Last Updated: April 2026
Puerto Rico Act 60, enacted in 2019 as a consolidation of prior tax incentive laws, offers one of the most powerful legal tax reduction strategies available to US citizens. Unlike renouncing citizenship or moving abroad, Puerto Rico is a US territory — bona fide PR residents are still US citizens, still hold US passports, and still benefit from US legal protections. But under IRC §933, Puerto Rico-sourced income is excluded from US federal income tax for bona fide PR residents. Combined with Act 60's 0% capital gains rate on PR-sourced gains and 4% corporate rate for qualifying businesses, the savings for high-earners can reach seven figures annually. This guide covers exactly what Act 60 offers, who qualifies, and the compliance requirements the IRS and Puerto Rico authorities will scrutinise.
The most common Act 60 misconception is that it eliminates all capital gains tax. It does not. The 0% rate applies only to gains on assets acquired after establishing Puerto Rico bona fide residency.
If you have a stock portfolio worth $2M that cost you $200,000 — you have $1.8M in unrealised gains. If you move to Puerto Rico and then sell those shares, the $1.8M gain is not Puerto Rico-sourced — it accrued while you were a US resident. The IRS taxes this gain at your applicable US capital gains rate. The strategy for pre-move appreciated assets: either sell them before moving (pay the tax now), hold them for a very long time in PR (the post-move appreciation grows tax-free), or explore charitable planning.
A stock purchased for $50 per share after you establish PR residency, sold at $150 while a PR resident: the $100/share gain is Puerto Rico-sourced and taxed at 0%. The longer you hold and the more assets you acquire in Puerto Rico, the more powerful the benefit becomes. This is why Act 60 works best for investors who plan to hold a decade-long PR residency and build their portfolio during that time.
Cryptocurrency acquired after establishing PR bona fide residency and sold while a PR resident generates PR-sourced gain taxed at 0%. This has made Puerto Rico particularly attractive for crypto investors with large future appreciation expectations. The IRS has not issued specific guidance targeting crypto under Act 60 but applies the same residency and source rules.
The IRS treats Act 60 / PR residency claims with significant scepticism and has stepped up enforcement considerably since 2020.
The IRS looks for: (1) Failure to meet the 183-day presence requirement — credit card records, phone records, and flight data are all subpoenaed in audits; (2) Maintaining a US home as a primary residence while claiming PR residency — the IRS views a US home as a strong indicator of non-PR bona fide residency; (3) Children in US schools — if your children attend US schools, the IRS questions whether your family ties are truly in PR; (4) Continuing to work primarily with US clients from a US-based business — this suggests your economic life remains in the US; (5) Claiming PR residency while spending 200+ days in the US on business.
Successful Act 60 residents maintain: a Puerto Rico driver's license and vehicle registration; Puerto Rico voter registration; a primary home in Puerto Rico (owned or rented, with lease/mortgage in your name); Puerto Rico bank accounts as primary accounts; medical, dental, and professional appointments in Puerto Rico; club memberships and charitable affiliations in Puerto Rico; children enrolled in Puerto Rico schools if applicable; detailed travel logs showing 183+ PR days with supporting records (hotel receipts, credit card statements, calendar entries).
If the IRS successfully challenges your Act 60 claim, the consequences are severe: all capital gains you excluded from US tax become taxable at US rates, plus 20-25% accuracy-related penalties, plus interest from the original due date. For a high-income investor who excluded $5M in gains over 5 years, a failed audit could trigger $1.2M+ in back taxes and penalties. Professional tax counsel familiar with Section 937 and Act 60 enforcement is essential.
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US Expat Tax Help for PR Residents →Keeping a US home is one of the highest-risk factors for an IRS audit of your Act 60 claim. While technically you are not prohibited from owning a US property, the IRS views a maintained US home as strong evidence that Puerto Rico is not your primary residence. Many Act 60 residents sell their US home or rent it out at arm's length (not to family) and rent in Puerto Rico to eliminate this risk factor. If you must keep a US property, it should clearly be a vacation or investment property — not where your family lives full-time.
