Act 60 Puerto Rico: The Complete 2025 Tax Incentives Guide

What Is Puerto Rico's Act 60 and How Does It Work?

Puerto Rico's Act 60 of 2019 — the Puerto Rico Incentives Code — is the most powerful legal tax reduction strategy available to U.S. persons today. By becoming a bona fide resident of Puerto Rico, qualifying individuals can pay 0% tax on capital gains accrued after the move, 0% on dividends, and qualifying service businesses can pay a flat 4% corporate income tax.

This is not a loophole. Puerto Rico is a U.S. territory with the authority to set its own tax rates for residents. Congress has explicitly permitted this, and the strategy is 100% legal when properly implemented.

What Are the Two Core Programs Under Act 60?

Chapter 2 — Individual Investors

Chapter 2 (formerly Act 22) targets individual investors, entrepreneurs, and high-net-worth individuals. Key benefits:

• 0% Puerto Rico tax on capital gains that accrue during your residency
• 0% Puerto Rico tax on interest and dividends from Puerto Rico sources
• Benefits last for up to 15 years with the possibility of renewal

Chapter 3 — Export Services

Chapter 3 (formerly Act 20) targets businesses that export services to clients outside Puerto Rico. Benefits include a flat 4% corporate tax rate on export service income — compared to 21% federal plus state taxes on the mainland.

What Residency Requirements Must Act 60 Participants Meet?

To qualify, you must be a bona fide Puerto Rico resident. This means passing three IRS tests:

• Presence Test: 183+ days per year in Puerto Rico
• Tax Home Test: Primary business located in Puerto Rico
• Closer Connection Test: Stronger ties to Puerto Rico than any U.S. state (driver's license, bank accounts, voter registration, family)

Chapter 2 decree holders must also purchase residential property within 2 years and make a $10,000 annual charitable donation to a Puerto Rico nonprofit.

Why Is Pre-Move Tax Planning Critical Under Act 60?

The 0% capital gains rate only applies to appreciation that occurs after you establish Puerto Rico residency. Gains that already existed before your move are still taxable by the IRS. This means timing your move — and your asset sales — is essential to maximizing your benefit.

How Aggressively Does the IRS Enforce Act 60?

The IRS actively audits Act 60 participants. The most common errors are failing to truly establish residency — continuing to live primarily in a U.S. state while claiming Puerto Rico benefits. Proper documentation, genuine day-counting, and shifting real ties to the island are not optional.

How Do You Apply for an Act 60 Decree?

The application process involves submitting a decree application to Puerto Rico's Office of Industrial Tax Exemption (OITE), paying the filing fee, and meeting all ongoing compliance requirements. Processing typically takes 60–120 days. Working with experienced tax and legal counsel is essential.