Puerto Rico Act 60 Complete Guide: 0% Capital Gains & 4% Corporate Tax

Puerto Rico's Act 60 (formerly Acts 20 and 22) offers some of the most aggressive tax incentives available to U.S. citizens—without renouncing citizenship. For investors and entrepreneurs willing to relocate, the potential savings can dwarf what's possible with the Foreign Earned Income Exclusion.

This comprehensive guide covers everything you need to know about Puerto Rico's tax incentive programs in 2026.

What is Puerto Rico Act 60?

Act 60, known as the Puerto Rico Incentives Code, consolidated multiple previous incentive acts in 2019. The most relevant for individual taxpayers are:

Program	Former Act	Key Benefit	Who Qualifies
Individual Investor	Act 22	0% tax on capital gains	Bona fide PR residents
Export Services	Act 20	4% corporate tax rate	Service exporters
Young Entrepreneurs	New in Act 60	0% tax for first 3 years	Entrepreneurs under 35

The 0% Capital Gains Rate: How It Works

Under the Individual Investor decree, bona fide Puerto Rico residents pay:

• 0% tax on capital gains from assets acquired AFTER becoming a PR resident
• 0% tax on dividends and interest from Puerto Rico sources
• 0% tax on the appreciation portion of pre-move assets (complex rules apply)

🔥 The Power of 0%: A $1 million capital gain taxed at 0% in PR vs. 23.8% federally (20% + 3.8% NIIT) represents $238,000 in savings on a single transaction.

The 4% Corporate Tax Rate for Export Services

If you provide services to clients outside Puerto Rico, your qualifying business can pay just 4% in Puerto Rico corporate tax. This compares to:

• 21% federal corporate rate (mainland)
• Up to 37% if operating as a sole proprietor
• Combined 30-50% rates in high-tax states like California and New York

Qualifying Export Services

• Consulting and professional services
• Software development
• Digital marketing and advertising
• Investment management
• Research and development
• Creative services (design, video, content)

Residency Requirements: The Closer Connection Test

To qualify for Act 60 benefits, you must become a bona fide resident of Puerto Rico. This is more stringent than simply spending 183 days there.

The Three-Prong Test

1. Presence Test: Spend 183+ days per year in Puerto Rico
2. Tax Home Test: Your primary place of business must be in PR
3. Closer Connection Test: Demonstrate stronger ties to PR than any US state

Closer Connection Factors

Factor	What the IRS Examines
Permanent home	Location of your primary residence
Family	Where your spouse/dependents live
Personal belongings	Furniture, vehicles, valuables
Social ties	Church, clubs, organizations
Driver's license	Where your license is issued
Voter registration	Where you're registered to vote
Bank accounts	Location of primary banking

⚠️ Critical Warning: The IRS has become increasingly aggressive in auditing Act 60 claims. Half-measures won't cut it. You need to genuinely relocate your life to Puerto Rico, not just rent an apartment you rarely visit.

Application Process and Costs

Individual Investor Decree

• Application fee: $5,001
• Annual report fee: $5,001
• Annual donation: $10,000 to approved PR nonprofits
• Property requirement: Purchase PR real estate within 2 years

Export Services Decree

• Application fee: $750 - $5,000 (varies by business size)
• Annual report fee: $300 - $1,500
• Employment requirement: Create PR-based jobs (varies)

Puerto Rico vs FEIE: When to Choose Each

Factor	FEIE	Puerto Rico Act 60
Max earned income benefit	$130,000 exclusion	4% flat rate (no limit)
Capital gains	Fully taxed at US rates	0% on post-move gains
Location flexibility	Anywhere outside US	Must live in PR
SE Tax	Still owed (15.3%)	Reduced via structure
Best for	Nomads, moderate earners	Investors, high earners

The Reality Check: Is PR Right for You?

Pros

• Remain a US citizen with US banking/passport
• No language barriers (English widely spoken)
• Beautiful Caribbean location
• Growing expat/entrepreneur community
• Potentially massive tax savings

Cons

• Must genuinely relocate (expensive transition)
• Hurricane risk and infrastructure challenges
• Higher cost of living than many countries
• Ongoing compliance requirements
• IRS scrutiny is intense

📊 Use Our Calculator: Compare your specific tax savings between FEIE and Puerto Rico Act 60 with our free comparison calculator. Enter your income profile to see a personalized analysis.