What Is Puerto Rico Act 60?

Puerto Rico Act 60 is the Puerto Rico Incentives Code, a tax-incentive framework designed to attract investors, entrepreneurs, and qualifying businesses to the island. It consolidated several previous incentive programs, including the former Acts 20 and 22, into a single incentives framework.

For qualifying individuals and businesses, Act 60 can provide substantial tax benefits, including:

• Preferential tax treatment for certain investment income under qualifying Individual Resident Investor arrangements
• A 4% preferential Puerto Rico income tax rate on qualifying export services income
• 100% exemption on qualifying dividend distributions from eligible exempt businesses under applicable rules
• Other incentives depending on the type of Act 60 decree

The exact benefit depends on the type of decree, the taxpayer’s circumstances, and the source and nature of the income. Puerto Rico’s Act 60 legislation establishes a 4% preferential rate for qualifying Export Trade income.

Who Can Qualify for Puerto Rico Act 60?

To access Act 60 benefits, you generally need to qualify under a specific incentive category, obtain the applicable decree, and satisfy Puerto Rico’s legal and residency requirements. For individuals seeking resident-investor benefits, becoming a bona fide resident of Puerto Rico is particularly important. The IRS generally determines bona fide residency using three key requirements:

• Meeting the applicable presence test
• Having your tax home in Puerto Rico rather than outside the territory
• Not having a closer connection to the United States or another foreign country

The IRS notes that the general presence test is 183 days during the tax year, although exceptions can apply.

What Are the Tax Benefits of Puerto Rico Act 60?

Qualifying individual resident investors can receive significant Puerto Rico tax advantages on certain investment income when they meet the applicable requirements. These benefits can include preferential treatment of qualifying dividends, interest, and capital gains. However, the tax treatment depends on factors such as:

• When the income or gain was earned
• Where the income is sourced
• When the taxpayer became a bona fide resident
• The taxpayer’s Act 60 decree and applicable Puerto Rico law
• Federal U.S. tax rules governing Puerto Rico residents

This distinction is important because not every investment gain automatically becomes tax-free simply because an individual moves to Puerto Rico. The IRS specifically explains that U.S. citizens who become bona fide residents of Puerto Rico generally exclude Puerto Rico-source income from their U.S. federal income tax return, while certain U.S.-source income remains subject to U.S. federal tax rules.

What Are the Act 60 Business Tax Benefits?

Eligible businesses providing qualifying export services can benefit from a 4% preferential Puerto Rico income tax rate on qualifying export-services income. This can make Puerto Rico attractive to entrepreneurs and companies serving customers outside the island. Under Puerto Rico's Incentives Code, qualifying Export Trade income is subject to a 4% preferential income tax rate.

Depending on the applicable decree and requirements, eligible businesses can also receive favorable treatment for certain distributions. Puerto Rico's Treasury Department states that qualifying export-services incentives generally include a 4% income tax rate and can include tax-exempt dividend distributions under the applicable program rules.

Does Act 60 Eliminate U.S. Federal Taxes?

No. Act 60 does not mean that a U.S. citizen automatically stops paying all federal taxes. U.S. citizens living in Puerto Rico remain subject to specific federal tax rules, and the treatment depends on whether income is Puerto Rico-source or U.S.-source and whether the individual qualifies as a bona fide resident. A bona fide Puerto Rico resident generally files a Puerto Rico tax return, while a U.S. federal return may still be required for certain income or circumstances.

For this reason, anyone considering the move should work with qualified Puerto Rico and U.S. tax professionals before restructuring investments or relocating.

Act 60 vs. Moving to Another U.S. State

Is Puerto Rico Act 60 Worth It for High-Net-Worth Individuals?

Act 60 can be financially attractive for high-net-worth individuals, investors, and entrepreneurs whose income and investment activities fit the program’s requirements. The potential tax savings can be significant, but the decision should be based on a complete analysis of residency, income sourcing, investment gains, business structure, and the costs of relocating.

For example, someone with substantial investment gains may have a very different potential benefit from someone whose income primarily comes from employment or a U.S.-based business. The most important question is not simply, “How much tax can I save?” It is whether your income, assets, business, and lifestyle can legitimately fit within Puerto Rico’s tax and residency framework.

What Lifestyle Benefits Does Puerto Rico Offer?

Puerto Rico also attracts investors because it combines U.S. citizenship and infrastructure with a tropical lifestyle. Depending on where you live, residents can enjoy:

• Warm weather throughout the year
• Beaches and outdoor activities
• Direct flights to major U.S. cities
• A growing community of entrepreneurs and investors
• No passport requirement for U.S. citizens traveling between Puerto Rico and the mainland United States

For luxury buyers, areas such as Dorado Beach can offer access to high-end residential communities, golf, beaches, dining, and resort-style amenities.

Do You Need to Buy Property in Puerto Rico to Qualify for Act 60?

Buying a property in Puerto Rico does not by itself make you eligible for Act 60 or establish bona fide residency. Residency is determined using specific legal tests, including presence, tax-home, and closer-connection requirements. A Puerto Rico property can be part of your relocation and residency strategy, but it should not be viewed as a substitute for satisfying the actual residency requirements.

Is Puerto Rico Act 60 Right for You?

Act 60 may be worth exploring if you are a U.S. citizen with significant investment assets, business income, or other qualifying activities and are genuinely prepared to establish Puerto Rico as your home. It may be particularly relevant if you want to:

• Explore potential tax savings
• Preserve more investment wealth
• Establish a qualifying business in Puerto Rico
• Expand an export-services business
• Live in a tropical U.S. territory while remaining a U.S. citizen

However, Act 60 requires more than simply moving your mailing address or purchasing a luxury property. Your residency and income must be structured and documented correctly.

Frequently Asked Questions About Puerto Rico Act 60

What are the main benefits of Act 60 in Puerto Rico?

The main benefits can include preferential tax treatment for qualifying investment income and a 4% Puerto Rico income tax rate for qualifying export-services businesses. Additional benefits depend on the specific Act 60 incentive category and decree.

Do U.S. citizens pay federal income tax in Puerto Rico?

U.S. citizens who are bona fide residents of Puerto Rico receive special federal tax treatment, but Act 60 does not eliminate all federal tax obligations. Puerto Rico-source income may generally be excluded from U.S. federal income tax under the applicable rules, while U.S.-source income and other income can remain subject to federal requirements.

How many days do you need to live in Puerto Rico for tax residency?

The general IRS presence test is 183 days during the tax year, but the bona fide residency rules include additional requirements and exceptions. You generally must also have your tax home in Puerto Rico and not have a closer connection to the United States or another foreign country.

Can I qualify for Act 60 just by buying a home in Puerto Rico?

No. Buying a Puerto Rico property alone does not establish bona fide residency or automatically qualify you for Act 60 benefits. You must satisfy the applicable legal and residency requirements and, where required, obtain an Act 60 decree.

Is Act 60 only for wealthy investors?

No. Act 60 covers multiple incentive categories, including qualifying businesses and other activities. The benefits and requirements depend on the specific category under which you apply.

Can entrepreneurs benefit from Act 60?

Yes. Entrepreneurs operating qualifying export-services businesses may be eligible for a 4% preferential Puerto Rico income tax rate on qualifying export-services income. The business must satisfy the requirements of the applicable incentive program.