Key Takeaways
Puerto Rico's Act 60 Individual Resident Investor program — the successor to the former Act 22 of 2012 — now has a runway through December 31, 2055. Act 38-2026, signed by Governor Jenniffer González-Colón and enacted in March 2026, amends the Puerto Rico Incentives Code (Act 60-2019) to extend the program by twenty years, introduce a modified tax rate for future applicants, and tighten eligibility requirements for those who apply beginning in 2027. The changes represent the most significant structural amendment to the program since Act 60 consolidated the island's incentive framework in 2019.
For individuals actively considering relocation to Puerto Rico, the architecture of these changes — particularly the December 31, 2026 application deadline — makes timing a threshold planning question.
Chapter 2 of Act 60-2019 governs the Individual Resident Investor (IRI) incentive, which traces its origins to Act 22 of 2012. The program offers preferential Puerto Rico income tax treatment on passive investment income — historically including 0% tax on interest, dividends, and post-residency capital gains — to individuals who become bona fide residents of Puerto Rico and obtain a tax exemption decree from the Puerto Rico Department of Economic Development and Commerce (DDEC).
Under the program as it existed before Act 38-2026, those benefits applied to income earned after establishing Puerto Rico residency and before January 1, 2036. A qualifying individual — defined under Section 1020.02(a)(4) of Act 60-2019 — must not have been a Puerto Rico resident between January 17, 2006 and January 17, 2012, and must establish residency in Puerto Rico no later than the taxable year ending December 31, 2035.
For U.S. citizens and resident aliens, the program works in conjunction with Internal Revenue Code (IRC) § 933, which excludes from U.S. gross income amounts constituting income from sources within Puerto Rico earned by an individual who is a bona fide resident of Puerto Rico for the entire taxable year. Whether income qualifies as Puerto Rico-source income — and therefore falls outside U.S. federal taxation — depends on income sourcing rules under IRC § 937 and the regulations thereunder.
A 2024 study commissioned by the DDEC estimated that the predecessor programs (Acts 20 and 22) had collectively generated over 75,000 direct and indirect jobs, produced approximately $650 million in Puerto Rico tax revenues, and prompted at least $10 million in annual charitable donations by the time of the study. That economic record formed part of the legislative basis for Act 38-2026.
The most structurally significant change in Act 38-2026 is the extension of program eligibility through December 31, 2055. Under amended Section 1020.02(a)(4), an Individual Resident Investor is now defined to include an individual who establishes Puerto Rico residency no later than the taxable year ending December 31, 2055 — a twenty-year extension from the prior 2035 deadline.
This change directly addresses what the legislative record identifies as investor uncertainty created by the approaching 2035 expiration. Long-term investors who might have been reluctant to relocate with only a decade or less of program availability can now evaluate the incentive over a much longer planning horizon.
Existing decree holders are not automatically extended. Individuals holding decrees obtained before the enactment of Act 38-2026 retain the terms of their existing decrees — which govern benefits through the decree's own expiration date — unless they elect the modification described below.
For individuals who submit decree applications on or after January 1, 2027, Act 38-2026 introduces a 4% flat preferential income tax rate on the following categories of income earned after becoming a Puerto Rico resident:
If a more favorable tax rate is available under another provision of Act 60, the PRIRC, or any other applicable law, that more favorable rate applies in place of the 4% rate.
Pre-residency capital gains for post-2026 applicants remain subject to the same treatment that existed before Act 38-2026: gains attributable to pre-residency appreciation in securities or other assets, recognized ten or more years after becoming a Puerto Rico resident and before January 1, 2056, are subject to a 5% tax rate under amended Section 2022.02(c).
The 4% rate is the first meaningful upward adjustment to the program's passive income tax treatment since Act 22 was enacted in 2012. The 2024 DDEC study expressly identified a 0%-to-4% rate adjustment as compatible with the program's economic viability and unlikely to impair its performance.
Individuals who submit their decree applications on or before December 31, 2026 retain the prior tax structure. Under amended Section 2022.01(a), those applicants — provided their decrees have not been revoked pursuant to Section 6020.09(a) — continue to receive:
The following table summarizes the rate structure across both cohorts:
Income TypeApplications Filed ≤ Dec. 31, 2026Applications Filed ≥ Jan. 1, 2027Dividends and interest0% (exempt through Dec. 31, 2035)4% (through Dec. 31, 2055)Post-residency capital gains0% (exempt through Dec. 31, 2035)4% (through Dec. 31, 2055)Pre-residency capital gains (recognized 10+ years after residency)5% (through Dec. 31, 2035)5% (through Dec. 31, 2055)
The critical point: under the statute, it is the application submission date — not the date residency is established, nor the date the decree is ultimately issued — that determines which tax regime applies. Decree processing at the DDEC can take several months or longer. An individual who wishes to lock in the pre-2027 rate structure must submit a complete application before the December 31, 2026 deadline.
