Puerto Rico Act 60: real incentives, brutal residency test
The honest short answer
Act 60 offers genuinely aggressive incentives — a roughly 4% corporate tax rate for an exporting services business and 0% Puerto Rico tax on capital gains accrued after becoming a bona fide resident. The pitch you'll hear online, though, compresses "move to Puerto Rico and stop paying US capital gains tax on everything" — which is not how it works. You have to become a genuine bona fide resident under a strict multi-part test (the 183-day presence test is the easy part; the "closer connection" and "tax home" tests trip up far more people), your existing pre-move gains are not covered, and the income has to be properly sourced to the island. This is a real relocation with real consequences, not a paperwork trick you do from your current home.
What's legitimately true in the pitch
- The tax rates are real and aggressive for a bona fide resident running a qualifying exporting business or holding investment assets.
- IRC §933 genuinely excludes Puerto Rico-source income from federal tax for bona fide residents — this isn't a Puerto Rico-only local benefit; it's baked into the federal code.
- Businesses that export services off the island can obtain a decree under Act 60 locking in the reduced corporate rate for a defined term.
Where the pitches mislead
- "0% capital gains on everything" is false. Only appreciation that accrues after you become a bona fide resident gets the 0% treatment. Gain built up before your move is still taxed under the normal federal rules when you sell.
- The residency test is the whole ballgame, and it's strict. Passing the 183-day presence test alone is not enough — you also need a closer connection to Puerto Rico than to the mainland and no tax home elsewhere, tested in real, documentable ways: where your family lives, where you bank, where you're registered to vote, where your doctor is.
- Sourcing your business income to Puerto Rico is not automatic. If the actual work, clients, or economic activity is on the mainland, the IRS can and does challenge the sourcing, regardless of where your LLC is registered.
- The decree has real annual compliance requirements — donations, filings, and reporting — that some pitches treat as a footnote.
The math the pitch never runs
The IRS has run active enforcement campaigns specifically targeting Act 60 claimants who kept a mainland life — a spouse and kids who never moved, a mainland home that stayed the real center of life, income sourced to Puerto Rico on paper while the actual work happened elsewhere. "I have an address in San Juan" is not the same as bona fide residency, and the gap between those two things is exactly where enforcement has focused. Anyone considering this needs to honestly assess whether they and their family can and will actually relocate their center of life, not just their mailing address.
Questions to ask before you move
- Am I prepared to actually relocate my family, home, and daily life — not just register an address?
- How much of my income is genuinely earned through activity that happens on the island versus sourced there on paper?
- What is my basis and unrealized gain in assets before the move, since that portion doesn't get the 0% treatment?
- Do I understand the decree's ongoing filing, donation, and compliance obligations?
Seriously considering a Puerto Rico move?
We'll walk through the bona fide residency test against your actual life and business before you sign a lease in San Juan.
Book a free consultationThis review discusses a category of tax planning and marketing generally, not any specific company, promoter, or offering, and is not legal or tax advice for any particular situation.