Digital Nomad
Digital Nomads in Puerto Rico: Tax Strategy Under Acts 20 & 22 and U.S. Code § 933
Puerto Rico’s Acts 20 & 22 still provide powerful tax advantages for remote workers and investors—but only if you move, structure income, and maintain bona fide residence carefully to satisfy both local and U.S. IRS rules.
By NomadicTax Research Team • 5-8 min read • September 11, 2026
## Overview of Acts 20 & 22 and § 933
- **Act 22** offers **exemption from Puerto Rican income tax** on certain **interest and dividends sourced in Puerto Rico** for individuals who establish new residence. Acts 20–22 also offer reduced rates or exemptions for certain business income for those relocating to Puerto Rico. § 933 under U.S. law allows bona fide residents of Puerto Rico to **exclude Puerto Rico-source income** from their U.S. federal income tax return. ([irs.gov](https://www.irs.gov/pub/irs-pgld/introduction-to-puerto-rico-acts-20-and-22.pdf?utm_source=openai))
## Eligibility Criteria
- Must become a bona fide resident of Puerto Rico under IRC § 937: presence, tax home, and closer connection tests.
- Income must be **Puerto Rico–sourced** to qualify for exclusion under § 933. U.S.-sourced income is taxed by the U.S. even for Puerto Rico residents.
- New residents under Acts should obtain and maintain local residency status and comply with local tax registration requirements.
## Structuring Income & Deductions for Max Benefit
- Shift passive income (interest, dividends) to sources within Puerto Rico whenever possible.
- For active business activities, examine whether income qualifies under Acts 20 & 22 reduced tax rates—especially service exports.
- Be cautious: deductions on U.S. returns may be limited or disallowed if they relate to excluded Puerto Rico-source income. Document everything.
## Example Case
Suppose John, a remote software consultant from mainland U.S., moves to Puerto Rico, becomes bona fide resident. He generates income from clients in the U.S. and also invests in Puerto Rican municipal bonds and local dividend-paying stocks. Under § 933, he excludes the Puerto Rico-source interest & dividends on his U.S. return. But his consulting fees (U.S.-sourced) remain taxable in the U.S. Locally, Acts 20 & 22 may allow favorable rates or exemptions depending on business structure. Proper separation of income streams and rigorous recordkeeping are essential.
## Practical Advice
- Before relocating, plan move dates to satisfy bona fide residence rules. Consider tax home implications (where your main income-generating work is located).
- Use separate bank accounts for Puerto Rico vs U.S. sourced income.
- Maintain documentation like lease, local registration, local community ties, utility bills.
- Work with local tax advisors and IRS agents familiar with Acts 20 & 22, as misapplication of exemptions or improperly classifying income source can lead to compliance issues or audits.
For digital nomads, Puerto Rico offers unique opportunities—but only those who follow both Puerto Rican law and U.S. Code can capture benefits securely.