Puerto Rico Act 60 in 2026: the US move that isn’t offshore

Why Puerto Rico is different from every other move

The United States taxes its citizens on worldwide income no matter where they live — the rule we cover in citizenship-based taxation. Move to Dubai or Panama and you still file a US return every year; the best you can do is reduce the bill with tools like the Foreign Earned Income Exclusion. The only way to fully escape the system is to renounce — and renouncing can trigger the US exit tax.

Puerto Rico is the exception hiding inside the rules. It is a US territory, so you keep your passport, your Social Security, and your right to live anywhere in the country. But for federal income-tax purposes, Internal Revenue Code §933 excludes Puerto Rico-source income of a bona-fide resident of Puerto Rico from US gross income. Layer Puerto Rico's own Act 60 incentives on top — 0% local tax on qualifying investment income, 4% on export services — and a US citizen can legally drive an effective federal-plus-local rate on that income close to zero, without ever leaving the flag.

The two incentives that matter

Act 60 is a 2019 code that consolidated dozens of older Puerto Rico incentive laws — including the former Act 22 (individual investors) and Act 20 (export services). Two chapters do the heavy lifting for people moving from the mainland:

The Individual Resident Investor decree (Chapter 2, ex-Act 22). For a qualifying individual who becomes a bona-fide Puerto Rico resident, it grants a 100% exemption from Puerto Rico income tax on interest, dividends, and capital gains that accrue after you establish residency and are Puerto Rico-sourced. Combined with the §933 federal exclusion, that means 0% total on qualifying PR-source investment income under current (pre-2027) decrees.

The Export Services decree (Chapter 3, ex-Act 20). A Puerto Rico company that performs services from the island for clients outside Puerto Rico pays a flat 4% Puerto Rico corporate income tax, with a 100% exemption on distributions of those earnings to the owner. The decree is a 15-year contract with the government, renewable once for another 15 years. This is how consultants, fund managers, software developers, and marketers move their book of business to the island.

Becoming a bona-fide resident: the three tests

The exemptions are worthless unless you are a bona-fide resident of Puerto Rico under IRC §937 and the regulations. The IRS applies three tests, all of which you must meet, spelled out in IRS Publication 570. This is stricter than the general framework in how to establish tax residency abroad, because you are inside the US system, not outside it.

1. Presence test. You satisfy it if you meet any one of these: present in Puerto Rico at least 183 days in the tax year; present at least 549 days across the current and two prior years (with at least 60 days each year); present in the United States no more than 90 days in the year; earned no more than $3,000 in the US and spent more days in Puerto Rico than the US; or had no significant connection to the US during the year.

2. Tax-home test. Your main place of business or employment — your tax home — must be in Puerto Rico, and not outside it during any part of the year. A job or office you keep on the mainland breaks this.

3. Closer-connection test. Your center of gravity — home, family, belongings, banks, clubs, driver's licence, voter registration — must point to Puerto Rico rather than to the US or a foreign country. In the year you move, special rules let you count as a bona-fide resident for part of the year if you were not a PR resident in the prior three years and have no closer connection outside PR during the last 183 days of the year.

The catch: pre-move gains and US-source income

This is where most of the disappointment — and most of the audits — live. §933 and Act 60 only reach income that is Puerto Rico-source and accrues after you become a resident. Two big categories fall outside that.

Built-in gains you carried in. If you owned an appreciated stock, crypto position, or business before moving, the gain that built up before you became a PR resident stays US-source and stays taxable by the IRS. Under the regulations (Treas. Reg. §1.937-2) there is a 10-year look-back: sell within 10 years of moving and the pre-move portion of the gain is generally US-source and hit with normal federal capital-gains tax — up to 20%, plus the 3.8% net investment income tax. Only the appreciation that accrues after the move is sheltered. Act 60 does not launder the gain you already had.

