For U.S. citizens seeking smart, legal strategies to reduce personal tax burdens, Puerto Rico’s Act 60 continues to stand out as one of the most powerful tools available, especially for Individual Resident Investors. Formerly known as Act 22, this law has helped thousands of Americans legally reduce their tax liability while investing in Puerto Rican financial markets and assets.
At Tax Law and Venture Services, we are regularly asked: What are the tax benefits for Individual Resident Investors under Act 60? In this FAQ-style article, we break down the key components, eligibility criteria, and tax exemptions that come with becoming a bona fide resident of Puerto Rico under Act 60.
What Is Act 60 and Who Qualifies as an Individual Resident Investor?
Act 60, also known as the Puerto Rico Incentives Code, consolidated former Acts 20 and 22 to create a unified tax incentive framework. Act 22 was specifically crafted in 2012 to attract new residents by offering powerful tax benefits on certain types of income, particularly passive income.
To qualify, an individual must:
- Become a bona fide resident of Puerto Rico.
- Have not resided in Puerto Rico in the 6 years prior to establishing residency.
- Spend at least 183 days physically in Puerto Rico each year.
Once these criteria are met, the person is eligible for significant tax exemptions under Act 60.
What Are The Major Tax Benefits for Individual Resident Investors?
1. Tax Exemption on Interest and Dividend Income
The law provides a 100% Puerto Rico income tax exemption on all interest and dividend income earned during the Tax Exemption Period, which ends on December 31, 2035.
Additionally, due to the Section 933 Exclusion of the U.S. Internal Revenue Code, interest and dividends classified as Puerto Rico-source income are not subject to federal income tax for bona fide residents. Investors using local Puerto Rican funds or entities may also access reduced foreign tax rates of 0% or 10% for interest and dividends sourced outside Puerto Rico.
2. Full Exemption on Capital Gains Accrued After Residency
Capital gains earned after becoming a Puerto Rican resident are 100% exempt from Puerto Rico income taxes, provided they are recognized before January 1, 2036.
This makes Puerto Rico an extremely favorable jurisdiction for long-term investors in equities, crypto, and other appreciating assets. Note: Capital gains accrued before residency may still be partially taxed depending on timing and structuring.
3. No Federal Taxes on Puerto Rico-Sourced Income
Once you are considered a bona fide Puerto Rico resident, your Puerto Rico-sourced income is not subject to U.S. federal income tax. This includes investment returns from local businesses, local real estate, and Puerto Rican financial institutions.
However, keep in mind that U.S.-sourced income and foreign income may still be subject to U.S. tax unless properly structured.
4. Limited Benefits for Salaried Employees
It’s important to clarify that salaried income or wages from working remotely are not exempt under Act 60. Although you may not owe U.S. federal tax on this income, you will still be subject to Puerto Rico’s income tax rates, which are comparable to U.S. state rates.
Therefore, this law is designed to benefit investors and business owners—not W-2 employees.
5. Optimized Use of Puerto Rico Investment Vehicles
To further reduce taxes, many investors use Puerto Rico-based investment funds, trusts, or LLCs to structure their holdings. Doing so can result in enhanced tax treatment not only for Puerto Rican income but also for certain foreign investments.
At Tax Law and Venture Services, we help investors properly structure these entities to remain compliant while maximizing tax savings.
6. Expiration Date and Long-Term Planning
All benefits for Individual Resident Investors under Act 60 expire by December 31, 2035. If you’re planning to relocate and benefit from this incentive, the time to act is now.
Establishing your bona fide residency sooner ensures that more of your investment appreciation qualifies for tax exemptions before the window closes.
How to Become a Bona Fide Resident Under Act 60?
To qualify for the tax exemptions under Act 60, the IRS and Puerto Rico government apply several tests:
- Physical Presence Test: Must spend at least 183 days in Puerto Rico per year.
- Tax Home Test: Puerto Rico must be your primary place of business.
- Closer Connection Test: Your financial, family, and personal ties must primarily be in Puerto Rico.
Failing to meet these criteria may disqualify you from the program and subject your income to U.S. federal taxation.
Why Work With Tax Law and Venture Services?
At Tax Law and Venture Services, we specialize in helping U.S. citizens relocate to Puerto Rico to take full advantage of Act 60 tax benefits. We provide:
- Residency planning and compliance assistance
- Investment entity structuring
- Ongoing tax advisory and filing support
Our legal and tax professionals ensure your relocation is both smooth and fully compliant.
Conclusion
The tax incentives available under Act 60 for Individual Resident Investors offer a rare and legal opportunity for U.S. citizens to significantly reduce their tax liability. From total exemptions on dividends and interest to tax-free capital gains, these benefits are available only to those who establish bona fide residency in Puerto Rico and take the proper legal steps.
If you’re considering making the move, the time to act is now, before the December 2035 expiration. Schedule a consultation with Tax Law and Venture Services today to learn how to properly plan your relocation and maximize your tax savings.
FAQs
1. Do U.S. citizens still pay federal taxes after moving to Puerto Rico?
Only on non–Puerto Rico-sourced income. Puerto Rico-source income is exempt if residency is properly established.
2. Can I work remotely and still benefit from Act 60?
Remote salaried employees won’t benefit much, as wages are still taxed under Puerto Rico’s local system.
3. What types of income are completely tax-exempt under Act 60?
Interest, dividends, and post-residency capital gains from Puerto Rican sources are 100% exempt from local tax.