Pre-move appreciation does not disappear under Act 60. Assets you already own are taxed by the IRS on gains accrued before you relocated, even if you sell them after moving to Puerto Rico.
What Act 60 Is and Where It Comes From
Act 60 of 2019 consolidated Puerto Rico's prior incentive codes, including the famous Act 20 (export services) and Act 22 (individual investors), into a single statute. The core tax logic has not changed: Puerto Rico is a U.S. territory, not a state, so its residents are not subject to federal income tax on Puerto Rico-sourced income under Section 933 of the Internal Revenue Code. That carve-out is the legal foundation for every rate you see advertised.
Individual Investor Decree (Chapter 2)
The individual chapter, formerly Act 22, gives a 0% rate on Puerto Rico-sourced interest, dividends, and capital gains to anyone who becomes a bona fide resident before the gain is recognized. The catch is that pre-move appreciation on assets you already hold is still taxed by the IRS at the federal level when you sell, so timing your move before a large liquidity event matters enormously. The annual charitable contribution requirement is $10,000 to Puerto Rico-based nonprofits, and the decree filing fee runs roughly $5,000.
Export Services Decree (Chapter 3)
Businesses exporting services from Puerto Rico to foreign markets, or to U.S. clients outside the island, pay a 4% fixed income tax rate for a 15-year decree period, renewable for another 15 years. Qualifying service categories are broad: consulting, technology, financial services, call centers, and professional services all qualify. The business must employ at least one full-time Puerto Rico resident employee, though for a sole-owner operation that employee can be the owner.
Bona Fide Residency: The Test That Trips People Up
The IRS applies a three-part bona fide residency test under Section 937: presence (183 days in Puerto Rico in the tax year), tax home (your principal place of business must be in Puerto Rico), and closer connection (no closer connection to any U.S. state or foreign country). The presence test has a safe harbor but also has exception days that do not count. Enforcement has intensified since 2021, and the IRS Criminal Investigation division has audited Act 22 and 60 holders who maintained primary homes, families, and businesses on the mainland while claiming the exemption.
Real Costs to Set Up and Maintain Compliance
Budget roughly $3,000 to $7,000 in government filing fees for the initial decree application, plus attorney and CPA fees that typically add another $5,000 to $15,000 for the first year depending on complexity. Ongoing annual compliance, including the annual report to the Puerto Rico Department of Economic Development, runs $1,000 to $3,000 per year for most operators. Add Puerto Rico state income tax on any non-exempt local income, municipal license fees, and the cost of actually relocating your life, which auditors will scrutinize.
Act 60 vs. Full Offshore Relocation
Act 60 is the only structure that lets a U.S. citizen eliminate capital gains tax without renouncing citizenship or navigating a tax treaty. Alternatives like moving to Portugal's NHR regime or Thailand's LTR visa offer competitive rates for foreign-sourced income, but they require genuine expatriation from the U.S. tax system, which triggers exit tax under Section 877A for covered expatriates. For founders and investors sitting on unrealized gains who want to stay American, Act 60 has no structural equivalent anywhere else. For those open to full relocation, compare costs and lifestyle requirements carefully before committing: Thailand's LTR visa is one of the more competitive alternatives for non-U.S. persons or those seriously considering renunciation.
Things people ask first.
Do I still pay federal income tax under Act 60?
On Puerto Rico-sourced income covered by your decree, no federal income tax applies under IRC Section 933. Income sourced outside Puerto Rico, including U.S.-situs income from mainland clients in some structures, remains fully subject to federal tax.
How many days do I actually need to spend in Puerto Rico?
The safe harbor is 183 days in Puerto Rico during the tax year, but that is not a guaranteed pass. The IRS also looks at your tax home and closer-connection factors, so 183 days spent on the island while keeping your family home in Miami will not protect you.
Can a single-member LLC qualify for the 4% export services rate?
Yes, but it must be structured as a Puerto Rico entity, either a corporation or LLC registered on the island, and you as the owner must qualify as a bona fide resident. A U.S. LLC with a Puerto Rico address does not qualify.
What happens to my existing stock portfolio when I move?
Unrealized gains that accrued while you were a U.S. mainland resident are still taxable by the IRS when you sell, even after the move. Only gains that accrue after you establish bona fide Puerto Rico residency are eligible for the 0% rate.
Is Act 60 at risk of being repealed?
Decrees granted under Act 60 are contractual and constitutionally protected under Puerto Rico law for their full term, typically 15 to 20 years. New applicants face more political risk if the law changes, but existing decree holders have strong legal standing.
Do I need to give up my U.S. passport or green card?
No. Act 60 is designed for U.S. citizens and permanent residents. Puerto Rico is a U.S. territory, so no immigration change is required and no expatriation is involved.
Ready to model your own Act 60 tax position before you move?
The Offshore Playbook walks through the bona fide residency checklist, decree structuring, and the pre-move asset planning steps that determine whether Act 60 actually saves you money or just adds audit risk. Gramps.chat can run the numbers on your specific situation.
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