What is Act 60? The Legal Framework for a Tax Paradise
Act 60, also known as the Puerto Rico Incentives Code, is a piece of legislation that consolidates various tax decrees into one powerful package. Its goal is simple: attract investment, businesses, and high-net-worth individuals to the island by offering incredible tax reductions. The two most relevant components for digital entrepreneurs are the Export Services tax incentive (formerly Act 20) and the Individual Resident Investor tax incentive (formerly Act 22).
The Golden Ticket: Who Can Qualify?
Let's be crystal clear: Act 60's primary benefits are designed for US citizens and Green Card holders. This is because the US taxes its citizens based on citizenship, not residency. A US citizen living in Dubai or Portugal still owes taxes to the IRS. By becoming a bona fide resident of Puerto Rico, a US territory, they can legally exchange the federal tax system for Puerto Rico's highly favorable one.
The Rules of the Game: Your Commitment to Puerto Rico
Gaining these benefits isn't as simple as buying a plane ticket. The Puerto Rican government and the IRS require you to prove that the island is your genuine home. Here are the non-negotiable requirements:
The 183-Day Rule: You must be physically present in Puerto Rico for at least 183 days each year. There's no hacking this; it's the cornerstone of your residency.
Property Acquisition: Within two years of gaining your status, you must purchase a residential property in Puerto Rico. This serves as your primary home.
Annual Charitable Donation: You are required to donate at least $10,000 annually to a registered Puerto Rican non-profit organization.
Long-Term Commitment: This is not a one-year tax play. Plan to maintain your residency for a minimum of three to five years. Attempting to leave after a single year could result in you owing full back-taxes.
Professional Help: If you're running a business, hiring a local accountant and lawyer is essential. Budget at least $10,000 annually for professional fees, compliance, and other setup costs on top of your donation.
The Payoff: A Deep Dive into the Tax Advantages
For Your Business (Export Services)
4% Corporate Tax Rate: Eligible service-based businesses that serve clients outside of Puerto Rico pay a flat 4% tax on their net income. This applies whether you make $500,000 or $10 million.
0% Tax on Business Sale: Capital gains from the sale of your Puerto Rican business can be completely tax-free, provided you've followed all the rules. Note: If you move an existing business from the US mainland, the IRS may assess an "exit tax" on its value at the time of the move. Only the growth in value achieved while in Puerto Rico is tax-free.
The "Reasonable Salary" Catch: You must pay yourself a "reasonable salary" from your corporation. This salary is subject to regular Puerto Rican income tax rates, which are similar to US federal rates. Many advisors suggest this salary should be at or near the US Social Security cap (e.g., ~$168,600 for 2024). The 4% rate only applies to the corporate profit _after_ your salary.
For Your Personal Investments (Individual Resident Investor)
0% Capital Gains Tax: This is a massive draw for traders and investors. Any capital gains realized _after_ you become a bona fide resident are 100% tax-free. This includes gains from stocks, bonds, and cryptocurrencies.
The "Mark-to-Market" Rule: When you establish residency, your assets are valued at their current market price. For example, if you bought Bitcoin at $20,000 and it's trading at $70,000 on the day your residency begins, $70,000 becomes your new cost basis. If you later sell it for $100,000, the $30,000 gain is tax-free. The initial $50,000 gain is still subject to US capital gains tax.
0% Tax on Dividends: Currently, dividends from your investments are also tax-free, though there is talk this could change in the future. Historically, those with existing decrees are "grandfathered in" and retain their benefits.
Beyond the 183 Days: How to Prove You're a Bona Fide Resident
The IRS looks for more than just days on the ground. To solidify your status, you must demonstrate deep ties to the island:
Your Only Home: Puerto Rico must be your primary residence. It's highly advisable to sell or rent out other properties you own.
Family Relocation: Your spouse and minor children must move with you.
Local Integration: Get a Puerto Rican driver's license, register to vote there (forfeiting your mainland US vote), and move your valuable personal belongings to the island.
Financial Center: Close your mainland US bank accounts and open accounts with a Puerto Rican bank. Update the address on all your brokerage and credit card accounts.
Community Ties: Join a local gym, club, or social group. Your life needs to be demonstrably centered in Puerto Rico.
The Lifestyle Reality: Is Puerto Rico Your Paradise?
Tax benefits are only one part of the equation. Your quality of life is what truly matters. Here’s an honest look at living in Puerto Rico.
The Downsides (The Bad)
Infrastructure & Pace: Outside of upscale areas like Condado and Dorado, infrastructure can be lacking. Things move at a slower, "island time" pace, which can be frustrating for those used to big-city efficiency.
Limited Options: As an island, variety can be limited—from specific grocery items (get ready for more mangoes, less kale) to niche culinary experiences.
Healthcare: While insurance is significantly cheaper, the healthcare system is slower. For serious or complex conditions, many fly to Miami.
Not a Party Hub: It's more of a relaxed, family-and-beach city than a bustling metropolis like Miami or New York.
The Upsides (The Good)
Nature & Weather: The weather is fantastic year-round. You'll have access to world-class beaches, surfing, hiking, and waterfalls.
Safety & Community: In recommended areas like Ocean Park, Condado, and Dorado, it is very safe, often more so than major US cities.
surprisingly Good Internet: Despite its reputation, you can get high-speed fiber internet, making it perfectly viable for any online business.
Affordable Luxury: Services like massages, personal training, and high-end dining are significantly more affordable than on the US mainland.
Connectivity: San Juan has direct flights to major hubs across the US, Canada, Europe, and Latin America.
Is the Move Financially Worth It?
This isn't a strategy for someone earning $100,000 a year. The compliance costs (minimum $20,000+/year) and lifestyle adjustments are significant. Act 60 makes sense if:
Your Income is High: You are earning multiple six figures or millions, where the tax savings dramatically outweigh the costs and hassle.
You Anticipate Huge Capital Gains: You have a business you plan to sell or an investment portfolio (especially crypto) that you expect to appreciate significantly. Sheltering a potential $5 million gain from taxes is life-changing.
Your Lifestyle Fits: You are genuinely excited by a slower, beach-focused lifestyle for at least 3-5 years.
Essentially, move to Puerto Rico if the tax savings will sustainably and fundamentally change your life and net worth.
