Act 60 of 2019 is Puerto Rico's omnibus tax incentive law that offers US residents who establish bona fide Puerto Rico residency a 0% capital gains tax rate, a 4% flat corporate tax, and 0% tax on dividends and interest from Puerto Rico sources. It replaced and consolidated earlier laws including Act 20 and Act 22, and is administered by Puerto Rico's Department of Economic Development and Commerce (DDEC). The benefits are legal, IRS-recognized, and available to any US citizen or resident who genuinely relocates to Puerto Rico.
Act 60 provides some of the most significant tax reduction opportunities available to US citizens without renouncing citizenship or emigrating. The core benefits depend on which chapter of Act 60 you qualify under:
Chapter 2 targets individuals with passive income and investment portfolios. The benefits include:
Chapter 3 targets US businesses that can export their services from Puerto Rico. The benefits include:
Act 60 eligibility has two dimensions: personal eligibility and income type eligibility.
For Chapter 2 (Individual Investors Act), you must have qualifying investment income. There is no minimum income requirement to apply, but the economics only make sense if you have substantial capital gains, investment income, or are positioning assets before a liquidity event (IPO, business sale, large crypto sale).
For Chapter 3 (Export Services Act), you must operate a qualifying services business whose customers are located outside Puerto Rico. Qualifying services include consulting, financial services, software development, marketing, advertising, research, and many other professional services. Manufacturing and sales of physical goods to Puerto Rico residents do not qualify.
Act 60 is an omnibus law with multiple chapters covering different economic sectors. The three most commonly used by US individuals relocating for tax planning purposes are:
| Chapter | Former Law | Who It's For | Key Benefit |
|---|---|---|---|
| Chapter 2 | Act 22 | Individual investors, traders, crypto holders | 0% capital gains after residency date |
| Chapter 3 | Act 20 | Service businesses exporting to US mainland | 4% flat corporate tax on qualifying income |
| Chapter 6 | Act 73 | Manufacturers, industrial businesses | Up to 4% tax + property/municipal tax exemptions |
Many Act 60 participants combine Chapter 2 and Chapter 3 — owning an export services company (taxed at 4%) and taking qualified dividends from it at 0%. This structure is commonly called the "Act 60 combination" and requires careful structuring to comply with both chapters simultaneously.
Residency under Act 60 is not a paperwork exercise. The IRS uses three tests — all three must be satisfied every calendar year — to determine whether you are a "bona fide resident" of Puerto Rico under Section 937 of the Internal Revenue Code:
You must be physically present in Puerto Rico for at least 183 days during the tax year. Days are counted by physical location — a day you are in New York is a day you are not in Puerto Rico. Some exceptions exist for medical emergencies. The IRS can and does audit travel records (passport stamps, credit card statements, cell phone location data) to verify this test.
Your principal place of business must be in Puerto Rico. If you are an investor, your investment management activities must be conducted primarily from Puerto Rico. If you run a services firm, your office and principal operations must be in Puerto Rico. Working remotely from New York while claiming Puerto Rico residency violates this test.
You must have a closer connection to Puerto Rico than to any US state. The IRS evaluates:
Maintaining a large home in Miami while renting a studio in San Juan will not satisfy this test. The IRS looks at substance over form.
Act 60 has government fees, professional fees, and ongoing compliance costs. Here is the complete breakdown:
| Cost Item | Chapter 2 (Investors) | Chapter 3 (Services) |
|---|---|---|
| Government application fee | $5,005 | $750 |
| Annual charitable contribution (required) | $10,000/year to PR nonprofits | Not required |
| Professional application preparation | $3,000–$8,000 | $3,000–$8,000 |
| Annual compliance report fee | $300/year | $300/year |
| Puerto Rico tax returns (annual) | $500–$2,000/year | $1,500–$4,000/year |
| Relocation / housing costs | Varies significantly | Varies significantly |
First-year total setup costs typically run between $20,000 and $35,000 when you include professional fees, government fees, travel, and initial relocation expenses. For investors with $500,000 or more in annual investment income, the setup cost is recovered in the first year of savings.
An Act 60 tax decree is valid for 15 years from the date of issuance. Decree holders can apply for a 15-year extension, creating a maximum protected period of 30 years.
