre-2027 decree holders to elect into the new regime later — so filing before 31 December 2026 preserves optionality you cannot construct in the other direction. But the election's mechanics, deadline and conditions are NOT publicly documented and the whole thing depends on FOMB.
- THE THREE RESIDENCE TESTS ARE CUMULATIVE, ANNUAL, AND INDEPENDENTLY FATAL. Clients treat this as 'the 183-day rule'. It is not. The TAX HOME test requires that you not have a tax home outside Puerto Rico during ANY part of the year — the fatal pattern is the client who moves to San Juan but keeps running the business from the New York office he still visits; his tax home never left New York. The CLOSER CONNECTION test has no day count and no bright line at all — it weighs permanent home, family location, personal belongings, organisational memberships, voter registration, driver's licence and where you conduct business. It is subjective, lifestyle-based and jury-appealing, which is exactly why the IRS likes it. A client who does the 183 days but keeps the Aspen house, the kids in Greenwich and the California ties will lose.
- Presence-test alternative (v), 'no significant connection to the US', fails automatically if you have a permanent home in the US, US voter registration, OR a spouse or minor children whose principal abode is in the US. The alternatives are a trap for the over-clever.
- THE ENFORCEMENT INFLECTION IS NOW. GAO-26-107225 (issued 8 December 2025) found the IRS lacked complete beneficiary data for over four years, ignored 179 DDEC referrals of potential residency violations, and had still not sent its planned educational letters as of November 2025. The IRS AGREED TO ALL THREE recommendations. Read that correctly: the data gap that made enforcement impossible is being closed, Hacienda data-sharing has been operational since April 2025, and the IRS has identified roughly 100 high-income individuals for potential criminal investigation (announced July 2023). DOJ charged Suresh Gajwani in March 2025 with evading tax on USD 80 million by falsely claiming Act 22 eligibility. Promoters — accountants, attorneys, advisers — are also targets.
- FORM 8898 NON-FILING KEEPS THE STATUTE OF LIMITATIONS OPEN INDEFINITELY. The form is required if worldwide gross income is USD 75,000 or more in the year you begin or end bona fide residence. The USD 1,000 penalty is noise; the open statute is the exposure.
- US FEDERAL ESTATE AND GIFT TAX APPLIES IN FULL. A bona fide Puerto Rico resident who is a US citizen remains entirely within the US worldwide estate tax net. For UHNW families this frequently outweighs the income tax saving, and it is routinely omitted from the pitch.
- You remain a US person. Subpart F, GILTI and PFIC all apply, and a Puerto Rico corporation is a FOREIGN corporation for US federal purposes — dragging in Forms 5471, 926, 3520, 8938 and FBAR. The interaction of §933 with Subpart F and GILTI inclusions is genuinely complex and requires specialist US international counsel.
- Self-employment tax still applies to Puerto Rico-source net earnings from self-employment of USD 400 or more, whether or not the income is excludable under §933. Social Security and Medicare do not go away.
- Hedge fund managers and cryptocurrency investors are named IRS priority targets. The IRS rejects the argument that holding long-term digital assets and selling immediately post-relocation converts decades of US-source gain into Puerto Rico-source gain.
- There are NO settled safe harbours for partnership and S-corp structuring following AM 2024-005 and CCA 202538025 (19 September 2025). The IRS will apply step-transaction and aggregate-versus-entity doctrines to attempts to recharacterise US-source gains as Puerto Rico-source.
- Californians face a separate war with the Franchise Tax Board, which has its own aggressive residency rules and a documented interest in this population — 381 Californians claimed Act 60 in 2021, the largest single origin group at 19.9%.
- You must actually live there. Puerto Rico has real hurricane exposure, a fragile electrical grid, and a fiscal crisis under PROMESA — which is precisely why the FOMB exists and why a revenue-reducing extension is not a rubber stamp.
- Act 60 is not an exit from the US tax system; it is a carve-out inside it. Moving to Puerto Rico triggers no exit tax — but §877A expatriation tax applies in full if the client later renounces US citizenship.