Puerto Rico incentives: Acts 20, 22 and 60 explained

Which program fits your income?

For mainland U.S. movers, the useful starting question is what produces your income. Running a consulting business, receiving a salary and selling investments are different activities. Puerto Rico’s Act 60 contains several incentive programs; one approval does not cover them all.

Then make three separate assessments: federal bona fide residence, the federal source of each income item, and the Puerto Rico decree. An Act 60 decree is a tax-incentive approval, not an immigration permission or an IRS residence ruling. This guide focuses on the two programs most often compared by mainland movers.

Official sources: OGP: current Act 60, revised 16 July 2026 (Spanish PDF); DDEC: incentive programs and applications; IRS Publication 570: residence, income sources and filings.

When the programs started and what changed

• 17 January 2012 — Acts 20 and 22 began. Act 20 established the export-services incentive. Act 22 established the resident-investor incentive. The familiar numbers refer to two different laws and two different kinds of income.
• 7 August 2014 — young-business framework. Act 135 established incentives and financing measures for young entrepreneurs. Today, read the corresponding Act 60 rules and current special-agreement requirements instead of using the original law’s amounts and definitions interchangeably.
• 1 July 2019 — Act 60 enacted. The Incentives Code consolidated numerous programs, including export services and resident investors. It also contains tourism, manufacturing and other activity-specific chapters. Existing decrees retain their own applicable terms; “Act 60” does not identify one universal tax package.
• 18 January 2024 — donation allocation changed. Act 32 amended the resident-investor contribution rules to direct US$2,500 of the annual US$10,000 donation requirement to the Social Equality Fund.
• 12 January 2026 — DDEC compliance clarification. Circular 2026-001 explains donation evidence and principal-residence ownership. DDEC requires evidence of the Social Equality Fund contribution beginning in 2026 and describes relief for qualifying donations made in 2025 and earlier.
• 10 March 2026 — Act 38 enacted. It creates a new resident-investor framework for applications submitted from 1 January 2027: generally 4% Puerto Rico tax on covered income, a 2055 benefit horizon, additional prior-residence requirements and more explicit home-title evidence. It preserves existing decree rights and provides elections/modifications.
• 1 January 2027 — the new application cohort begins. This is the investor application cutoff, not a change to the export-services business rate and not an automatic change to every existing investor decree.

Official sources: OGP: Act 20 of 17 January 2012 (historical law); OGP: Act 22 of 17 January 2012 (historical law); OGP: Act 135 of 7 August 2014 (historical law); OGP: current Act 60, revised 16 July 2026 (Spanish PDF); DDEC: Circular 2026-001, donations and principal residence (PDF); OGP: enacted Act 38-2026 (Spanish PDF).

How to read a law change: old rule, new rule, affected applicant

A law’s approval date, the date a new rule applies and your application date can be different. Act 38 became effective on approval on 10 March 2026, but its new investor rate applies to applications submitted from 1 January 2027. Someone reading that the law changed in March should not infer that every investor began paying 4% that month.

What Act 38 actually rewrote

• Eligibility — article 1: amends section 1020.02(a)(4). It extends the entry horizon to 2055 and adds the six-year pre-move nonresidence requirement for post-2026 applications. The historical 2006–2012 exclusion remains in the definition.
• Income treatment — articles 2 and 3: amend sections 2022.01 and 2022.02. The existing exemption framework is retained for the earlier application group, while covered income for the new group generally receives a 4% Puerto Rico rate through 2055. Pre-move appreciation still has separate rules.
• Transition — article 4: amends section 6020.03. Eligible pending applicants can elect the new framework, and qualifying existing holders can request a decree modification. The law provides a route to change terms; it does not silently rewrite every decree.
• Home evidence — article 5: amends section 6020.10. The two-year purchase obligation remains; applications from 2027 have additional explicit registered-or-pending title requirements.
• Existing rights — article 6: preserves rights and obligations acquired under earlier Act 22 and Act 60 decrees. Preservation of benefits also means continuing to meet the applicable obligations.

