Only investors who file by December 31, 2026 get a choice. They can keep 0% through 2035, or switch to 4% with a decree that runs to 2055. DDEC's guidance also allows the switch later, as late as 2035, with 4% starting the year you ask, provided the 2055 framework is still in force then. So the real question isn't "0% or 4%." It's how much you're willing to pay, and when, for certainty about 2036 to 2055.
Posts 1 and 2 of this series covered what Act 38-2026 changed and what it takes to file by December 31. This post is for the people who will file in time, and for the advisors running the numbers with them.
If you file in 2027 or later, there is no choice to make: your decree carries 4% through 2055. Whether that is still worth a move is a different question, and Post 10 takes it on.
The paths DDEC describes
DDEC's April 2026 bulletin sets out how a 2026 filer can end up on either rate. The rule underneath all of it: the 2055 term and the 4% rate come together. You cannot have a decree that pays 0% through 2035 and switches itself to 4% afterward.
Path | 2027–2035 | 2036–2055 | What it depends on |
|---|---|---|---|
Keep 0% | 0% | Decree expires December 31, 2035 | Nothing further |
Switch now, while your application is pending | 4% | 4% | A sworn amendment request before approval; locked into the decree |
Switch later, any year through 2035 | 0% until the year you switch, then 4% | 4% | A compliant decree, and the 2055 framework still in force when you ask |
Switch in 2035, the decree's last year | 0% | 4%, starting January 1, 2036 | Same, and DDEC treats the request as a new application |
Rates are Puerto Rico income tax on qualifying interest, dividends and post-move capital gains under the decree. Source: DDEC Office of Incentives, Informative Bulletin No. 2026-004, Questions 3–5.
The last row is the one most summaries miss. On DDEC's reading, a 2026 filer can keep 0% for the full decree and still ask for the 2055 extension near the end, with 4% starting in 2036. That matches the law's stated intent: Act 38-2026's own explanatory statement says current decree holders can move to the new model once their decrees expire in 2035.
What switching early buys, and what it costs
The cost is easy to state. Every year you switch before you have to, you pay 4% Puerto Rico tax on qualifying income and gains that would otherwise have been taxed at 0%. On $1 million of qualifying income or gains in a year, that is $40,000.
What it buys is certainty, not a better rate. If you wait and switch in 2035, you would also pay 4% from 2036. Switching early protects you against one risk: that the 2055 option is gone, or changed, by the time you ask. DDEC is explicit that the extension is available only if the Act 38-2026 framework is still in effect when you file the request.
That risk is real but hard to price. Puerto Rico can change this program's terms for new applicants, and Act 38-2026 shows it. This time, existing decrees were left alone. The open question is whether a future change would also leave the extension option alone.
Five questions that decide it
- Will you still be a Puerto Rico resident after 2035? If your plans end before then, the 2055 term is worth little and keeping 0% is simpler.
- When will your large income and gains land? If most of your qualifying income or gains arrive before 2036, switching early is expensive. If little arrives before 2036 and most comes later, for example a concentrated position you plan to hold for decades, switching early is cheaper insurance.
- What would losing the extension cost you? That is the 2036–2055 benefit compared with ordinary Puerto Rico rates on the same income. Your CPA can size it.
- Have you bought and reported your home yet? This one is easy to overlook, and it's the part of the decision closest to my work. More below.
- Are you carrying large gains from before the move? Under the statute, a 2026 filer on the 0% track pays 5% on pre-move appreciation only if the gain is recognized at least ten years after becoming a resident and before 2036. Anyone who becomes a resident in 2026 or later can't meet both conditions. The 4% / 2055 track carries the same 5% rule out to 2056. Post 6 explains how these gains are treated; for anyone holding a large built-in gain, this question can outweigh the others.
As a general starting point, not advice for any one person: a 2026 filer who expects meaningful qualifying income before 2036 will usually find that keeping 0% and revisiting the extension in the 2030s costs less. Switching early is worth modeling mainly for someone who expects most gains after 2035 and puts a high value on certainty. Model both with your CPA before you choose. The big exception is a large gain built up before the move: see question 5.
Where I fit: the switch can change how your home may be titled
DDEC's bulletin contains a detail that connects this choice to the house. If you request the 2055 extension before you have acquired your primary residence and reported it in your annual report for the year of purchase, the post-2027 title rules apply to you. The home must then be held in your name, jointly with your spouse, or in a qualifying grantor trust, not through an entity.
So if the 2055 extension is a real possibility for you, the order matters: when you buy, how you title the home, when you report it, and when you switch. Get that sequence from your attorney before you make an offer. My part is making sure the property search and closing timeline fit the sequence they set, rather than the other way around.
What this choice doesn't change
The decree governs Puerto Rico tax. Whether you owe U.S. federal tax on the same income depends on whether you are a bona fide Puerto Rico resident and where the income comes from, which Posts 4 and 6 cover. The annual obligations that come with a decree are the same on either rate, which Post 5 covers.
Next in the series
Post 4, Thursday, October 15: a decree is not residency, and the three IRS tests every applicant has to pass.
Talk it through
If you or a client are filing this year and want the home purchase sequenced around the rate decision, book a consultation with me: https://calendly.com/christiankleiner100. We'll map the property timeline against the choices your attorney and CPA are weighing. The rate decision itself is theirs to advise on.
About the author
Christian Kleiner is Broker-Owner of Christian Kleiner Luxury Real Estate LLC (License C-26640), based full-time in Dorado Beach, Puerto Rico. He has about 30 years of real estate experience and focuses on high-net-worth clients and Act 60 Individual Resident Investor relocations. He is the author of The Puerto Rico Tax Advantage, and his commentary has appeared in Mansion Global, the New York Post and Yahoo Finance.
Sources
- DDEC Office of Incentives, Informative Bulletin No. 2026-004 (April 24, 2026)
- Act No. 38-2026, full text (LexJuris Puerto Rico)
- The San Juan Daily Star, "Senate passes extension to Individual Investors Act"
This article is general information about Puerto Rico law as of the date above. It is not legal, tax or financial advice, and it does not mean any reader qualifies for a decree or any tax result. Act 60 benefits depend on individual facts and on rules that can change. Consult a qualified Puerto Rico tax attorney or CPA, and your U.S. tax advisor, before acting.