Puerto Rico’s Act 60 (formerly Acts 20 and 22) offers U.S. individuals and service‑exporting businesses dramatically reduced tax rates—often single‑digit or zero—provided they meet a set of residency and investment requirements. Below are the nine most important conditions and practical considerations for anyone thinking about qualifying for these incentives.
1. Ten‑year residency gap
You cannot have lived in Puerto Rico at any time during the ten years preceding your move. Anyone who has been a resident of the island within that window is ineligible for Act 60 benefits.
2. Mandatory charitable contributions
Each year you must donate US $10,000:
- $5,000 to a charity on the government‑approved list.
- $5,000 to any Puerto Rican charitable organization of your choice.
These contributions are a prerequisite for obtaining the residency decree.
3. Property purchase within two years
Act 60 requires you to buy a home in Puerto Rico within the first 24 months of establishing residency. The property must be available for your personal use; renting it out or converting it to an Airbnb does not satisfy the requirement.
4. Rising real‑estate prices
Demand from investors—particularly those in crypto and other high‑growth sectors—has pushed home values up sharply. In some sought‑after neighborhoods prices have doubled in recent years, so prospective residents should budget accordingly and consider securing a purchase early.
5. Physical presence requirements
Eligibility hinges on actual residence, not just a mailing address. Puerto Rico uses several “day‑count” tests (e.g., the 183‑day rule) to verify that you spend the majority of your time on the island. Simply flying in for a short visit and claiming residency will not meet the criteria.
6. Timing of asset disposals
Moving to Puerto Rico does not automatically exempt you from U.S. tax on assets sold immediately after arrival. The tax treatment depends on:
- The date of arrival (which starts the “clock” for the tax benefit).
- The fair market value of assets at that time.
Selling assets before establishing bona‑fide residency, or shortly thereafter, may limit the tax advantage.
7. Selling assets while still resident
If you plan to eventually expatriate from the United States, it can be advantageous to liquidate or transfer assets while you are still a Puerto Rican resident. This ensures the gains are taxed under the island’s preferential rates rather than U.S. rates that may apply after you leave Puerto Rico.
8. Continued U.S. worldwide tax liability
U.S. citizens and green‑card holders remain subject to U.S. tax on all worldwide income, even when residing in Puerto Rico under Act 60. This includes:
- Reporting of foreign bank accounts (FBAR).
- Disclosure of foreign corporations, trusts, and other offshore entities.
Act 60 does not replace U.S. filing obligations.
9. Potential foreign tax exposure
Other jurisdictions may still tax income sourced within their borders. Act 60 provides reduced rates only for income attributed to Puerto Rico (e.g., export‑service revenue, qualified capital gains). Income earned elsewhere can be subject to that country’s tax regime.
Practical checklist for prospective Act 60 residents
- Confirm eligibility: No Puerto Rico residency in the past ten years.
- Plan charitable giving: Set aside $10,000 annually for approved charities.
- Secure housing: Arrange to purchase a primary residence within two years; budget for rising prices.
- Track physical presence: Maintain a calendar of days spent on the island to satisfy residency tests.
- Coordinate asset sales: Consult a tax professional to time disposals for optimal tax treatment.
- Maintain U.S. compliance: Continue filing U.S. tax returns, FBAR, and other disclosures.
- Assess other tax jurisdictions: Identify any additional foreign tax obligations on non‑Puerto Rico income.
By meeting these conditions and understanding the interplay between Puerto Rican and U.S. tax law, investors and service‑exporting entrepreneurs can legitimately leverage Act 60’s tax incentives while avoiding common pitfalls.