Act 38 changes the resident-investor provisions. It does not turn the export-services 4% business rate into a new personal salary rate or change the IRS source of income.

Why the 2024 donation law and 2026 circular have different dates

Act 32 of 18 January 2024 changed the destination of part of the applicable US$10,000 annual donation: US$2,500 is directed to the Social Equality Fund. DDEC’s 12 January 2026 circular then explained how the agency would require evidence beginning in 2026 and the relief available for qualifying earlier donations. The Fund contribution is part of the US$10,000 total, not an additional US$2,500 on top.

That distinction matters in practice: a statute changes the legal rule, agency guidance explains its administration, and your decree identifies the benefits and conditions granted to you. Read all three. A proposal or press headline alone does not establish your filing position.

Official sources: Act 38, articles 1–8 (Spanish PDF); DDEC Circular 2026-001; current Act 60, sections 1020.02, 2022.01–.02 and 6020.03/.10.

Export services: what the 4% business rate covers

Act 60 Chapter 3 continues the program associated with Act 20. An eligible business can generally receive a 4% Puerto Rico income-tax rate on qualifying net income under its decree. Consulting, software and other listed services may qualify when the actual activity and its export conditions meet the code.

The service must meet the rules for customers or markets outside Puerto Rico and the restrictions on a Puerto Rico connection. A foreign customer address alone is insufficient: work related to Puerto Rico property or local operations can create excluded activity. Document what is delivered, where it is performed, who benefits and how qualifying receipts and expenses are separated.

• Operations: establish real business activity in Puerto Rico. Incorporation, a mailing address or a remote-work contract alone does not establish eligibility.
• Employment: section 1030.01 generally requires at least one full-time direct employee for a Chapter 3 business with actual or projected annual business volume above US$3 million. Phase-in rules and additional DDEC/decree conditions can apply; do not assume the historical five-employee headline or a universal zero-employee rule.
• Term: the code’s general decree framework is 15 years, with a possible further 15-year extension subject to approval and compliance. Read your grant; an extension is not automatic.
• Owner income: salary, payroll, distributions and nonqualifying receipts require separate treatment. The 4% rate is not a rate for all of the owner’s personal income. Entity classification and federal owner obligations also need review.

Official sources: OGP: current Act 60, revised 16 July 2026 (Spanish PDF).

Resident investor: compare 2026 and 2027 applications

This personal incentive covers specified interest, dividends and investment gains after establishing residence. It does not make wages or consulting fees investment income. The enacted Act 38 rules use the date the application is submitted; eligibility, the actual move and the decree’s effective terms must also be established.

Temporary absence is not always nonresidence. The statutory definition specifically addresses students away from Puerto Rico and similar situations where domicile continues. An address history should include why you left and what connections remained.

Official sources: OGP: enacted Act 38-2026 (Spanish PDF); OGP: current Act 60, revised 16 July 2026 (Spanish PDF).

Three examples of what the dates change

A 2026 application with a 2027 decision

Alex submits an investor application on 20 December 2026 and receives a decision in 2027. Act 38 distinguishes applications by their submission date, so the later decision alone does not move that application into the post-2026 group. Alex must still establish that the application was validly submitted, meet the residence and other conditions, and check the grant’s effective terms. A draft started in December but submitted in January is a different case.

A new applicant under the 2027 framework

Jordan submits on 5 January 2027. Assume Jordan qualifies, receives the relevant decree and has US$100,000 of fully covered post-move investment income in a covered year, with no more favourable statutory treatment. The illustrative Puerto Rico tax at 4% is US$4,000. Under the earlier exemption framework, that same assumed covered amount would produce US$0 of Puerto Rico income tax. Neither figure includes federal tax, donations, fees or other income; the longer new benefit horizon also matters.

An existing investor approaching 2035

Sam holds an earlier investor decree. The announcement of benefits through 2055 does not automatically extend Sam’s grant. Sam can investigate the modification route provided by Act 38, comparing the proposed new rate, remaining old benefits, eligibility, continuing conditions and approved effective terms. A projection through 2055 should identify the requested modification as unresolved until approved.

