Pre-move capital gains are never excluded under Act 60, only gains that accrue after Puerto Rico residency is established. Selling appreciated assets before you have a valid decree and 183 days of presence means paying full federal rates regardless of your intentions.
What Act 60 Actually Is
Act 60 of 2019 replaced the older Acts 20 and 22, folding their export services and individual investor incentives into one consolidated code. The law did not eliminate the benefits; it standardized and modestly tightened the requirements, adding an annual $10,000 charitable donation requirement for individual investors and raising the minimum property purchase price to $300,000 in most areas. The core tax treatment remained intact: qualifying businesses pay a flat 4% Puerto Rico income tax on export services revenue, and qualifying individual investors pay 0% on capital gains accrued after becoming bona fide residents.
The Two Main Incentive Chapters
Chapter 2 of Act 60 covers export services businesses, essentially the successor to Act 20. A Puerto Rico entity providing services to clients outside the island qualifies for the 4% rate on net income from those services, plus a 50-year tax grant locking in the rate. Chapter 3 covers individual investors, the successor to Act 22, granting 0% on dividends and interest from Puerto Rico sources and 0% on capital gains accrued after the decree is issued. Pre-move gains are still subject to federal capital gains tax at ordinary rates, so timing the move relative to a liquidity event matters enormously.
Bona Fide Residency: The IRS Test You Cannot Ignore
The IRS applies a three-part test under Revenue Procedure 2020-17 and the broader bona fide residency rules of IRC Section 937: presence, tax home, and closer connection. The presence test generally requires 183 days per year in Puerto Rico, with specific rules about days that count for or against you. Failing the bona fide residency test means losing the Puerto Rico tax treatment entirely and potentially owing U.S. federal tax on income that was never properly excluded. Puerto Rico Act 60 Capital Gains: The 0% Tax Rate Explained goes deeper on how the gain-splitting rules work between pre-move and post-move appreciation.
Costs and Timeline to Get a Decree
Applying for an Act 60 decree involves a government filing fee of $5,000 for Chapter 3 individual investors and $750 for Chapter 2 export services businesses, plus an annual $5,000 report fee once the decree is active. Legal and advisory fees to prepare the application typically run $3,000 to $8,000 depending on complexity. Processing times vary but typically fall between three and eight months from submission to decree issuance. You must also establish genuine residence, which means leasing or buying property and meeting the 183-day presence requirement starting from your move date.
Who Act 60 Is Actually Built For
Act 60 works best for high-income U.S. citizens with significant unrealized capital gains, active traders, fund managers, or service-based business owners who can genuinely relocate operations and personal residence. It does not work for someone who treats Puerto Rico as a mailing address while living in California; the IRS audits Act 60 participants specifically and aggressively. Employees of U.S. companies who cannot restructure their income source, or passive investors whose gains are already locked in pre-move, extract far less value from the structure than active business owners or those sitting on large unrealized positions.
Risks and Recent Enforcement Trends
The IRS Criminal Investigation division has flagged Puerto Rico Act 60 as a priority compliance area since 2021, and the agency has audited and criminally referred cases involving residents who claimed the tax benefits without meeting the bona fide residency standard. Puerto Rico's government has also increased enforcement of the annual reporting and charitable contribution requirements, with decrees at risk of revocation for non-compliance. Anyone using Act 60 should maintain contemporaneous documentation of days on island, economic ties, and business activity from day one, not as an afterthought when an audit letter arrives.
Things people ask first.
Does Act 60 protect me from federal income tax?
Only on income that qualifies under the bona fide residency rules. Puerto Rico is a U.S. territory, not a foreign country, so IRC Section 933 and Section 937 govern what income is excluded from federal taxation. Export services income earned through a Puerto Rico entity by a bona fide resident is excluded; income from U.S.-source activity is not.
Can I keep my U.S. bank accounts and investments while on Act 60?
Yes. Act 60 does not require you to move assets offshore or close U.S. accounts. The tax benefit applies to income and gains accrued after you become a bona fide Puerto Rico resident, regardless of where the underlying accounts are held.
What happens if I leave Puerto Rico before my decree expires?
Leaving before completing the required residency period can trigger a clawback of taxes on gains that were excluded under the decree. The specific consequences depend on the terms of your grant and how long you actually resided on island, which is another reason the 183-day tracking matters.
Is Act 60 the same as Acts 20 and 22?
Functionally similar but not identical. Act 60 consolidated Acts 20 and 22 into Chapters 2 and 3, added the $10,000 annual charitable donation requirement for individual investors, raised the residential property purchase threshold, and introduced stronger annual reporting obligations. The core tax rates stayed the same.
Do I need to buy property in Puerto Rico to qualify?
Chapter 3 individual investors must purchase a primary residence within two years of receiving the decree, with a minimum purchase price of $300,000 in most areas (higher in some zones). Chapter 2 export services businesses do not have a property purchase requirement, but must establish a genuine business presence on island.
Can a single-member LLC or S-corp use Act 60 export services benefits?
The entity applying for the decree must be organized in Puerto Rico or registered to do business there. A Puerto Rico LLC or corporation electing appropriate tax treatment can qualify; you would typically need to form or re-domicile the entity in Puerto Rico rather than simply using an existing U.S. mainland structure.
Ready to map out an Act 60 strategy that actually holds up to IRS scrutiny?
The Offshore Playbook covers the full residency-to-decree sequence for Act 60, including how to structure the entity, track the 183 days, and document closer connection, so you have the framework before you spend a dollar on legal fees.
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