Digital Nomad
Digital Nomad in Puerto Rico: Leveraging Act 60 and U.S. Tax Rules
Act 60 offers substantial tax incentives for individuals relocating to Puerto Rico — but understanding U.S. territory tax rules is key to maximizing benefits.
By NomadicTax Research Team • 5-8 min read • August 23, 2026
## What Is Puerto Rico Act 60?
Formerly Acts 20 and 22, **Act 60, the Incentives Code of Puerto Rico**, was designed to attract investors, service businesses, and high-net-worth individuals. Key benefits include:
- **100% tax exemption on dividends**, interest, and capital gains from Puerto Rico-source investments (for certain resident individuals).
- Reduced income tax rates for eligible service-based businesses.
- A full exemption for passive income, subject to eligibility and application requirements.
## Interaction with U.S. Federal Tax for U.S. Citizens or Green Card Holders
Even as Act 60 provides local tax relief, U.S. citizens or permanent residents must still obey federal rules:
- Bona fide residence tests under IRC § 937 matter: only certain Puerto Rico-source income may be excluded from the U.S. federal return.([irs.gov](https://www.irs.gov/publications/p570?utm_source=openai))
- Passive U.S.-source income (e.g. dividends from U.S. stocks) remains subject to U.S. federal tax.
- Filing requirements: must file both Puerto Rico return (worldwide income if bona fide resident) and U.S. Form 1040 (excluding PR-source income if eligible).
- Must file **Form 8898** if becoming bona fide resident and worldwide income exceeds US$75,000.([irs.gov](https://www.irs.gov/instructions/i8898?utm_source=openai))
## How to Become Eligible Under Act 60
- Move to Puerto Rico and satisfy bona fide residence (183 days, tax home, closer connection).
- Apply for **residential decree** with Puerto Rico authorities under Act 60.
- Maintain physical presence — often at least 183 days a year.
- Ensure business or investment income qualifies under rules (some sectors excluded).
## Example: Remote Worker & Capital Gains
Luis, a remote software engineer and U.S. citizen, moves to Ponce, Puerto Rico, in 2025. He applies and gets approved under Act 60.
- He earns US$100,000 from U.S. clients (service income) and US$30,000 from capital gains on Puerto Rico-source real estate investments.
- Under Act 60:
- Puerto Rico taxes service-income under reduced rates; Puerto Rico-source capital gains may be exempt.
- U.S. federal return excludes the Puerto Rico-source capital gains and some interest/dividends from PR investments if bona fide resident.
- His U.S. client income (U.S. source) still taxed federally, though he may have PR credit for U.S. taxes paid.
## Pitfalls & Monitoring
- IRS scrutiny: ensure eligibility, declarations, and documentation robust.
- Temporary residence: spending too many days outside PR may break bona fide status.
- Business source of income: ensure business is structured to provide “services from Puerto Rico” rather than merely delivered there.
- Stay updated: tax relief deadlines effect, e.g. disaster relief for territories that might affect Puerto Rico or nearby islands.
## Final Notes
Act 60 offers foundational tax incentives, but U.S. federal jurisdiction remains impactful. Strategic planning, clear documentation, and strong structure ensure you benefit fully while staying compliant.