The decree is a binding contract between you and the Puerto Rico government. It locks in the tax rates in effect at the time of issuance, meaning future changes to Puerto Rico tax law do not retroactively affect you. This protection is one of Act 60's most powerful features — your 0% capital gains rate and 4% corporate rate are contractually guaranteed for the life of the decree.
However, the decree is void in any year where you fail to satisfy the bona fide residency requirements. If you skip the 183-day rule for one year, that year's income is fully taxable at standard federal rates.
Yes, without qualification. Act 60 is legal under both US federal law and Puerto Rico territorial law. Here is the legal foundation:
Act 60 participants who have been audited successfully were those who failed to genuinely satisfy the residency requirements — not those who followed the rules. The program is structurally sound when implemented with proper compliance.
Act 60 is categorically different from traditional offshore tax strategies in ways that matter:
| Feature | Act 60 Puerto Rico | Traditional Offshore Havens |
|---|---|---|
| Citizenship required | Keep US citizenship | Often requires renunciation or dual citizenship |
| US passport | Retained | May require new passport |
| IRS filing | Still file US returns | FBAR, FATCA, Form 5471 complexity |
| Legal basis | US Internal Revenue Code §933 | Tax treaty, secrecy law, or evasion risk |
| Social Security | Retained | May be affected |
| Physical requirement | 183+ days/year in Puerto Rico | Varies; often minimal |
| IRS enforcement risk | Low if compliant | High (FATCA, information sharing) |
Panama, the Cayman Islands, Belize, and similar jurisdictions require you to move outside the US, create complex international structures, and navigate FBAR and FATCA reporting. Puerto Rico is a domestic move — no passports required, no customs, no foreign bank account filings.
Act 60 provides 0% capital gains tax on gains accrued after establishing Puerto Rico residency, a 4% flat corporate tax rate for qualifying export services businesses, and 0% tax on dividends and interest from Puerto Rico sources. Pre-move appreciation is taxed at 5% if sold within 10 years of the move, and 0% after 10 years.
Any US citizen or resident alien who has not lived in Puerto Rico during the 15 calendar years preceding their application can qualify — provided they establish genuine bona fide Puerto Rico residency by satisfying the 183-day presence test, the tax home test, and the closer connection test each year.
The three most common chapters are: Chapter 2 (Individual Investors Act, formerly Act 22) offering 0% capital gains for individual investors; Chapter 3 (Export Services Act, formerly Act 20) offering a 4% flat tax for service businesses; and Chapter 6 covering manufacturing and industrial incentives. Many participants combine Chapter 2 and Chapter 3.
You must pass three IRS tests each year: (1) spend at least 183 days physically present in Puerto Rico; (2) have your principal place of business (tax home) in Puerto Rico; and (3) have a closer personal and professional connection to Puerto Rico than to any US state. All three tests must be satisfied annually.
Government application fees are $5,005 for Chapter 2 and $750 for Chapter 3. Chapter 2 decree holders must donate $10,000 per year to Puerto Rico nonprofits. Professional preparation fees are typically $3,000–$8,000. Annual compliance costs (reports, Puerto Rico tax returns) add $800–$4,000 per year. Total first-year costs typically fall between $20,000–$35,000.
Act 60 tax decrees last 15 years, renewable for an additional 15 years — a maximum of 30 years total. The decree locks in your tax rates contractually, protecting against future Puerto Rico tax law changes.
Yes. Act 60 is legal under US federal law. Section 933 of the Internal Revenue Code explicitly excludes Puerto Rico-sourced income from federal tax for bona fide Puerto Rico residents. The IRS enforces compliance with the residency rules — participants who have been audited successfully were those who failed to genuinely relocate, not those who followed the law correctly.
Act 60 is a domestic move — Puerto Rico is a US territory, not a foreign country. You keep your US citizenship, US passport, Social Security benefits, and Medicare eligibility. The tax savings are legal under the US Internal Revenue Code, not achieved through offshore secrecy or evasion. No FBAR filings, no Form 5471, no foreign bank accounts required.
Our team has guided clients through Act 60 applications, residency compliance, and annual reporting. Get a free case review to find out if Act 60 makes sense for your situation.
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