US-source income. Rent from a US property, dividends from US companies, and pay for work physically performed in the mainland are US-source and remain fully taxable. §933 excludes Puerto Rico-source income only. Sourcing is the whole ballgame, and the IRS knows it — which is why crypto traders and fund managers who relabelled US-source income as PR-source are the headline targets.

IRS scrutiny is not theoretical

In January 2021 the IRS added Puerto Rico Act 22/60 to its Large Business & International compliance campaigns. In July 2023 the agency announced it had identified about 100 high-income individuals claiming Puerto Rico benefits without meeting the residence and source rules, and said it expected many of those cases to proceed to criminal investigation. A Government Accountability Office report (GAO-26-107225) found that among 2021 Individual Resident Investor claimants, average federal taxable income fell 39% and average federal tax paid fell 46% after relocating — the kind of data the IRS now uses to target examinations.

The pattern in enforcement actions is consistent: thin documentation of days on the island, residency that does not survive a closer look, and aggressive recharacterization of pre-move or US-source income as Puerto Rico-source. Done properly, Act 60 is legitimate and durable. Done sloppily, it is a fast route to a civil audit or worse.

The ongoing cost of staying compliant

The Individual Resident Investor decree carries real annual obligations, not just a filing. Under current rules a decree holder must make a yearly charitable donation of at least $10,000 to Puerto Rico non-profits, with half directed to organizations working on child poverty; buy a home in Puerto Rico as your primary residence within two years of the decree; file an annual report to the DDEC (the Department of Economic Development and Commerce that administers the program) with the applicable fee; and, of course, actually live there. The Export Services decree carries its own reporting and, for many businesses, a substance requirement to employ people locally.

The 2026 deadline you cannot ignore

The terms are changing. Puerto Rico extended the Individual Resident Investor program's life from 2035 to 2055, but on materially worse terms for anyone who applies later. Under the 2026 amendments, applications filed after 31 December 2026 face a 4% tax on interest, dividends, and post-move capital gains — the 0% rate is gone for new entrants — and a stricter rule that you must not have been a Puerto Rico resident for the six years before relocating. Investors who obtain a decree by the end of 2026 keep the 0% treatment on qualifying income recognized before 1 January 2036.

Who Act 60 actually fits

Act 60 is not a paper play. It rewards people who will really live in Puerto Rico and whose income can genuinely be sourced there: founders selling a company whose value will grow after the move, investors building new positions from the island, and service businesses whose clients are off-island. It is a poor fit for someone sitting on a large built-in gain they want to sell next year, someone whose income is anchored to US real estate or a US employer, or someone unwilling to spend 183 days a year on the island.

If your goal is a genuinely offshore, 0% position outside the US system, compare Puerto Rico against the routes in countries with no capital gains tax, crypto tax-free countries, and territorial-tax countries — but remember those only work for a US citizen after renouncing, which brings the exit tax back into the picture.

How Expectat helps you get there

Puerto Rico is unusually unforgiving of a half-committed move — the tax saving and the audit risk sit on the same set of facts. Here is how we make sure yours holds up:

• We map your situation and your numbers first. We separate the gains you already carry (still taxable by the IRS) from the income Act 60 can actually shelter, model the 0%-versus-4% difference against the 2026 deadline, and tell you honestly whether the move pays for you before you commit to it.
• We build a residency and sourcing position that survives scrutiny. Day-count planning against the 183-day, tax-home and closer-connection tests, clean sourcing of your investment or export-services income to Puerto Rico, and the documentation the IRS campaign looks for — so your decree is an asset, not a liability.
• We execute on the ground with vetted local partners. Puerto Rico tax attorneys and CPAs who file the DDEC decree, handle the annual report and donation, and line up the home purchase and banking — with us coordinating until you are actually resident and compliant.

You do not need to become an expert in §933, §937, and the 10-year look-back to get this right — that is our job. Book a strategy call and we will turn Act 60 into a concrete, personal plan with the numbers and the deadline built in.