Puerto Rico · Tax regime
Act 60 Individual Resident Investor Decree
Reformed
Last verified July 2026
Open, but fundamentally reformed by Act 38-2026, signed in March 2026 by Governor Jenniffer González-Colón. Here is the part that matters most. Act 38-2026 remains pending final endorsement by the Financial Oversight and Management Board (FOMB) under PROMESA, and there is no confirmation that endorsement has been granted. The 2055 extension is not yet final. Verify the status at the date of any advice.
Act 60 answers exactly one question: how a US citizen or green-card holder can legally stop paying US federal income tax on investment income without expatriating. The benefit flows entirely from IRC §933, which excludes Puerto Rico-source income from US federal gross income for a bona fide resident. For a non-US person, it offers nothing they could not get better elsewhere. And the thing most clients actually want it for, cashing out an existing appreciated portfolio tax-free, is precisely what it does NOT do.
Qualifying routes
$10k
Individual Resident Investor decree — applications filed on or before 31 December 2026
Puerto Rico taxes interest, dividends and post-residency capital gains at 0%, but only through 31 December 2035. The program requires an annual donation of USD 10,000. The trigger is the application submission date, not the date residency is established or the decree issues.
$10k
Individual Resident Investor decree — applications filed on or after 1 January 2027
This tier taxes interest, dividends and post-residency capital gains at 4%, running through 31 December 2055. It requires no Puerto Rico residency during the 6 years immediately preceding relocation. The principal residence must be held directly or through a trust. LLCs are no longer permitted.
The facts
- Minimum
- $10k
- Total landed cost
- In year one, government and compliance costs run to a USD 5,000 filing fee, a USD 10,000 annual donation and a USD 5,000 annual report fee, adding up to roughly USD 20,000. Legal and advisory fees realistically add USD 15,000–50,000+. After that, ongoing costs run around USD 15,000/yr before professional fees. On top of all this sits the mandatory purchase of a residential primary residence in Puerto Rico within two years of decree issuance. It is the largest expense, it cannot be avoided, and it can no longer be held through an LLC. For a client who gets audited, defence costs will dwarf everything listed above.
- Route type
- Tax regime, not a visa
- Timeline
- 2–6 months (DDEC processing typically takes 60–120 days, or 3–6 months for complex cases. Practitioners advise a 12–18 month preparation runway. That means anyone not already in motion is already very late for the 31 December 2026 filing cliff.)
- Physical presence
- This status is governed by three cumulative bona fide residence tests under IRC §937(a) and Treas. Reg. §1.937-1, and all three must be met every year. The presence test requires satisfying any one of five conditions: (i) 183 days in Puerto Rico; (ii) 549 days across the current and 2 preceding years with a minimum 60 days in EACH year; (iii) no more than 90 days in the US; (iv) US earned income of USD 3,000 or less AND more days in Puerto Rico than the US; or (v) no significant connection to the US. On top of that, you must also pass the tax home test and the closer connection test. See watchOuts for the details.
- Family
- SpouseDependent children. Note, though, that family whose principal home is in the US creates a significant connection to the US, which defeats presence-test alternative (v)
- Permanent residency
- Not applicable. Puerto Rico is the United States for immigration purposes, so Act 60 confers no immigration status whatsoever.
- Citizenship
- Not applicable. There is no such thing as Puerto Rican citizenship. Act 60 is a tax decree, not a migration route.
- Language test
- Not applicable
- Dual citizenship
- Permitted
- Requirements
- You must be a US citizen or green-card holder. The benefit comes from IRC §933, and it is not available to anyone else.You must become, and remain, a bona fide resident of Puerto Rico under all three tests of IRC §937(a). This applies every year.For applicants from 2027 onward, you cannot have had Puerto Rico residency in the 6 years immediately before relocating.You must purchase a residential primary residence in Puerto Rico within 2 years of the decree's issuance. It must be held directly or through a trust, not through an LLC.You must make a USD 10,000 annual donation. USD 5,000 goes to a CECFL-listed child-poverty charity, and USD 5,000 goes to any Puerto Rico nonprofit certified under §1101.01.There is a USD 5,000 filing fee and a USD 5,000 annual report fee.You must file Form 8898 in the year your bona fide residence begins.
What can go wrong
- The 10-year rule undercuts the most common reason people want this move. Under IRC §937(b) and Treas. Reg. §1.937-2, gain on property you owned before establishing Puerto Rico residency counts as US-source income if you sell within 10 years of the move. That means it is not excludable under §933. It is fully federally taxable. The pitch some promoters make runs like this: you have USD 50m of unrealised gain, you move to San Juan, you sell, and you pay 0%. The reality is different. Every dollar of gain that accrued before bona fide residency is US-source and federally taxable, and filing as though it were not is not an aggressive position. It is a criminal fact pattern. Puerto Rico's own 5% rate on pre-residency long-term gains is a Puerto Rico rate. It does not, and cannot, override US federal treatment. These are two separate taxing authorities, and clients, along with some promoters, tend to conflate them.
