Puerto Rico: Act 60 (0% on Capital Gains for New Residents)

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.

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.

Frequently asked questions

Sources

• IRS Publication 570