Act 60 Residency Requirements: How to Qualify as a Bona Fide Puerto Rico Resident

Why Is Bona Fide Residency the Foundation of Act 60?

Act 60 is not a mailbox strategy. You cannot simply register an LLC in Puerto Rico or open a bank account and claim the tax benefits. The IRS and Puerto Rico authorities require that you become a genuine, bona fide resident — and they have clear legal tests to determine whether you qualify. Failing these tests can result in loss of your decree, back taxes, penalties, and interest.

What Are the Three IRS Tests for Bona Fide Puerto Rico Residency?

1. The Presence Test

You must spend at least 183 days per year in Puerto Rico. Days are counted carefully — a partial day in Puerto Rico generally counts as a full day. Days in transit (airports) may or may not count depending on circumstances.

You must track and document your days meticulously. The IRS has reviewed phone records, credit card transactions, and flight records in Act 60 audits to verify claimed Puerto Rico presence.

2. The Tax Home Test

Your principal place of business must be in Puerto Rico. If you work remotely, your work location matters — and the IRS scrutinizes this closely. Having clients primarily in the U.S. while claiming a Puerto Rico tax home is a red flag.

For Chapter 3 (export services) decree holders, your business must genuinely operate from Puerto Rico and export services to clients outside the island.

3. The Closer Connection Test

You must have a closer connection to Puerto Rico than to any single U.S. state. The IRS evaluates this by examining:

• Location of your permanent home
• Location of your family (spouse, children)
• Where your children attend school
• Location of your bank accounts and financial institutions
• State of your driver's license and vehicle registration
• Where you are registered to vote
• Location of your social, civic, and religious ties
• Where you receive mail

What Additional Requirements Does a Chapter 2 Decree Impose?

Beyond passing the three residency tests, Chapter 2 (individual investor) decree holders must:

• Purchase a residential property in Puerto Rico within 2 years of receiving the decree. Renting is permitted while searching, but you must ultimately own.
• Make an annual $10,000 charitable contribution split between qualifying Puerto Rico nonprofits (at least $5,000 to organizations that serve low-income communities).
• File an annual report with the Puerto Rico government to maintain the decree.

What Are the Most Common Residency Mistakes Act 60 Participants Make?

The IRS has increased enforcement of Act 60 significantly. Common mistakes that trigger audits include:

• Spending more than half the year in a U.S. state
• Keeping children enrolled in U.S. mainland schools
• Maintaining a U.S.-based spouse or domestic partner on the mainland
• Not actually buying residential property
• Running a U.S.-facing business from Puerto Rico without proper structuring

How Should You Document Your Puerto Rico Residency for the IRS?

From day one of your Puerto Rico residency, you should maintain a contemporaneous log of every day you spend in Puerto Rico, supported by receipts, credit card statements, flight records, and utility bills. If the IRS audits you, a well-documented residency record is your strongest defense.

I-Taxplan provides Act 60 compliance monitoring, including helping clients build and maintain the documentation they need to survive an audit. Learn about our Act 60 services →