Concept
Puerto Rico is an unincorporated U.S. territory with a special tax status. For U.S. citizens and residents it is a rare legal way to cut federal tax: a bona fide resident of Puerto Rico is exempt from U.S. federal tax on income sourced on the island (Section 933 IRC; see IRS Publication 570), and Act 60 then zeroes out the Puerto Rico tax on passive income itself.
This is a tool specifically for US persons — citizens and green-card holders. For non-Americans it is usually irrelevant: they have no U.S. federal tax to begin with, so a territorial regime (for example, Georgia) or a non-dom regime (for example, Cyprus) makes more sense.
Where the regime came from
The incentives grew out of two 2012 laws — Act 20 (Export Services Act) for businesses and Act 22 (Individual Investors Act) for private investors. Puerto Rico was then suffocating under public debt and looking for outside capital, and a zero rate on gains and dividends became a direct lure for fund managers and crypto investors from the mainland.
In 2019 both regimes were consolidated into a single Incentives Code — Act 60-2019, effective January 1, 2020. The former Act 22 became Chapter 2 (Individual Resident Investor), and Act 20 became the export-services regime with a 4% corporate rate. The terms were tightened along the way: the annual charitable contribution rose from $5,000 to $10,000, and a requirement to buy a home on the island was added.
What Act 60 provides (Individual Resident Investor, Chapter 2)
- 0% Puerto Rico tax on passive income sourced in Puerto Rico (capital gains, dividends, interest) received AFTER you become a resident;
- for new applications from January 1, 2027 — 4% instead of 0% (on interest, dividends, and capital gains);
- annually: a $10,000 charitable contribution to Puerto Rican nonprofits, plus a one-time $5,000 contribution to the economic-development fund when the decree is granted, and an annual compliance report;
- an obligation to buy real estate in Puerto Rico within 2 years (as your primary residence).
Who counts as a bona fide resident
Three tests under §937 IRC: presence (generally at least 183 days a year in Puerto Rico — there are also alternative ways to meet it), tax home (your main place of business is on the island), and closer connection (the center of your personal ties is in Puerto Rico, not on the mainland or in a third country). Fail any one of them and you become an ordinary U.S. taxpayer again.
What it means in practice
A typical Act 60 candidate is a fund manager, a founder ahead of selling a stake, or a large crypto investor: someone with big unrealized gains and mobile work. They usually move to Dorado, Condado, or San Juan — relocating family and the center of life first, and only then realizing gains as a bona fide resident.
The main trap: pre-move appreciation and IRS scrutiny
- appreciation built up BEFORE the move stays in the U.S. orbit: realized within 10 years of changing residency, it is taxed under U.S. sourcing rules (built-in gains). On the Puerto Rico side, such pre-relocation appreciation recognized after the move is taxed at 10% if realized in the first 10 years and 5% thereafter; only appreciation that accrues after you become a resident is fully zeroed out;
- crypto is under particular IRS attention: when and where a token is "realized" is subject to close review, and a sourcing error costs more than any saving;
- the "Puerto Rico source vs. U.S. source" divide is the key watershed; misclassification = U.S. federal tax.
The IRS under the microscope
Since 2021 Act 60 has been a dedicated IRS compliance campaign. In July 2023 the agency reported roughly 100 cases against "high-dollar" movers, some aimed at criminal prosecution; in December 2025 the GAO issued a report calling for tighter oversight. Two things are checked: whether the person really lives on the island and whether income sourcing is allocated correctly.
The practical takeaway is simple: the move must be real, and the documents gathered in advance. Presence logs, a clean break with the mainland, a sourcing analysis for every large item of income, and careful FATCA and FBAR reporting are the first things an audit looks at. A Puerto Rico decree does not cancel the federal obligations of a US person.
Status as of August 2026: the campaign remains on the IRS list of active LB&I campaigns under the name "Puerto Rico Act 22, Individual Investors Act" (practice area: Withholding, Exchange & International Individual Compliance; the page was last reviewed on 26 March 2026; practitioners refer to it as Campaign 685 — an internal number that does not appear on the public IRS page). The treatment streams are stated openly: examinations, outreach and soft letters. The targets are three: those excluding from U.S. tax income that is in fact subject to it; those who fail to file at all; and those who technically satisfy §937 but report U.S.-source income as Puerto Rico-source income.
