Puerto Rico Act 60 Explained: The U.S. Tax Deal That Actually Works

Puerto Rico Act 60, passed in 2019 as a consolidation of earlier incentive codes including the famous Acts 20 and 22, lets qualifying U.S. citizens pay 0% federal tax on Puerto Rico-sourced capital gains and 4% corporate tax on export services income, all while remaining U.S. citizens. The arrangement works because Puerto Rico is a U.S. territory, not a state, so Congress granted it authority to set its own tax rates for income sourced within the island. You do not give up your passport, you do not renounce citizenship, and you do not trigger the exit tax that applies to expatriates.

Chapter 2 of Act 60, the successor to Act 22, covers individual investors and exempts Puerto Rico-sourced interest, dividends, and capital gains from both Puerto Rico and federal tax entirely, with a 0% rate on appreciation that accrues after you become a bona fide resident. Chapter 3, the successor to Act 20, covers export services businesses and sets a flat 4% corporate rate on income from services rendered to clients outside Puerto Rico, with a 50% exemption on municipal taxes as well. These are separate decrees requiring separate applications, and many people pursue both simultaneously if they run a business and hold an investment portfolio.

The IRS tests Puerto Rico residency under three factors: presence, tax home, and closer connection. You must spend at least 183 days per year on the island, your primary place of business must be Puerto Rico, and you cannot maintain a closer connection to any U.S. state. The presence test is tracked using passport stamps, credit card records, and phone location data in audits, so casual compliance is a real audit risk. Moving your family, your bank accounts, your doctor, and your social life is not optional theater, it is the legal substance the IRS looks for.

Individual investor decree holders pay a one-time filing fee of $5,005 and must make an annual charitable contribution of $10,000 to Puerto Rico-based nonprofits. Export services businesses pay a decree application fee of roughly $750 plus annual reporting fees, and they must employ at least one full-time employee based in Puerto Rico within two years of obtaining the decree. Total setup costs including legal fees typically run $15,000 to $30,000 for a properly structured filing, and ongoing compliance, local accounting, and a registered office add roughly $5,000 to $10,000 per year.

Capital gains on assets you owned before becoming a bona fide resident are only partially sheltered: appreciation accrued before your move date is still taxable by the IRS at standard U.S. rates, and only post-move appreciation on those assets escapes federal tax. New assets purchased after establishing residency get the full 0% treatment on all appreciation. Active income from U.S.-source clients does not convert to Puerto Rico-source income just because you live there, a point the IRS has litigated aggressively since 2021. Software sold to U.S. customers, consulting fees from U.S. companies, and trading gains on U.S. exchange-listed securities all require careful sourcing analysis before assuming they qualify.

Act 60 is best suited for investors holding appreciated assets they plan to sell after relocating, founders approaching a liquidity event, crypto traders with large unrealized gains, and service businesses that can genuinely move their client base or acquire new non-U.S. clients. It is a poor fit for remote employees with a single U.S. corporate employer, for people unwilling to physically relocate, or for those with modest income where the compliance costs exceed the tax savings. The break-even point for most individuals is roughly $300,000 to $500,000 in annual taxable income or a seven-figure asset sale on the horizon.