Puerto Rico Act 60

Puerto Rico's Act 60 represents one of the most powerful tax optimization strategies available to U.S. citizens and residents, offering the potential to reduce capital gains taxes from as high as 23.8% to 0% (for existing decree holders) or 4% (for new 2026+ applicants). With over 3,186 tax decrees granted and 75,000+ jobs created, this incentive program has transformed Puerto Rico into a premier destination for tax-conscious investors, entrepreneurs, and remote workers.

The window for securing the most favorable 0% tax rate is closing rapidly. Applications submitted before January 1, 2026, can lock in complete exemption from Puerto Rico taxes on capital gains, dividends, and interest income. Combined with the program's recent extension through 2055, Act 60 offers unprecedented long-term tax planning certainty for those willing to embrace the Caribbean lifestyle while maintaining U.S. citizenship.

Strategy Overview

Act 60 consolidates Puerto Rico's various tax incentives into a comprehensive code that rewards individuals and businesses who relocate to the island. By becoming a bona fide Puerto Rico resident, qualifying individuals can legally exclude Puerto Rico-source investment income from both federal and local taxation, while businesses can operate at corporate tax rates as low as 4%. The strategy leverages Puerto Rico's unique status as a U.S. territory with its own tax system, allowing American citizens to dramatically reduce their tax burden without renouncing citizenship or leaving the U.S. banking and legal systems.

This isn't merely a paper transaction - Act 60 requires genuine relocation and economic substance. However, for those who can meet the requirements, the financial benefits are transformative, particularly for high-income earners, active traders, and those planning significant asset sales.

Interactive Calculator: See Your Potential Savings

Use our calculator below to see how much you could save with this strategy:

Frequently Asked Questions

What are the key requirements to qualify for Act 60 benefits?

To qualify for Act 60's tax incentives, you must establish genuine Puerto Rico residency through a comprehensive three-part test that the IRS strictly enforces. This isn't a casual relocation - it requires severing substantial ties with your former state and building a new life in Puerto Rico.

Current Data: The IRS has increased Act 60 audit activity by 40% in 2024-2025, focusing on residency compliance (Source: Pillsbury Law IRS Examination Guide)

Key Points:

• Physical presence test: Minimum 183 days annually in Puerto Rico (or 549 days over 3 years with at least 60 days each year)
• Tax home test: Your primary place of business and economic activity must be in Puerto Rico
• Closer connection test: Demonstrate stronger personal, social, and economic ties to Puerto Rico than anywhere else

Example Scenarios:

• Software developer relocating from California: Must move primary residence, update driver's license, register to vote in PR, and conduct business from island
• Crypto trader from New York: Needs to establish PR brokerage accounts, local banking relationships, and document all trading activity as PR-sourced
• Retired couple from Florida: Must sell or rent mainland home, purchase PR property within 2 years, and shift medical care, social activities to island

How does the 2025-2026 transition affect new applicants?

The upcoming changes represent a critical inflection point for Act 60 planning. While the program remains highly attractive, the window for maximum benefits is rapidly closing, creating urgency for those considering relocation.

Expert Insight: "The shift from 0% to 4% may seem modest, but on a $5 million capital gain, it's the difference between paying $0 and $200,000 in taxes - still far better than the $1.19 million you'd pay on the mainland" - Alexandra Sabalier, Esq.

Implementation Steps:

1. Begin residency planning immediately - aim to establish PR presence by Q3 2025 to allow buffer time
2. File Act 60 application with DDEC before December 31, 2025 deadline to secure 0% rate
3. Coordinate with tax advisors to properly partition pre-move vs post-move asset appreciation

What income sources qualify for Act 60 benefits?

Act 60's benefits apply specifically to Puerto Rico-source income, creating both opportunities and complexities that require careful planning. Understanding these source rules is critical to maximizing benefits while maintaining compliance.

Comparison Table:

What are the most common pitfalls and how can I avoid them?

Based on increased IRS scrutiny and audit patterns, certain mistakes repeatedly trigger examinations and can result in loss of Act 60 benefits. Understanding these pitfalls is essential for long-term success.