The numbers behind that campaign come from GAO report GAO-26-107225, "Puerto Rico: IRS Should Improve Oversight of Taxpayers Claiming Exemption from Federal Taxes" (8 December 2025, publicly released 12 December). Since 2012 the island has granted 5,852 resident-investor decrees and 3,899 export-services decrees; roughly 2,200 individuals claimed the resident-investor incentive for 2021, and some 3,165 unique filers claimed it across 2021–2023. After relocating, a participant's average annual federal taxable income fell by $341,409 (39%) and average federal tax paid fell by $127,143 (46%). A separate thread in the report: Puerto Rico's DDEC referred 179 taxpayers who failed the residency requirements to the IRS — the agency reviewed only a few cases and deprioritised the rest. The GAO made three recommendations (regular data exchange with Puerto Rico's Treasury Department, written procedures for handling referrals, and educational outreach letters on voluntary compliance), and the IRS concurred with all three.
What Act 38-2026 changed
The main fork now is the date of the decree. Anyone who obtains it by December 31, 2026 stays at 0% on interest, dividends, and gains recognized through the end of 2035; applications from January 1, 2027 carry a 4% rate, and the program itself is extended to 2055. Existing decree holders keep their terms unchanged.
Entry, meanwhile, was narrowed: applications after 2026 must show that the person was not a Puerto Rico resident for at least 6 years before the move, and the home purchase must be recorded in the Property Registry. An important caveat: the law is signed by the Governor but awaits final approval from the Financial Oversight and Management Board (FOMB), so individual details may still shift.
Who it's for
- U.S. citizens/green-card holders with large capital gains or a large portfolio who are ready to genuinely move to Puerto Rico;
- crypto investors (with the caveat about pre-move appreciation and IRS scrutiny);
- NOT for non-Americans: they have no U.S. federal tax, and Act 60 offers no benefit — territorial/non-dom regimes are better.
Risks
- this is a U.S. tax-planning tool; an error in bona fide status or income sourcing = federal tax plus penalties;
- US person status remains: FATCA and FBAR obligations, and U.S. estate and gift tax, do not disappear;
- regulatory and political risk: Act 38-2026 raised the rate from 2027, introduced a "not a resident for 6 years" bar for new applications, and still awaits FOMB approval;
- genuinely living in Puerto Rico is mandatory.
Creators and platform income: where the Puerto Rico source breaks
A distinct risk zone is bloggers, streamers and podcasters who move to the island for the 0%. The mechanics of Treas. Reg. §1.937-2 run as follows: source is determined under the principles of §§861–865 IRC, and paragraph (c)(1) expressly bars treating as Puerto Rico-source any income that under those principles is U.S.-source or effectively connected with the conduct of a trade or business within the United States. Act 60 does not rewrite source — it only zeroes out the local tax on what already is Puerto Rico-source.
From there it is a breakdown by type of receipt. Compensation for personal services is tied to the place of physical performance (§861(a)(3), §862(a)(3)): filming, editing and streams done on the island produce Puerto Rico-source income, but every trip to the mainland — a shoot in a Los Angeles studio, a tour, an appearance — carves out its own slice in favour of the U.S. Royalties for the use of intellectual property are sourced to the place of use (§861(a)(4), §862(a)(4)): if the platform or licensing contract is built as a licence of content, name or likeness, the revenue follows the audience and the advertiser, and those are mostly American. Merchandise and goods sales run on their own rules (§§861(a)(6), 863(b), 865(e)), brand integrations are usually mixed — part services, part licence — and are apportioned under §863. Add the team: if producers, editors and management sit on the mainland, a share of the income is allocated there too.
Q/A
Does Act 60 suit a non-American?
Usually not. Without a U.S. tax tail there is no benefit; territorial or non-dom jurisdictions (Georgia, Cyprus, Turkey) make more sense.
What does it cost per year?
A $10,000 charitable contribution to Puerto Rican nonprofits plus a one-time $5,000 contribution to the development fund when the decree is granted, a mandatory purchase of a primary residence within 2 years, and an annual compliance report.
Is pre-move appreciation exempt?
No. Appreciation built up before you become a Puerto Rico resident stays under U.S. tax; the built-in gains rules and the 10-year window matter.
What changes from 2027?
For applications from January 1, 2027, the rate on interest, dividends, and gains rises from 0% to 4% (Act 38-2026); a decree obtained by December 31, 2026 locks in 0% through the end of 2035. Existing decree holders keep their prior terms. The law itself is signed but awaits FOMB approval.