No. IRC §933 excludes Puerto Rico-sourced income from US federal tax for bona fide PR residents — but it does not exempt all income. US-sourced income (income from US clients, US business operations, US rental properties, Social Security, US pensions) remains fully taxable to the federal government regardless of your PR residency. The key planning question for Act 60 candidates is: what percentage of your income can be legitimately restructured as Puerto Rico-sourced income? For passive investors living off an investment portfolio acquired in PR, the answer can be very high. For a US-based business owner with US clients, the answer may be low without significant restructuring.
If you own a US business that earns income from US clients, that income is US-sourced and not covered by Act 60's exclusion — it remains subject to US federal income tax. To benefit from Act 60's Chapter 3 (4% corporate rate), you would need to establish a separate Puerto Rico-based company that performs services and bills clients directly — with those services genuinely performed in Puerto Rico. Many US business owners structure a Puerto Rico company for new business development while retaining their existing US entity for historical US client work. This structure requires careful legal planning and must reflect economic substance, not just paper restructuring.
If you leave Puerto Rico and establish residency elsewhere, your Act 60 decree becomes inactive and you lose the 0% capital gains benefit going forward. Critically, if you leave with large unrealised capital gains on Puerto Rico-acquired assets, you should be aware of the IRC §877A expatriation-style rules that can apply to former PR residents. Gains on PR assets that accrued during your PR residency are generally still Puerto Rico-sourced when sold after leaving — but the tax treatment depends on when you sell and where you are a resident at the time of sale. Consult a CPA specialising in PR exit planning before departing.
Act 22 (Individual Investors Act, 2012) and Act 20 (Export Services Act, 2012) were the original PR tax incentive laws. In 2019, Puerto Rico consolidated over 60 separate tax incentive laws into Act 60, the Puerto Rico Incentives Code. Chapter 2 of Act 60 is the successor to Act 22 (individual investor 0% capital gains). Chapter 3 is the successor to Act 20 (4% corporate rate for export services). Decrees granted under the original Acts 22 and 20 remain valid under their original terms. New applicants apply under Act 60. The benefits are substantially the same; Act 60 added the $10,000 charitable donation requirement for new applicants.
Act 60 is explicitly authorised by US federal law. The US Congress granted Puerto Rico special tax status in the Internal Revenue Code (IRC §933) to incentivise economic development on the island. This is not a loophole — it is the intended operation of US law. Puerto Rico has been part of the US since 1898 and Puerto Ricans are US citizens, but Puerto Rico is a territory, not a state, which gives it unique fiscal autonomy. The IRS does not challenge the legality of Act 60 itself; its enforcement focuses on whether individuals genuinely meet the bona fide residency requirements, not whether the law should exist.
Initial costs: filing fee of approximately $5,000 for the Act 60 Chapter 2 decree application, plus legal fees for a Puerto Rico attorney to prepare and file the application (typically $3,000–$10,000). Annual costs: $5,000 decree maintenance fee paid to Puerto Rico, $10,000 minimum charitable donation to qualifying PR organisations, plus the ongoing cost of Puerto Rico residency (housing, utilities, etc.). Total first-year cost excluding housing: approximately $18,000–$25,000. Annual ongoing: approximately $15,000–$20,000 in compliance costs. For investors with millions in annual capital gains, these costs are negligible compared to the tax savings.
Yes. Puerto Rico is subject to FICA (Social Security and Medicare payroll taxes) in the same way as US states. Employees in Puerto Rico pay 6.2% Social Security tax and 1.45% Medicare tax; self-employed PR residents pay 15.3% self-employment tax on the first $168,600 (2024 SS wage base) and 2.9% Medicare on all earnings. Act 60 does not exempt PR residents from these federal payroll taxes. Puerto Rico residents also pay federal income tax on US-sourced income — they are only exempt from federal income tax on Puerto Rico-sourced income under IRC §933.