What Is Puerto Rico’s Act 60 & Who Qualifies
Act 60-2019, the Tax Incentives Code of Puerto Rico, consolidated earlier Acts like Act 20 & Act 22 to streamline incentives targeting businesses & individuals. (irs.gov) These were formerly known respectively for promoting exports/services (Act 20) and for individual investor relocation (Act 22), now both under the umbrella of Act 60 since January 1, 2020. (irs.gov)
To qualify for the individual investor incentives, digital nomads typically must:
- Become a resident of Puerto Rico—with a bona fide status as covered in the compliance article;
- Make investments or assets locally under conditions defined by Act 60—often requiring some holding period;
- File for and receive a decree under Act 60—which provides tax rates and benefits under the law.
Key Benefits for Digital Nomads Under Act 60
| Benefit | What It Offers |
|---|---|
| Zero tax on most passive income | Dividends, interest, and long-term capital gains earned after becoming a resident may be taxed at near-zero rates under decree benefits. |
| Preferential tax rate for active businesses | If you run export services (e.g., digital marketing, software), under Act 60/Act 20 your company may qualify for reduced tax rates, often 4%. |
| Deferral/non-recognition of gains | With proper structuring, nonresidents relocating and holding assets before residency can defer or reduce U.S. capital gains exposure. |
Interplay with U.S. Filing Obligations
Even with Puerto Rico incentives, U.S. rules like GILTI, FTC (foreign tax credits), and deemed repatriation apply if you’re a U.S. citizen or resident:
- You’ll still need to file Form 1040 if you have U.S.-source income (unless Puerto Rico source income is excluded) and declare your worldwide income to Puerto Rico. Example: U.S. Federal employment income is always taxed by U.S. government even from PR. (irs.gov)
- If your digital nomad business operates through a PR entity, U.S. shareholders may face CFC/GILTI implications. Matching your structure (corporation, LLC, trust) matters. Consult specialized cross-border planning advisors.
Practical Planning Strategies
- Time your move: To qualify as bona fide resident, you’ll need to meet tests. Arriving mid-year may complicate full-year benefits. Ensure you satisfy at least two prior years if required.
- Asset disposition before arrival: Realize gains before becoming resident to benefit under favorable Puerto Rico provisions instead of U.S. capital gains tax rules fully applying.
- Lease or rent locally & hire locally: Helps meet substance for any company you set up under Act 60.
- Obtain a tax decree: Make sure you apply for and receive your decree under Act 60 for certainty of rates and tax liabilities.
- Document U.S. source vs Puerto Rican source income: Maintain contracts, invoices, proofs of where services are rendered.
Example Scenario
David, a U.S. citizen digital nomad, moves to Puerto Rico on January 1, 2026:
- Starts an export consulting business from PR; applies under Act 60 for a decree under the former Act 20 provisions.
- His client contracts are with U.S. and international clients. Under Act 20 (export services), he qualifies for PR tax rate of 4% on service income.
- He later sells stocks he held before residency—arguing gains realized post-residency may benefit under zero-or-low capital gains treatment. He keeps detailed logs to establish pre-residency acquisition.
- He files PR return with worldwide income; files U.S. return only for non-exempt U.S. source income; uses FTC or credit avoidance where applicable.
Risks & Common Pitfalls
- Failing bona fide test: Falling just short of presence or closer connection kills benefits.
- Misreporting source income: Revenue from U.S. clients does not automatically mean U.S source—it depends where work is performed, contracts signed.
- Not obtaining or renewing decree: Decrees typically require annual compliance; missing steps can void benefits.
- Ignoring U.S. anti-abuse rules: Foreign trust rules, beneficial ownership, tax court scrutiny intensify. Always structure relations carefully.
In Summary
Puerto Rico under Act 60 offers powerful incentives for digital nomads—particularly for investors & export service providers. With careful planning around residency timing, asset gains, and compliance, benefits can be substantial. As always, work with cross-border advisors to align both U.S. and Puerto Rico filings to avoid surprises.