What Is Act 60 in Puerto Rico? A Simple Guide

When it comes to what is act 60 puerto rico, Condado stands out as the premier destination in Puerto Rico. For high-net-worth individuals and successful entrepreneurs, understanding **what is Act 60 in Puerto Rico** is the first step toward unlocking one of the most powerful tax incentives available to U.S. citizens. In essence, Act 60 is a legal framework that provides extraordinary tax exemptions to new residents of Puerto Rico. Its goal is to attract investment and stimulate economic growth on the island. The most significant benefit for individuals is a 100% tax exemption on all passive income, including dividends, interest, and, most importantly, capital gains. Imagine selling your stock portfolio or cryptocurrency investments and paying zero federal or state tax on the profits. This is not a loophole; it’s a congressionally sanctioned incentive designed to make Puerto Rico a hub for investors and business leaders. Relocating to the island is a key requirement, meaning you must become a bona fide resident of Puerto Rico. This involves spending at least 183 days a year on the island, establishing a closer connection to Puerto Rico than to any other location, and making the island your tax home. For those looking to escape high-tax jurisdictions, Act 60 presents a legitimate and compelling pathway to financial optimization, all while living in a Caribbean paradise like Condado.

What Are the Main Benefits of Act 60?

The cornerstone of Act 60’s appeal is the Individual Resident Investor Tax Incentive (formerly Act 22). Under this provision, new residents enjoy a 0% tax rate on all passive income accrued after they move to Puerto Rico. This includes a 100% exemption from Puerto Rico income taxes on dividends, interest, and both short-term and long-term capital gains. For investors, traders, and individuals with significant investment portfolios, this is a game-changer. Any appreciation of assets that occurs *after* establishing residency is completely tax-free. This applies to stocks, bonds, real estate, cryptocurrencies, and other investment assets. Another major component of Act 60 is the Export Services Tax Incentive (formerly Act 20), which is designed for businesses. This allows companies that export services from Puerto Rico to the rest of the world to benefit from a flat 4% corporate tax rate. This is a massive reduction compared to the U.S. federal corporate tax rate. For consultants, digital marketers, software developers, and other service-based entrepreneurs, this creates an incredibly attractive environment to operate a business. By pairing the Export Services incentive for your business with the Individual Resident Investor incentive for your personal finances, you create a comprehensive, low-tax ecosystem. This powerful combination is a primary driver for those seeking both business and personal financial advantages in Puerto Rico.

Who Is Eligible to Apply for Act 60?

Eligibility for the Act 60 Individual Resident Investor incentive is straightforward but has strict requirements. The primary condition is that the applicant must not have been a resident of Puerto Rico in the last 10 years. This ensures the program attracts new residents to the island. The applicant must become a bona fide resident of Puerto Rico, which is determined by a set of tests. The most well-known is the “presence test,” requiring you to be physically present on the island for at least 183 days per year. Alternatively, you can meet the presence test by spending at least 549 days in Puerto Rico over a three-year period, with at least 60 days in each year. Beyond physical presence, you must also establish a “tax home” in Puerto Rico, meaning your primary place of business or professional activity is on the island. Finally, you must prove a “closer connection” to Puerto Rico than to any other place. This involves factors like having a permanent home, family, and social and professional ties on the island. Our clients often find their perfect home base in one of our Condado monthly rentals, which offer the luxury and flexibility needed during this transition. Once residency is established, you must also make an annual donation of $10,000 to a certified Puerto Rican non-profit organization. These criteria are designed to ensure that Act 60 beneficiaries are genuinely contributing to and integrating into the local community and economy.

What Is the Application Process Like?

The application process for Act 60 is a formal procedure that is best navigated with the help of experienced legal and financial advisors. The first step is to establish bona fide residency in Puerto Rico. This means physically relocating, securing a place to live, and taking steps to establish your life on the island. Once you are a resident, you can file an application with the Office of Incentives for Businesses in Puerto Rico. The application requires detailed personal and financial information, as well as a sworn statement confirming your eligibility. You will need to provide documentation to support your application, such as proof of your new address, a copy of your driver’s license, and evidence of your closer connection to the island. The application fee is $750. Once the application is submitted, it is reviewed by the Office of Incentives. If approved, you will receive a tax exemption decree, which is a contract between you and the Puerto Rican government that guarantees your tax benefits for a period of 15 years, with the possibility of extension. It is crucial that the application is filled out accurately and completely to avoid delays or rejection. Many of our clients who are exploring the Act 60 housing options appreciate the stability and high-end amenities of our properties, which provide a seamless living experience while they navigate the legal formalities of the application process.

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What Are Common Misconceptions About Act 60?

