Summary of What This Blog Covers
- Act 60 offers big tax breaks, including 0% capital gains and a 4% corporate tax rate for qualifying Puerto Rico residents.
- Strict residency and compliance rules apply, including time spent on the island and closer connection tests.
- The IRS is watching closely, so documentation and legal structure matter.
- It’s more than just tax savings. Lifestyle fit and long-term planning are key.
Welcome to the Strategic Side of Taxes
When most people hear the word “taxes,” they think of deadlines, forms, and the inevitable sigh of paperwork piling up. But what if we told you that taxes—when handled strategically—can actually become one of your greatest financial tools? At Insogna, we’re here to reframe the way you think about tax planning. With the right guidance, structure, and insight, navigating taxes can become an empowering experience that unlocks growth, freedom, and long-term savings.
One of the most compelling opportunities we help clients evaluate today is Puerto Rico’s Act 60, a tax incentive program that has made headlines for its potential to dramatically reduce tax liabilities for qualifying individuals and businesses. But the story doesn’t end with tax savings and it certainly doesn’t begin with a simple yes or no.
In this comprehensive guide, we’re going to explore how Act 60 works, who it benefits, what it truly takes to qualify, and whether a move to Puerto Rico aligns with your financial and personal goals. This post is designed for entrepreneurs, investors, and small business owners who want clear answers and elevated support not sales pitches or surface-level advice.
What Is Act 60?
Enacted in 2019, Act 60, also known as the Puerto Rico Incentives Code, is a legal framework created by the government of Puerto Rico to attract new residents and stimulate economic development. It consolidated and modernized several previous tax incentives, most notably Act 20 (Export Services Act) and Act 22 (Individual Investors Act).
What makes Act 60 especially appealing to U.S. citizens is this: Puerto Rico is a U.S. territory, which means its residents are subject to a different tax system. U.S. citizens who establish bona fide residency in Puerto Rico may be eligible to exclude Puerto Rico-sourced income from their U.S. federal tax return legally.
Act 60 offers two major tax incentives:
- Export Services Incentive – Applies to businesses operating in Puerto Rico that export services to clients outside the island.
- Individual Investor Incentive – Applies to individuals who move their primary residence to Puerto Rico and meet specific criteria.
Let’s break these down.
The Export Services Incentive
Under the Export Services incentive (originally Act 20), qualifying businesses can enjoy:
- A 4% fixed corporate income tax rate
- 100% exemption on dividends paid from the Puerto Rico entity to resident shareholders
- No federal income tax on Puerto Rico-sourced income for bona fide residents
To qualify, the business must:
- Provide services to clients located outside Puerto Rico
- Establish a Puerto Rico-based legal entity (typically an LLC or corporation)
- Maintain a physical presence on the island, which includes leasing or owning commercial office space
- Hire at least one full-time employee in Puerto Rico once certain revenue thresholds are reached
Qualifying services include:
- Consulting
- Legal, accounting, and financial services
- Marketing and public relations
- Research and development
- Ecommerce and software development
- Engineering, architecture, and design
- Investment advisory and asset management
If you’re a business owner currently operating remotely and servicing mainland U.S. clients, this incentive could cut your corporate tax rate from 21% to 4%, legally without leaving the U.S. legal framework.
The Individual Investor Incentive
The second component of Act 60, inherited from Act 22, focuses on individuals. If you become a bona fide resident of Puerto Rico, and meet strict compliance criteria, you may be eligible for:
- 0% tax on long-term capital gains accrued after becoming a resident
- 0% tax on Puerto Rico-sourced dividend and interest income
- No federal income tax on Puerto Rico-source income
This incentive is especially attractive to:
- Investors who plan to realize significant long-term capital gains
- Crypto investors and traders with unrealized growth
- Entrepreneurs preparing to exit or sell a business
- Real estate investors with appreciating assets
But—and this is critical—to qualify for these benefits, you must do more than spend some time on the island.
What Does “Bona Fide Residency” Really Mean?
To become a bona fide resident of Puerto Rico under IRS guidelines, you must meet all three of the following tests:
1. Presence Test
You must be physically present in Puerto Rico for at least 183 days during the calendar year. The IRS may also count certain travel days, but this is a threshold that must be carefully documented.
