Chapter One

Act 60 in Plain English

In 2019, the government of Puerto Rico did something unusual: they took a pile of complicated tax incentive legislation that had accumulated over decades, put it in a blender, and produced something called the Puerto Rico Incentives Code — known to everyone as Act 60.

The short version is this: if you move to Puerto Rico, establish genuine residency, and follow the rules, you can pay zero percent in Puerto Rico taxes on certain types of income — including capital gains, interest, and dividends — and that income is also exempt from U.S. federal income tax. Not deferred. Not reduced. Exempt.

For someone with a significant investment portfolio, that is not a small thing. That is the kind of sentence that causes otherwise sensible people to start Googling tropical real estate at midnight.

Zero percent. Not a typo. Not a loophole that's about to close. A legitimate tax incentive written into Puerto Rico law and protected by the U.S. Constitution.

Here's why it works, legally: Puerto Rico is a U.S. territory, but it has its own tax system. U.S. citizens who become bona fide residents of Puerto Rico — and who meet the residency requirements — are not subject to U.S. federal income tax on income sourced in Puerto Rico. Act 60 then takes the Puerto Rico-sourced tax and reduces it to zero for qualifying income.

The result: if you sell stock at a gain after establishing Puerto Rico residency and the gain qualifies as Puerto Rico-sourced, you owe no federal tax and no Puerto Rico tax on that gain. If you earn dividends and interest from qualifying sources, same story. The numbers, depending on your situation, can be extraordinary.

The History: From Acts 20 and 22 to Act 60

Before Act 60, there were Acts 20 and 22. Act 20 was the business incentive — it allowed companies exporting services from Puerto Rico to pay a flat 4% corporate tax rate instead of the 35% federal corporate rate then in effect. Act 22 was the individual investor incentive — it offered the zero percent rate on capital gains and investment income for individuals who relocated to the island.

Both were enacted in 2012, and both worked remarkably well. Puerto Rico attracted thousands of high-net-worth individuals, entrepreneurs, and investors. Property values in Dorado Beach — and across Puerto Rico's luxury market — began a sustained climb that continues today.

In 2019, Acts 20 and 22, along with dozens of other incentive programs, were consolidated into Act 60. The individual investor provisions — the ones most relevant to this book — are now found in Chapter 2 of Act 60 and are often referred to as the Individual Resident Investor (IRI) incentive.

The consolidation also brought some changes. Annual charitable donation requirements increased. Documentation requirements got tighter. IRS scrutiny, already present, intensified. None of this made Act 60 less valuable — it just made compliance more important, and working with experienced professionals non-negotiable.

The Big Picture: What You Can Benefit From

Under the Individual Resident Investor provisions of Act 60, qualifying residents can receive:

0% tax on capital gains accrued after establishing Puerto Rico residency (from qualifying Puerto Rico-sourced investments)

0% tax on interest and dividends from qualifying sources

These benefits are exempt from both Puerto Rico income tax and U.S. federal income tax

For qualifying grandfathered individual investors, the exemption period runs through December 31, 2035. Newer applicants should confirm the term, rate, and end date stated in their own decree with Puerto Rico counsel

⚠ Important Notice

Important Update for 2026 and Beyond: Puerto Rico legislation extends the Individual Resident Investor program through 2055 and introduces a 4% rate on qualifying passive income for applications submitted on or after January 1, 2027. Applications filed on or before December 31, 2026 may retain 0% treatment on qualifying investment income through January 1, 2036. Implementation remains subject to Fiscal Oversight and Management Board endorsement and other legal requirements. Confirm the current effective law, your application date, and your decree terms with Puerto Rico counsel before acting.

What About Business Income?

The Individual Resident Investor provisions focus on passive investment income — capital gains, dividends, interest. If you run a business, Act 60's Chapter 3 (Export Services) is the relevant chapter, offering a flat 4% corporate tax rate on eligible export service income. Many Act 60 residents combine both — holding their investment income under the IRI provisions while operating their business under the Export Services chapter.

This is where structuring gets complex and where a good attorney earns their fee. The combination of IRI and Export Services can be extraordinarily powerful, but it requires careful setup and ongoing compliance.

This chapter provides a general overview of Act 60's individual investor provisions for educational purposes only. Tax laws change, individual circumstances vary widely, and nothing here constitutes tax or legal advice. Please consult a qualified Act 60 attorney and Puerto Rico CPA before making any decisions.