Puerto Rico enacted significant updates to its tax incentive framework through House Bill 505, now Act 38-2026, which amends the Individual Investor provisions under Act 60-2019. These changes introduce new and clearer eligibility requirements, defined tax rates, and additional compliance obligations particularly for future applicants.
While the law tightens certain requirements, it also reinforces the long-term stability of Puerto Rico’s investor incentive program. Understanding how these changes apply based on timing and residency status is critical for both current and prospective investors.
Overview of Act 38-2026 (Formerly House Bill 505)
Act 38-2026 modifies the Individual Investor program under Act 60-2019 by:
- Introducing new eligibility requirements for future applicants
- Establishing defined tax rates on investment income and capital gains
- Requiring acquisition of a principal residence in Puerto Rico
- Extending the potential duration of tax benefits
Importantly, the law distinguishes between existing decree holders and future applicants, creating a tiered system based on application date.
Key Changes Under Act 38-2026
1. Grandfathering of Existing Benefits
Current beneficiaries under Act 22 and Act 60 are largely protected:
- Existing grants remain fully valid with no reduction in benefits
- Benefits continue through 2035 under current terms
- Investors may elect to convert their grants to extend benefits through 2055, subject to the new rules
This preserves certainty for current investors while offering a pathway to extended benefits.
2. New Eligibility Requirements (Effective for Post-2026 Applicants)
For individuals applying on or after January 1, 2027:
- Must demonstrate non-residency in Puerto Rico for at least six (6) years prior to relocation
- Must establish bona fide residency under stricter standards
This requirement significantly narrows eligibility and reinforces the program’s focus on new inbound investors.
3. Defined Tax Rates on Investment Income
Act 38-2026 replaces prior broad exemptions with structured preferential tax rates:
- 4% tax on interest and dividend income earned after becoming a Puerto Rico resident
- 4% tax on capital gains accrued after establishing residency
- 5% tax on capital gains from pre-residency assets, if realized after 10 years of residency
4. Mandatory Principal Residence Requirement
New grantees must:
- Acquire a primary residence in Puerto Rico within two (2) years of grant approval
- Hold title individually, jointly with a spouse, or through a trust
This requirement formalizes the expectation of genuine relocation and economic presence on the island.
5. Program Extension and Long-Term Planning Opportunities
The law allows for:
- Extension of benefits through 2055 upon conversion or for qualifying new applicants
This significantly enhances the long-term planning value of Puerto Rico’s tax incentives for investors willing to comply with the updated framework.
Impact on Act 60 Individual Investors
For Existing Investors
- No immediate changes to benefits or tax treatment
- Opportunity to extend benefits through conversion
For New Investors
- More structured entry requirements
- Defined tax rates instead of full exemptions
- Greater emphasis on real relocation and investment alignment
Strategic Planning Opportunities
Despite stricter entry requirements, Puerto Rico remains one of the most attractive jurisdictions for U.S. investors seeking tax efficiency.
Opportunities include:
- Structuring investment portfolios to align with the new tax rate framework
- Evaluating timing of relocation relative to eligibility requirements
- Leveraging the extended benefit period through 2055
- Integrating individual investor incentives with other Act 60 programs
A coordinated legal and tax strategy is key to maximizing benefits under the new law.
Conclusion
Act 38-2026 marks a significant evolution in Puerto Rico’s tax incentive regime for individual investors. By introducing more defined eligibility rules, structured tax rates, and long-term program stability, the law strengthens the integrity and sustainability of the system.
For existing investors, the changes offer continuity with optional pathways for extension. For new investors, the framework is more rigorous but still highly competitive within a U.S. context.
Careful planning and compliance will be essential to fully benefit from Puerto Rico’s updated incentive landscape.
FAQs
What is Act 38-2026 in Puerto Rico?
Act 38-2026 is the law enacted from House Bill 505 that amends the Individual Investor provisions of Act 60-2019, introducing new eligibility rules, tax rates, and compliance requirements.
Does Act 38-2026 eliminate Act 60 benefits?
No. Existing benefits remain in place for current decree holders, and incentives continue to be available to new applicants under a revised framework.
What are the new tax rates for individual investors?
The law establishes:
- 4% on interest and dividends
- 4% on post-residency capital gains
- 5% on certain pre-residency capital gains
What is the new residency requirement?
New applicants must demonstrate that they were not Puerto Rico residents for at least six years prior to relocating.
Is purchasing property required?
Yes, acquiring a principal residence is still required, and the recent amendment clarifies that ownership must be properly documented, including when held individually, jointly with a spouse, or through a qualifying trust.