Puerto Rico Act 60: Tax Incentives for Businesses and Investors, Explained

The Puerto Rico Incentives Code — Act 60-2019 — is why service businesses and investors keep relocating to the island: a flat 4% income tax rate on eligible export services, generous exemptions on dividends, and a decree that operates as a contract with the government. Here is what the law actually covers, what changed in 2026, and what setting up a Puerto Rico entity involves.

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What Act 60 is

Act 60-2019 was signed on July 1, 2019 and took effect January 1, 2020, consolidating dozens of Puerto Rico incentive statutes — most famously Act 20 of 2012 (export services) and Act 22 of 2012 (individual investors) — into a single Incentives Code. Since January 1, 2020, all new incentive applications are filed under Act 60.

The program is administered by Puerto Rico's Department of Economic Development and Commerce (DDEC). A business or individual applies through the government's Single Business Portal for a tax exemption decree; once granted, the decree operates as a contract between the grantee and the Government of Puerto Rico — it cannot be modified unilaterally, and later amendments to Act 60 generally do not reach decrees already issued. That contract structure is why existing decree holders kept their terms when the law changed in 2026.

Because Puerto Rico is a U.S. territory with its own tax system, the incentives interact with federal law in a way no state can match: under Section 933 of the U.S. Internal Revenue Code, Puerto Rico-source income of a bona fide Puerto Rico resident is generally excluded from U.S. federal income tax. U.S.-source income remains federally taxable, and the residency tests are strict — more on both below.

The export services decree — the 4% rate

The best-known business incentive is the export services chapter (the successor to Act 20). A business that operates from Puerto Rico and sells services to clients outside Puerto Rico can apply for a decree that generally provides:

a flat 4% Puerto Rico income tax rate on eligible export services income — versus regular Puerto Rico corporate rates that can reach 37.5%;
a 100% exemption on dividends or profit distributions paid from that decree income to Puerto Rico resident owners;
75% exemption from property taxes on property used in the exempt operation and a 50% exemption from municipal license taxes;
a 15-year decree term, renewable for another 15 years while the business stays in compliance.

Practitioner guidance also describes a reduced 2% rate for the first five years for smaller operations — generally those with $3 million or less in annual business volume.

What counts as an export service

The eligible list is broad and commonly includes management consulting, software development and technology services, advertising and marketing, financial and investment services, research and development, legal and accounting services, engineering and architecture, call centers, telemedicine, education and training, and creative services — plus other services DDEC approves. Two conditions do the real work: the services are performed in Puerto Rico, and they are performed for clients located outside Puerto Rico with no nexus to a Puerto Rico trade or business of that client.

Substance requirements

A decree is not a mailbox arrangement. The business generally needs a bona fide office and real operations on the island, and once annual business volume exceeds $3 million, the law requires at least one full-time employee who is a Puerto Rico resident. The decree also carries annual reporting obligations with the DDEC's Office of Incentives (government fees apply).

Deeper dive: how the Act 60 export services decree works.

The resident individual investor decree — and what changed in 2026

The other headline chapter (the successor to Act 22) covers individuals who relocate and become bona fide residents of Puerto Rico. Historically it provided a 0% Puerto Rico tax rate on Puerto Rico-source interest and dividends and on capital gains that accrue after the move.

Act 38-2026 changed this program. Signed by Governor Jenniffer González-Colón on March 10, 2026, the amendment extended the program's sunset from December 31, 2035 to December 31, 2055 — and reset the deal for future applicants. What matters is the date the decree application is filed:

Applications filed on or before December 31, 2026 — the prior rules apply: interest, dividends, and post-residency capital gains generally remain exempt (0%) through December 31, 2035, with pre-residency appreciation taxed at preferential rates under long-standing rules.
Applications filed on or after January 1, 2027 — the 0% rate is gone. New decree holders generally pay a 4% Puerto Rico tax on interest, dividends, and post-residency capital gains (and 5% on certain pre-residency long-term gains), with benefits running through December 31, 2055. New applicants must also show they were not Puerto Rico residents during the six years before relocating, and the required primary residence must be owned directly or through a trust.

Existing decree holders keep the terms of their decrees — a decree is a contract — and may optionally modify them to adopt the new regime and its longer horizon.

Individual investor decrees also carry ongoing obligations, commonly including an annual charitable contribution (currently $10,000, with half directed to government-listed nonprofits working to eradicate child poverty in Puerto Rico), the purchase of a primary residence on the island within two years, and an annual report filed with the DDEC (a filing fee applies).