- Act 38-2026 is still waiting on endorsement from the FOMB. Under PROMESA, the Board can block any legislation that conflicts with the fiscal plan, and a bill that cuts future revenue by extending exemptions is exactly the kind of measure it scrutinizes. The full extension through 2055 is not yet final.
- The 2035 trap. The market pitch is simple: apply before 31 December 2026 to lock in 0%. What you actually lock in is a 0% rate that expires on 31 December 2035, nine and a half years from now. Someone who applies in 2027 gets 4% running all the way to 2055, twenty-nine years. The real question is not 0% or 4%. It's 0% for 9 years against 4% for 29 years. For a younger client, or one whose liquidity event is a decade off, the 2027 regime may actually be the better deal. The countdown-clock marketing gets the analysis backwards. Act 38-2026 does let existing and pre-2027 decree holders elect into the new regime later, so filing before 31 December 2026 preserves an option you cannot create in the other direction. But the mechanics, deadline and conditions of that election are not publicly documented, and the whole arrangement depends on FOMB.
- The three residence tests are cumulative, annual and each one can fail you on its own. Clients treat this as the 183-day rule. It isn't. The tax home test requires that you have no tax home outside Puerto Rico during any part of the year. The classic failure is the client who moves to San Juan but keeps running the business from the New York office he still visits. His tax home never actually left New York. The closer connection test has no day count and no bright line at all. It weighs your permanent home, where your family lives, where your personal belongings are, your organizational memberships, voter registration, driver's licence, and where you conduct business. It is subjective, lifestyle-based and the kind of thing a jury finds persuasive, which is exactly why the IRS likes it. A client who hits the 183 days but keeps the Aspen house, the kids in Greenwich and the California ties will lose.
- Presence-test alternative (v), the one built around having no significant connection to the US, fails automatically if you have a permanent home in the US, US voter registration, or a spouse or minor children whose principal home is in the US. These alternatives are a trap for anyone trying to be too clever.
- The enforcement inflection point is now. GAO-26-107225, issued 8 December 2025, found that the IRS lacked complete beneficiary data for over four years, ignored 179 DDEC referrals of potential residency violations, and had still not sent its planned educational letters as of November 2025. The IRS agreed to all three recommendations. Read that plainly. The data gap that made enforcement impossible is closing. Hacienda data-sharing has been operational since April 2025, and the IRS has identified roughly 100 high-income individuals for potential criminal investigation, a move it announced in July 2023. DOJ charged Suresh Gajwani in March 2025 with evading tax on USD 80 million by falsely claiming Act 22 eligibility. Promoters, including accountants, attorneys and advisers, are also targets.
- Failing to file Form 8898 keeps the statute of limitations open indefinitely. The form is required if worldwide gross income is USD 75,000 or more in the year you begin or end bona fide residence. The USD 1,000 penalty is minor. The open statute is the real exposure.
- US federal estate and gift tax applies in full. A bona fide Puerto Rico resident who is a US citizen remains entirely within the US worldwide estate tax net. For UHNW families this often outweighs the income tax saving, and it is routinely left out of the pitch.
- You remain a US person. Subpart F, GILTI and PFIC all still apply. A Puerto Rico corporation counts as a FOREIGN corporation for US federal purposes, which drags in Forms 5471, 926, 3520, 8938 and FBAR. The interaction of §933 with Subpart F and GILTI inclusions is genuinely complex. It requires specialist US international counsel.
- Self-employment tax still applies to Puerto Rico-source net earnings from self-employment of USD 400 or more. It applies whether or not the income is excludable under §933. Social Security and Medicare do not go away.
- Hedge fund managers and cryptocurrency investors are named IRS priority targets. The IRS rejects the argument that holding long-term digital assets and then selling immediately after relocation converts decades of US-source gain into Puerto Rico-source gain.
- There are no settled safe harbours for partnership and S-corp structuring following AM 2024-005 and CCA 202538025 (19 September 2025). The IRS will apply step-transaction and aggregate-versus-entity doctrines to any attempt to recharacterise US-source gains as Puerto Rico-source.
- Californians face a separate fight with the Franchise Tax Board, which has its own aggressive residency rules and a documented interest in this population. 381 Californians claimed Act 60 in 2021, making them the largest single origin group at 19.9%.
- You must actually live there. Puerto Rico carries real hurricane exposure, a fragile electrical grid, and a fiscal crisis under PROMESA. That is precisely why the FOMB exists, and why a revenue-reducing extension is not a rubber stamp.
- Act 60 is not an exit from the US tax system. It is a carve-out inside it. Moving to Puerto Rico triggers no exit tax, but §877A expatriation tax applies in full if the client later renounces US citizenship.