For fifteen years, Puerto Rico's Act 60 offered a deal that sounded almost too good to check twice: move to the island, become a bona fide resident, and pay 0% federal-equivalent tax on your dividends, interest, and capital gains. No offshore structuring, no treaty gymnastics — just a U.S. territory with its own tax code and a program built to attract capital.
That era just ended for anyone who waits too long. On March 20, 2026, Governor Jenniffer González-Colón signed Act 38-2026, rewriting the terms of Act 60's Individual Resident Investor decree. The program isn't going away — it's actually being extended by two decades — but the 0% rate that made it famous now has a hard expiration date, and a new class of applicants will pay tax rates that didn't exist under the original law.
If you're a founder, remote-first business owner, or investor who has ever run the Act 60 numbers, this is the moment to understand exactly what changed, who's grandfathered, and what the calendar actually requires.
What Act 60 Promised (and Still Delivers, For Now)
Act 60 of 2019 consolidated Puerto Rico's earlier tax-incentive laws (Acts 20 and 22) into a single Incentives Code. The piece relevant here — the Individual Resident Investor decree — let a qualifying new resident receive:
- 0% tax on Puerto Rico-sourced interest and dividend income
- 0% tax on capital gains accrued after becoming a bona fide Puerto Rico resident
- A preferential rate (generally 5%, after a 10-year holding period) on gains that accrued before the move but were realized afterward
To qualify, an individual had to become a bona fide resident of Puerto Rico (passing IRS presence, tax-home, and closer-connection tests), obtain a Decree of Tax Exemption, purchase Puerto Rico real estate as a primary residence within two years, and make an annual charitable contribution to a Puerto Rico nonprofit. The decree locked in those terms for the life of the grant — originally through 2035.
What Act 38-2026 Actually Changes
Act 38-2026 touches four major pieces of the program. None of it retroactively changes existing decrees, but all of it reshapes the math for anyone who hasn't filed yet.
1. A New 4% Rate Replaces 0% — But Only for Future Applicants
The single biggest change: individuals who submit their decree application after December 31, 2026 will pay a 4% preferential tax rate on interest, dividend, and post-residency capital gains income, instead of the 0% that current holders enjoy. Pre-residency gains realized after a 10-year holding period keep the existing 5% rate.
Four percent is still remarkably low compared to mainland federal capital gains and investment income rates — but it's a meaningful shift from "tax-free" to "lightly taxed," and it changes the breakeven calculation for anyone weighing relocation costs against tax savings.
2. The Application Deadline Is the Whole Ballgame
There is one date that matters more than any other in this law: December 31, 2026.
- File your Act 60 Individual Resident Investor application and secure your decree on or before that date, and you lock in the legacy 0% rates for the life of your decree.
- File on or after January 1, 2027, and the 4% rate applies to your income going forward.
This isn't a phase-in — it's a cliff. Anyone seriously evaluating Puerto Rico relocation for tax purposes now has a concrete, non-negotiable filing deadline instead of an open-ended opportunity.
3. The Program Itself Got a 20-Year Extension
Act 60's original sunset for new applicants was December 31, 2035. Act 38-2026 pushes that to December 31, 2055. So the program isn't shrinking — it's being made a permanent fixture of Puerto Rico's economic development strategy for another generation. The tradeoff is that the terms for later cohorts of applicants are less generous than the terms for earlier ones.
4. Residency Look-Back and Primary Residence Rules Tightened
Two eligibility mechanics changed for applications filed under the new regime:
- Prior-residency look-back: applicants must show they were not Puerto Rico residents for the six years immediately before their move (replacing a more dated 2006–2012 exclusion window), which more cleanly targets genuinely new residents and new capital rather than returning residents.
- Primary residence ownership: the required Puerto Rico home must be held in the individual's own name or a trust — LLC ownership no longer satisfies the requirement, closing off a structuring option some advisors had used for liability or estate-planning reasons.
Who Is — and Isn't — Affected
This is the detail that causes the most confusion, so it's worth stating plainly:
If you already hold an Act 60 Individual Resident Investor decree, Act 38-2026 does not touch you. Existing decree holders continue under the exact terms they were granted, generally through 2035 or the term stated in their decree, unless the decree is separately revoked for noncompliance. You are not required to renegotiate, and you keep your 0% treatment.
If you apply and receive your decree by December 31, 2026, you get the legacy 0% terms too — you just need to get the paperwork done in time.
If you apply on or after January 1, 2027, you're in the new regime: 4% preferential rate, tightened residency look-back, and the trust/individual-ownership requirement for your primary residence.
The Compliance Obligations Nobody Mentions in the Sales Pitch
Whichever cohort you fall into, the ongoing requirements that make an Act 60 decree defensible under IRS scrutiny don't change:
- Bona fide residency tests — the IRS applies a presence test (generally 183+ days in Puerto Rico), a tax-home test, and a closer-connection test every single year you claim the benefit, not just in your first year.
- Primary residence purchase — within two years of the decree, in your own name or a qualifying trust.
- Annual charitable contribution — a required donation to a Puerto Rico nonprofit, separate from any federal tax return obligations.
- U.S. federal tax obligations don't disappear — Puerto Rico source-of-income rules interact with, but don't override, U.S. federal filing requirements. Income that isn't Puerto Rico-sourced, or gains that don't meet the decree's specific holding-period rules, can still be subject to federal tax. IRS enforcement activity targeting Puerto Rico relocators has been active enough that documentation — flight records, utility bills, lease and closing dates, days-present logs — has become a real audit-defense practice area, not a formality.
That last point is where a lot of relocations quietly go wrong. People move for the 0% (or now 4%) rate and treat the compliance calendar as an afterthought, only to find that a single year failing the presence test, or income that doesn't cleanly meet Puerto Rico-source rules, unwinds the benefit retroactively for that year.
Why This Is a Bookkeeping Problem, Not Just a Tax-Planning One
An Act 60 decree isn't a one-time filing — it's a multi-year compliance obligation with a paper trail requirement attached to every year you claim it. Proving bona fide residency and correctly sourcing income between "Puerto Rico" and "everywhere else" both depend on having clean, dated, auditable records: when income was earned, where you were physically present when it was earned, and which accounts and transactions are Puerto Rico-source versus not.
That's exactly the kind of record-keeping that benefits from a system you can query and audit, rather than a folder of screenshots. Plain-text accounting keeps every transaction as a dated, version-controlled entry — so when your CPA (or the IRS) asks "show me the Puerto Rico-source dividend income for Q3," the answer is a query, not a reconstruction project.
Simplify Your Financial Management
Whether you're evaluating a Puerto Rico relocation before the December 31, 2026 deadline or just keeping your existing decree's compliance trail in order, clean books make the difference between a routine tax filing and a stressful audit defense. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — every entry dated, sourced, and auditable, with no black-box software standing between you and your numbers. Get started for free and see why developers and finance-minded business owners are switching to plain-text accounting.