Puerto Rico has become one of the most talked-about destinations for high-income individuals and business owners seeking meaningful tax relief. At the center of this conversation is Act 60 4 percent tax rate — a fixed corporate tax rate available to qualifying businesses that relocate their operations to the island. For entrepreneurs and investors who previously faced substantially higher federal and state tax burdens, this rate represents a dramatic shift in their financial outlook.
In This Article
- What Does Act 60 Actually Cover?
- Who Qualifies for the Act 60 Corporate Tax Rate?
- How Does This Interact With Capital Gains and Dividend Income?
- What Are the Residency Requirements Under Act 60?
- Frequently Asked Questions
- Is the Act 60 corporate tax rate available to remote workers?
- Does Act 60 eliminate federal income tax obligations?
- How long does the Act 60 decree last?
- Can a luxury real estate purchase factor into my Act 60 strategy?
What Does Act 60 Actually Cover?
Act 60, formally known as the Puerto Rico Incentives Code, consolidates several earlier tax incentive programs under a single legislative framework. It offers qualifying residents and businesses fixed tax rates on certain categories of income — including corporate income, dividends, and capital gains — provided specific conditions are met.
The corporate tax benefit applies to Export Services businesses, which include industries such as consulting, technology, finance, marketing, and other professional services delivered to clients outside of Puerto Rico. When a qualifying business earns income from those export services, that income is taxed at the fixed rate rather than at standard federal corporate rates.
Who Qualifies for the Act 60 Corporate Tax Rate?
Not every business automatically qualifies. Applicants must submit a formal decree through the Puerto Rico Department of Economic Development and Commerce (DDEC). Once approved, the decree locks in the tax rate for a defined period, providing long-term financial certainty.
Key eligibility considerations include:
- Type of business: The company must provide eligible export services to clients or customers outside of Puerto Rico.
- Residency requirement: Business owners are generally expected to establish bona fide residency in Puerto Rico.
- Annual reporting: Decree holders must file annual reports to maintain their incentive status.
- Community contribution: Act 60 requires a modest annual charitable donation to a Puerto Rican nonprofit organization.
How Does This Interact With Capital Gains and Dividend Income?
Act 60 also contains provisions for individual investors — referred to as the Individual Investors Act under Chapter 2 of Act 60. Individuals who become bona fide Puerto Rico residents may qualify for:
- Zero tax on qualifying long-term capital gains accrued after establishing residency
- Reduced tax on dividends and interest income
These benefits are especially attractive to investors managing portfolios, holding appreciated assets, or planning significant liquidity events.
What Are the Residency Requirements Under Act 60?
The IRS and Puerto Rico tax authorities both scrutinize bona fide residency claims closely. To qualify, an individual must generally:
- Spend the majority of the year in Puerto Rico
- Establish Puerto Rico as their primary domicile
- Sever or significantly reduce ties to their previous state of residence
- Pass the presence, closer connection, and tax home tests
Relocating casually will not satisfy these requirements. The process demands genuine commitment to living and working in Puerto Rico.
Frequently Asked Questions
Is the Act 60 corporate tax rate available to remote workers?
Remote workers who operate freelance businesses or provide professional services to clients abroad may qualify under the Export Services chapter of Act 60, provided they establish residency and obtain an approved decree.
Does Act 60 eliminate federal income tax obligations?
No. Puerto Rico residents are still subject to federal taxes on income earned from U.S. sources. However, income earned from Puerto Rico sources under an approved decree may be exempt from federal taxation, as Puerto Rico is a U.S. territory with a separate tax system.
How long does the Act 60 decree last?
Approved decrees typically run for a fixed term of years, providing the decree holder with a guaranteed tax rate for the duration of that period, subject to continued compliance.
Can a luxury real estate purchase factor into my Act 60 strategy?
Establishing a primary residence is a core component of qualifying for Act 60 benefits. Purchasing a home in Puerto Rico signals genuine intent to relocate and supports the bona fide residency tests required by both Puerto Rico and federal tax authorities.
Navigating the full scope of Act 60 requires careful legal and financial guidance. For those also exploring where to establish their Puerto Rico home base, working with an experienced local real estate professional ensures that your property search aligns with your relocation and tax planning goals.
What You Need to Know
- Puerto Rico offers a fixed corporate tax rate of 4 percent under Act 60 for qualifying businesses relocating to the island.
- Act 60 consolidates multiple earlier tax incentive programs and provides fixed tax rates on corporate income, dividends, and capital gains for eligible residents and businesses.
- To qualify for the Act 60 corporate tax rate, businesses must provide export services to clients outside of Puerto Rico and establish bona fide residency in the territory.
- Individuals who establish residency in Puerto Rico under Act 60 can benefit from zero tax on long-term capital gains and reduced tax on dividends and interest income.
- Bona fide residency claims are closely scrutinized and require individuals to spend the majority of the year in Puerto Rico and establish it as their primary domicile.
- Approved Act 60 decrees provide long-term tax rate guarantees, but decree holders must maintain compliance and file annual reports to keep their incentive status.