Red Flags to Avoid:

1. Insufficient documentation of time in Puerto Rico - Solution: Maintain detailed logs, use credit card records, boarding passes
2. Maintaining significant mainland ties - Solution: Sell/rent primary residence, move professional licenses, update all registrations
3. Claiming benefits on pre-move appreciation - Solution: Get professional appraisals on relocation date, carefully track basis

How do businesses benefit from Act 60?

Act 60 transforms Puerto Rico into one of the most competitive business jurisdictions in the Americas, particularly for service-based and export-oriented companies. The combination of low corporate rates and dividend exemptions creates powerful tax efficiency.

Advanced Techniques:

• Export Services Structure: Establish PR entity providing services to non-PR clients at 4% corporate rate
• Holding Company Benefits: Use PR entity to hold IP, investments with favorable treaty network access
• Combined Individual/Business Strategy: Stack personal Act 60 decree with business decree for maximum benefit

Implementation Timeline

Week 1-2: Initial Assessment and Planning

• Consult with Puerto Rico-specialized tax attorney and CPA team
• Analyze current income sources and assess PR-source potential
• Calculate projected tax savings using actual financial data
• Evaluate personal/family readiness for relocation

Week 3-4: Residency Preparation

• Research Puerto Rico municipalities and neighborhoods
• Schedule exploratory trip to visit properties and communities
• Identify schools, healthcare providers, and professional services
• Begin documenting current state ties that need to be severed

Month 2-3: Legal and Financial Structuring

• Engage PR attorney to prepare Act 60 application
• Establish Puerto Rico bank accounts and financial relationships
• Plan asset transfers and timing for maximum tax efficiency
• Create timeline for severing mainland state tax nexus

Month 4-6: Relocation Execution

• Execute property purchase/lease in Puerto Rico
• File Act 60 application with Department of Economic Development
• Transfer business operations and establish PR office
• Update all legal documents, registrations, and professional licenses

Optimization Strategies

Pre-Relocation Asset Planning

• Basis Step-Up Planning: Consider gifting appreciated assets to family members before move to reset basis
• Timing Optimization: Defer income recognition until after establishing PR residency
• Asset Segregation: Separate pre-move appreciation from post-move gains for clear documentation

Multi-Generational Wealth Transfer

• PR Trust Structures: Establish dynasty trusts in Puerto Rico for long-term family wealth preservation
• Strategic Gifting: Use annual exclusion gifts of PR-sourced assets at favorable rates
• Family Office Potential: Centralize family investment management in PR for consolidated tax benefits

Business Structure Optimization

• Dual Company Strategy: Maintain stateside entity while building PR operations
• International Expansion: Use PR as base for Latin American business development
• IP Migration: Transfer valuable intellectual property to PR entity for royalty income benefits

Advanced Strategies

Cryptocurrency and Digital Asset Optimization

Puerto Rico has emerged as "Crypto Rico" with sophisticated strategies for digital asset investors. The combination of 0-4% rates on trading gains and a crypto-friendly regulatory environment creates unique opportunities.

Requirements: Establish PR-based trading entity, use PR exchanges/wallets, maintain detailed transaction logs showing PR-source trading activity.

Real Estate Investment Synergies

Combining Act 60 with Puerto Rico's Opportunity Zone designations and tourism incentives creates multiple tax benefit layers for real estate investors developing qualified projects.

Complex implementation approach: Structure investments through Act 60 entity while qualifying for additional tourism tax credits and OZ deferrals.

International Business Headquarters

Puerto Rico's extensive tax treaty network and territorial system make it ideal for international business operations, particularly for companies with Latin American or Caribbean focus.

Cutting-edge tax optimization: Stack Act 60 export services benefits with treaty advantages for minimized withholding on international transactions.

Ready to implement this strategy? Slim Tax can help you create a personalized implementation plan and track your progress.

Disclaimer: This strategy guide provides general tax information based on current regulations. Consult with a qualified tax professional for advice specific to your situation.