Basis for these hypothetical examples: Act 38, articles 2–4 and 6. The examples illustrate the statutory distinctions; they do not determine an individual application.

How it works from application to annual compliance

1. Identify the applicant and qualifying activity. An export business and its individual owner can require different applications. Prepare the business service/customer facts or the investor’s residence and income history. Screen federal residence and sourcing alongside Puerto Rico eligibility.
2. Prepare and submit the application through DDEC’s current process. Start from the official incentives directory for the relevant portal and document list. Section 6020.01 requires the application and applicable processing payment; keep the actual submission receipt, supporting documents and correspondence. Saving a draft or paying a private adviser is not the same as submitting an application.
3. Respond to review and read the actual grant. The Office of Incentives evaluates the application and can request missing information. Check notices promptly: the code allows an incomplete case to be closed if requested information is not supplied within the prescribed period. Identify the applicant, covered income/activity, effective date, term, conditions and any required acceptance steps in the grant. A pending application is not itself proof of approval.
4. Establish the facts that activate the intended treatment. For an investor, document the move and residence under the applicable rules. For a business, conduct the qualifying operations and separate eligible income and expenses. Ask which receipts and periods are covered by the decree’s effective terms before preparing a return. The filing date and the date benefits begin need not be identical.
5. Maintain an annual evidence and filing calendar. Track the applicable home, donation, employment and other decree conditions; retain receipts and operational records; file the required reports and tax returns. Record who owns each task and which authority receives it. A Puerto Rico decree does not eliminate federal, payroll or former-state obligations that otherwise apply.
6. Review changes before acting. A new business activity, ownership arrangement or request to elect the 2027 framework can require formal review or a decree amendment. Keep written approval with the original grant. Do not assume that changing a company, property title or tax-return label changes the decree.

If a condition is missed: section 6020.09 provides for suspension or revocation for noncompliance, subject to its procedures. It is not safe to treat a required donation or report as optional because the tax return was filed. Ask promptly how the specific breach can be addressed and what it means for benefits already claimed; the consequence depends on the facts and applicable process.

Official sources: DDEC programs and applications; Act 60, section 6020.01: applications; sections 6020.08–.10: operations, revocation and reports; IRS Publication 570.

The home, donations, fees and annual obligations

Build a recurring calendar before estimating savings. These are core Act 60 resident-investor requirements; an older Act 22 grant can have different donation or property conditions. Use its text and applicable later rules rather than copying a new-applicant checklist.

Principal residence

The code generally requires purchasing a Puerto Rico principal home from an unrelated seller within two years after obtaining the decree and maintaining the required ownership and principal use during the decree. Keep the grant date, purchase deadline, deed, title evidence and annual proof together. A lease may help demonstrate genuine residence but does not satisfy a purchase obligation.

DDEC’s January 2026 circular discusses some domestic-partner and entity ownership arrangements through a requested decree amendment and favourable review. Do not assume those arrangements are automatically approved, or that they override the explicit title provisions for applications from 2027.

Annual donations

For the applicable US$10,000 annual requirement, the current allocation is US$5,000 to eligible child-poverty organisations on the prescribed list, US$2,500 to another qualifying unrelated Puerto Rico nonprofit, and US$2,500 to the Social Equality Fund. Check the recipient’s eligibility at the time of the donation and retain payment and certification evidence.

Circular 2026-001 says DDEC requires evidence of the Fund contribution beginning in 2026. It describes relief for 2025 and earlier where the full US$10,000 went to qualifying organisations and the required US$5,000 met the child-poverty-list condition. Confirm your first required donation year and any decree-specific rules; do not treat prior-year relief as a waiver for 2026.

Fees and reports

Section 6020.10 sets a US$5,000 annual report fee for resident investors, including Act 22 holders. Application, acceptance, legal/accounting and other charges are additional. Confirm the current year’s agency instructions, filing platform and due dates; decree reports and income-tax returns are different obligations.

Official sources: OGP: current Act 60, revised 16 July 2026 (Spanish PDF); DDEC: Circular 2026-001, donations and principal residence (PDF).