2. Tax Home Test
Your primary place of business, employment, or source of income must be in Puerto Rico. This is your “tax home,” and it cannot be in the mainland U.S.
3. Closer Connection Test
You must have stronger personal and professional ties to Puerto Rico than to any other location. This includes where you:
- Maintain your primary residence
- Register your vehicles
- Vote
- Hold banking and financial accounts
- Send your children to school
Passing the presence test is only one-third of the equation. The IRS has aggressively audited and challenged residency claims where individuals attempted to maintain a second life in the mainland U.S. while claiming Puerto Rico residency.
Required Commitments and Contributions
Act 60 isn’t simply a tax election, iit is a legal agreement with the Puerto Rican government. To activate your benefits, you must:
- Apply for a tax exemption decree through Puerto Rico’s Department of Economic Development and Commerce
- Pay a $5,000 application fee
- Donate $10,000 per year to qualifying Puerto Rico-based charities
- Purchase residential property in Puerto Rico within two years of obtaining your decree
Failing to meet these requirements will result in revocation of your tax benefits and may trigger IRS audits, penalties, and back taxes. This is where working with an experienced tax advisor near you, such as Insogna, becomes not just helpful but essential.
Strategic Considerations for Capital Gains
Let’s walk through a simplified example:
- Suppose you purchased stock in 2016 for $200,000, and by 2025 it has appreciated to $2,000,000.
- If you realize those gains while living in the mainland U.S., you will likely pay long-term capital gains tax—up to 23.8% federally, plus applicable state tax.
- If you establish bona fide Puerto Rico residency before realizing those gains, and the appreciation occurs after residency, those gains may qualify for 0% tax.
However, gains accrued before becoming a resident remain taxable in the U.S., unless structured properly using specific holding period calculations. Our firm works closely with clients to review the origin of their assets, timing strategies, and multi-year holding considerations to ensure legal compliance and maximum tax efficiency.
The Compliance Challenge (And Opportunity)
It’s important to note that the IRS has identified Act 60 as an area of “increased enforcement priority.” Individuals who incorrectly claim benefits or fail to meet residency requirements may face:
- Full back tax assessments
- Accuracy penalties
- Interest charges
- Criminal investigations in extreme cases
We’ve helped multiple clients untangle poor advice received from offshore advisors and YouTube “gurus.” The key to success is precision and documentation. That’s where our role as your certified public accountant in Austin, Texas and your strategic partner is most valuable.
Beyond Taxes: What It’s Like to Live in Puerto Rico
Act 60 should never be the only reason to move to Puerto Rico. Taxes are a benefit not a lifestyle.
Before making the decision, ask yourself:
- Are you open to a slower pace of life?
- Are you comfortable with infrastructure challenges (power outages, healthcare limitations)?
- Are you willing to integrate into the local community?
- Are you prepared to fully transition your life, not just your filing address?
Puerto Rico offers beautiful weather, rich culture, and a lower cost of living in many areas but it also demands flexibility and patience.
Our clients who succeed under Act 60 tend to view it as a long-term lifestyle decision supported by tax benefits not a short-term tax dodge.
How Insogna Supports Your Act 60 Journey
Insogna isn’t a traditional tax office. We are a concierge-level financial partner that specializes in helping ambitious entrepreneurs and investors navigate the most advanced areas of tax strategy.
We help with:
- Feasibility assessments to determine whether Act 60 aligns with your goals
- Full-service entity setup in Puerto Rico
- Coordination with local attorneys and banks
- Multi-year tax projections
- FBAR filing and foreign financial reporting
- Ongoing compliance support, tax prep, and representation
Our clients benefit from personalized communication, proactive insights, and a trusted relationship not just once a year, but all year long.
Final Thoughts: Is Act 60 Right for You?
Act 60 is not a loophole. It’s a robust, legally defined opportunity for those willing to meet the requirements and make a real commitment.
When approached thoughtfully and ethically, it can be one of the most rewarding decisions you’ll ever make financially and personally.
But like all great opportunities, it requires diligence, expertise, and long-term thinking.
If you’re ready to explore whether Puerto Rico is the right financial move for you, let’s talk. Schedule a confidential consultation with Insogna your expert Austin tax accountant, Act 60 advisor, and strategic financial partner.