Full rundown of the amendment: what Act 38-2026 changed.

Bona fide residency — the federal side

The individual benefits only work for a bona fide resident of Puerto Rico as the IRS defines it (IRC §937 and IRS Publication 570). Three tests must all be met: a presence test (generally at least 183 days physically in Puerto Rico during the tax year), a tax home test (no tax home outside Puerto Rico), and a closer connection test (no closer connection to the U.S. mainland or a foreign country than to Puerto Rico). Failing any one test for a year generally breaks residency for that year — and appreciation that accrued before the move generally remains subject to U.S. federal tax when realized. These rules are unforgiving in practice, which is exactly why decree and residency planning belongs with a qualified Puerto Rico tax professional.

The entity underneath the decree

An Act 60 decree is issued to an operating business, so the corporate layer comes first. Puerto Rico corporations and LLCs are organized with the Puerto Rico Department of State under the General Corporations Act (Act 164-2009), and mainland entities that will operate on the island register there as foreign entities — the same concept as foreign qualification in a state.

Resident agent. Every registered entity designates a resident agent — an individual residing in Puerto Rico or a company authorized to do business there — with a physical street address on the island, available during business hours to receive legal documents.
Annual compliance. Corporations file an annual report with the Department of State on or before April 15 each year; LLCs instead pay an annual fee ($150, per the Department of State) by the same date. The Act 60 decree adds its own annual report to the DDEC on top of this.

This is the part InCorp handles every day: we form Puerto Rico LLCs and corporations, register mainland entities to do business on the island, and provide registered agent service in Puerto Rico from a local office — the same service we provide in all 50 states, D.C., and the U.S. Virgin Islands. Decree applications and tax opinions stay with your Puerto Rico tax counsel; the filings and the agent are ours.

Puerto Rico Act 60 FAQs

What is Puerto Rico Act 60?

Act 60-2019, the Puerto Rico Incentives Code, is the law that consolidated Puerto Rico’s tax incentive programs — including the former Act 20 (export services) and Act 22 (individual investors) — into a single code, effective January 1, 2020. Businesses and individuals apply to the Department of Economic Development and Commerce (DDEC) for a tax exemption decree that locks in the incentive terms.

What is the Act 60 export services tax rate?

Businesses holding an export services decree generally pay a flat 4% Puerto Rico income tax on eligible export services income, with a 100% exemption on dividends paid from that income to Puerto Rico resident owners. Practitioner guidance also describes a reduced 2% rate during the first five years for smaller operations. The 2026 amendment (Act 38-2026) did not change the export services program.

What did Act 38-2026 change?

Act 38-2026, signed March 10, 2026, amended the Resident Individual Investor program: it extended the program from 2035 to 2055, and for decree applications filed on or after January 1, 2027 it replaces the 0% rate with a 4% Puerto Rico tax on interest, dividends, and post-residency capital gains, adds a six-year prior non-residency requirement, and requires the primary residence to be owned directly or through a trust. Applications filed on or before December 31, 2026 remain under the prior rules, and existing decrees are honored as contracts.

Does an Act 60 business need a registered agent in Puerto Rico?

Yes. Entities registered with the Puerto Rico Department of State — domestic or foreign — must designate a resident agent with a physical street address in Puerto Rico who is available during regular business hours. The Act 60 decree is separate from, and in addition to, the entity’s registration with the Department of State.

Do I have to live in Puerto Rico to get Act 60 benefits?

It depends on the incentive. The individual investor benefits require becoming a bona fide resident of Puerto Rico under the IRS three-part test (presence, tax home, and closer connection). An export services business must operate from Puerto Rico — services are performed in Puerto Rico for clients outside Puerto Rico — and owners commonly relocate so that distributions receive resident treatment. A qualified Puerto Rico tax attorney or CPA can evaluate a specific situation.

How does a business apply for an Act 60 decree?

Decree applications are filed online with the DDEC through the Single Business Portal. Once granted, the decree operates as a contract between the grantee and the Government of Puerto Rico, and decree holders file annual reports with the DDEC Office of Incentives to keep it in good standing. Most businesses form or register their Puerto Rico entity first, since the decree is issued to an operating business.

Sources: Act 60-2019 (Puerto Rico Incentives Code) and Act 38-2026; Puerto Rico Department of Economic Development and Commerce (DDEC); Puerto Rico Department of State; IRS Publication 570. Current as of July 2026. Puerto Rico incentive law changes; verify current terms with a qualified Puerto Rico tax attorney or CPA before acting.

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