Pre-move investments and federal tax need their own calculation

A Puerto Rico exemption does not decide federal sourcing. U.S.-source dividends and interest can remain federally taxable even for a bona fide Puerto Rico resident with an investor decree. For example, ordinary dividends from a U.S. corporation generally retain their U.S. source; changing the brokerage mailing address does not change the payer.

For certain property owned before becoming a bona fide resident, IRS rules can prevent a later gain from being treated as Puerto Rico-source. Detailed rules may allow an election allocating appreciation. Keep acquisition dates, cost basis, move-date valuations and proposed sale dates before selling.

Puerto Rico has its own special rule for pre-move long-term appreciation: a 5% rate can apply when it is recognised after ten years of Puerto Rico residence and before the relevant statutory end date—2036 for the earlier application framework, or 2056 for the new one. Other timing brings other treatment. That Puerto Rico rule does not override the separate federal rules.

Official sources: IRS Publication 570: residence, income sources and filings; OGP: enacted Act 38-2026 (Spanish PDF).

Does a mainland employer make all wages U.S.-source?

For wages and personal services, where work is performed generally matters more than where the customer or employer pays from. Mixed-location work can need an allocation. Some benefits and multi-year compensation follow special rules, so salary, stock compensation and pensions should not be grouped together.

Keep timesheets and travel records before payroll or a return is prepared. U.S. clients alone do not prove U.S.-source service income, just as a Puerto Rico company alone does not prove that work performed elsewhere is Puerto Rico-source.

Official reference: IRS Publication 570: residence, income sources and filings.

Could I still owe federal self-employment tax?

Yes. A federal income-tax exclusion does not by itself remove self-employment tax. IRS guidance generally requires self-employment tax on net self-employment earnings of US$400 or more for the people it covers, even when earnings are excludable from gross income. Depending on other filing requirements, Schedule SE with Form 1040 or Form 1040-SS may be the relevant route.

Official reference: IRS Publication 570: residence, income sources and filings.

Keep separate calendar lines for Puerto Rico income tax, any federal income tax, self-employment or payroll obligations, and former-state filings. Withholding and estimated payments are not the same as the final liability. Ask which credits or adjustments address overlapping taxation.

Other Act 60 programs worth screening

Young Entrepreneurs

The predecessor framework began with Act 135 of 7 August 2014. Current Act 60 rules cover qualifying Puerto Rico residents aged 16–35 starting an eligible new business, with education and special-agreement requirements. The chapter provides a three-year exemption on the first US$500,000 of qualifying net business income, plus specified property and municipal relief.

The amount is not a general exemption for a young person’s salary or every distribution. Above-threshold income and personal distributions need separate treatment. The code restricts combining this benefit with other economic incentives; opting into another program can end these benefits. Ask which agreement fits the actual business before assuming both benefits can be added together.

Qualified medical professionals

The code includes a distinct medical-professional incentive with licensing, certification, application-timing and service requirements. It is not available merely because a relocating person is a doctor. Ask DDEC and the relevant health authority whether the specialty and application window qualify, and what clinical and community-service commitments the grant requires.

Tourism and manufacturing

Act 60 also contains dedicated visitor-economy and manufacturing chapters. A qualifying hotel or manufacturing operation needs its own project and activity review. Buying a holiday rental or forming a company does not automatically qualify it. Obtain the relevant chapter, required investment/employment schedule and proposed decree before including an incentive in a purchase model.

Official sources: OGP: Act 135 of 7 August 2014 (historical law); OGP: current Act 60, revised 16 July 2026 (Spanish PDF); DDEC: incentive programs and applications.

Your next step: build a program and income map

Use the worksheet below to identify the applicant, intended program, application date, move date and any existing decree. List salary, business income, distributions, interest, dividends, gains, pensions and rent separately. Record what produces each item and where the work or asset is located.

Bring that map, your residency evidence log, business contracts and investment records to an adviser who can explain both Puerto Rico and federal treatment. Ask for a written eligibility conclusion, recurring-cost budget and filing calendar. Resolve these before a major sale, business restructuring or home purchase.