Several misconceptions surround Act 60, and it’s important to clarify them. The most common myth is that it’s an illegal tax shelter. This is false. Act 60 is a legal tax incentive program enacted by the Puerto Rican government and recognized by the U.S. federal government under Section 933 of the U.S. Internal Revenue Code. As long as you meet the bona fide residency requirements, the benefits are legitimate. Another misconception is that you can claim the benefits without actually living on the island. The IRS and the Puerto Rican government are cracking down on non-compliance, and the 183-day rule, along with the tax home and closer connection tests, are strictly enforced. You must genuinely make Puerto Rico your home. Some people also believe that all their income becomes tax-free. This is not true. The 0% tax rate applies only to passive income sourced to Puerto Rico *after* you become a resident. Your earned income (salary, wages) is still subject to Puerto Rican income tax, which can be as high as 33%. However, this can be mitigated by structuring your business under the Export Services incentive for a 4% corporate tax rate. Finally, people sometimes underestimate the commitment. Moving to Puerto Rico is a significant life decision. It involves more than just tax planning; it’s about embracing a new culture and lifestyle. That’s why we pride ourselves on offering more than just a place to live; we offer a community and a seamless transition to life in Condado, as highlighted in our media features.

How Does Act 60 Benefit Puerto Rico’s Economy?

While the benefits to individuals and businesses are clear, it’s also important to understand **what is Act 60 in Puerto Rico** from the perspective of the local economy. The program is a strategic initiative to attract capital, talent, and economic activity to the island. Each Act 60 decree holder is required to make an annual $10,000 donation to a local charity, which directly funds social and community programs. The influx of high-net-worth residents also stimulates the local economy in numerous ways. These new residents purchase real estate, with the Condado median listing values approaching $1.8M, driving up property values and creating construction jobs. They dine at local restaurants, shop at local stores, and hire local professionals such as lawyers, accountants, and wealth managers. Furthermore, the Export Services incentive encourages the creation of new businesses on the island, which in turn creates high-paying jobs for local residents. This influx of new businesses and expertise helps to diversify Puerto Rico’s economy and foster a more dynamic and resilient business environment. The program has been a significant driver of growth, particularly in the financial services, technology, and consulting sectors. It represents a symbiotic relationship: the decree holders receive unparalleled tax benefits, and in return, Puerto Rico receives a much-needed injection of investment, philanthropy, and economic energy.

Frequently Asked Questions

Do I still have to file US federal taxes with Act 60?

Yes, even as a beneficiary of Act 60 and a bona fide resident of Puerto Rico, you are still required to file a U.S. federal income tax return each year. However, because of the special rules under Section 933 of the U.S. tax code, you can exclude the income you earned from Puerto Rican sources from your U.S. taxable income. This means your Puerto Rico-sourced income is not subject to U.S. federal income tax. You would still report and pay U.S. tax on any income you earn from sources outside of Puerto Rico. The tax filing process is more complex for Act 60 residents, and it is essential to work with a tax professional who has expertise in both U.S. and Puerto Rico tax law to ensure compliance.

What happens to my capital gains from before I moved?

Act 60’s 0% tax on capital gains only applies to the appreciation of assets that occurs *after* you become a bona fide resident of Puerto Rico. Any capital gains that accrued before your move are still subject to taxation. For assets held for more than 10 years before moving, the gain is taxed at a preferential rate. For assets held for less than 10 years, the pre-move appreciation is taxed by the IRS at the applicable federal capital gains rate when you eventually sell the asset. The post-move appreciation, however, will be 100% tax-free. This distinction is crucial for proper tax planning.

Can I lose my Act 60 decree?

Yes, your Act 60 decree can be revoked if you fail to meet the ongoing compliance requirements. The most common reason for revocation is failing to meet the bona fide residency tests, particularly the 183-day physical presence rule. You must also make your annual $10,000 charitable donation and file your annual report with the Office of Incentives. Failure to do so can result in fines and ultimately the loss of your tax benefits. The Puerto Rican government and the IRS are actively auditing decree holders to ensure compliance, so it is critical to meticulously track your days on the island and fulfill all your obligations under the decree. Whether you are exploring options for what is act 60 puerto rico or already committed to the move, our team is here to help.

Is Act 60 available to non-US citizens?

Act 60 is primarily designed for U.S. citizens. Non-U.S. citizens can potentially qualify, but the process is much more complex. A non-U.S. citizen would first need to obtain legal residency in the United States (e.g., a Green Card) and then establish bona fide residency in Puerto Rico. They would also need to navigate the tax laws of their home country, which may still tax their worldwide income regardless of their residency in Puerto Rico. Because of these complexities, the program is most advantageous and straightforward for U.S. citizens.

How does Act 60 affect my Social Security and Medicare?

Moving to Puerto Rico does not affect your eligibility for Social Security or Medicare benefits. You will continue to pay into these systems through taxes on your earned income, and you will be able to receive your benefits just as you would if you lived on the mainland. However, it’s worth noting that while Medicare Part A and Part B are available in Puerto Rico, Medicare Advantage (Part C) and prescription drug plans (Part D) can be different from those on the mainland. It’s important to research the available plans in Puerto Rico to ensure you have the coverage you need.

What is the difference between Act 20, 22, and 60?

Act 60, enacted in 2019, is a consolidation and update of several previous tax incentive laws, most notably Act 20 (the Export Services Act) and Act 22 (the Individual Investors Act). Essentially, Act 60 streamlined these older laws into a single, more comprehensive code. The core benefits remain the same: Act 22’s 0% tax on passive income is now the Individual Resident Investor Incentive, and Act 20’s 4% corporate tax rate is now the Export Services Incentive. If you hear people refer to Act 20 or Act 22, they are talking about the predecessors to the current Act 60 framework.

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