For decree applications submitted after December 31, 2026, amended Section 1020.02(a)(4) adds a new eligibility condition: the applicant must demonstrate that they were not a Puerto Rico resident for a minimum of six years immediately preceding the date they relocated to Puerto Rico.
This requirement does not apply to applications filed on or before December 31, 2026. Consistent with Act 60's longstanding exclusion of certain categories of individuals — including students enrolled outside Puerto Rico who previously resided on the island, and Puerto Rico government personnel temporarily stationed elsewhere — those individuals remain ineligible for the IRI program because their domicile is deemed to remain Puerto Rico during their absence.
Act 38-2026 creates an elective mechanism for existing decree holders to opt into the new framework. Under amended Section 6020.03(d), two categories of individuals may request a modification of their existing decrees to reflect the terms of Sections 2022.01(b) and 2022.02(c) and (d):
The practical rationale for electing a modification is the program extension. A decree under the current regime provides benefits only through December 31, 2035. A decree holder who obtained their decree recently — and whose 15-year decree term extends well past 2035 — may find it advantageous to modify their decree to access benefits through 2055, accepting the 4% rate in exchange for the extended term.
Additionally, pending applications filed on or before December 31, 2026 that have not yet been granted may also be processed, at the applicant's election, under the post-2027 terms in Sections 2022.01(b) and 2022.02(c) and (d).
Whether a modification makes economic sense for a given decree holder depends on the character and anticipated timing of their investment income, their existing decree term, and their long-term residency plans. These are fact-specific determinations that require individualized tax law counsel.
Act 38-2026 modifies Puerto Rico's local tax framework. It does not alter the U.S. federal tax analysis that governs whether income earned by a Puerto Rico resident is excluded from U.S. gross income under IRC § 933.
To qualify for the Section 933 exclusion, an individual must be a bona fide resident of Puerto Rico for the entire taxable year. Under IRC § 937 and Treasury Regulation § 1.937-1, bona fide residency requires satisfying three tests: (1) a presence test, generally requiring 183 days in Puerto Rico during the taxable year; (2) a tax home test, requiring that the individual's tax home not be outside Puerto Rico; and (3) a closer-connection test, requiring that the individual not have a closer connection to the United States or a foreign country than to Puerto Rico.
The Internal Revenue Service has maintained an active audit campaign targeting IRI program participants, and the Government Accountability Office published a report in 2026 recommending that the IRS improve its oversight of taxpayers claiming the Puerto Rico tax exclusion. IRS scrutiny focuses on whether an individual has genuinely established bona fide Puerto Rico residency, and on whether income claimed as Puerto Rico-source income is properly sourced under IRC § 937 and the associated regulations.
A lower 4% Puerto Rico tax rate on interest and dividends does not diminish the U.S. federal compliance obligations for IRI decree holders. Income that is not Puerto Rico-source income — for example, dividends paid by U.S. corporations that constitute U.S.-source income — remains subject to U.S. federal income tax regardless of Act 60 decree status. Income sourcing, residency documentation, and the interaction between Act 60 benefits and federal tax law require careful, individualized analysis.
Act 38-2026 restructures the Act 60 IRI program along a clear dividing line: December 31, 2026.
Individuals who apply by that date and qualify can access the 0% rate on interest, dividends, and post-residency capital gains through 2035 — or elect to modify their decree to access a 4% rate through 2055. Individuals who apply after that date will receive the 4% rate through 2055, subject to the six-year prior non-residency requirement.
The program remains among the most favorable tax incentive structures available to U.S. investors willing to establish genuine residency outside the continental United States. Even at a 4% rate, the preferential treatment on capital gains, dividends, and interest compares favorably to federal and most state income tax rates applicable to the same categories of income.
The operative compliance requirements — obtaining a decree, purchasing a principal residence in Puerto Rico within two years of decree issuance, filing annual reports with the DDEC, making the required $10,000 annual charitable contribution, and maintaining genuine bona fide residency — remain in place regardless of which rate regime applies. Post-2026 applicants bear the additional burden of demonstrating the six-year prior non-residency period, and must ensure that title to their principal residence is recorded, or pending recordation, in the Puerto Rico Property Registry under their name, jointly with their spouse, or through a qualifying trust described in Section 2022.07 of Act 60.
For a full overview of the program's eligibility requirements and benefits, see Maceira Zayas's Individual Resident Investor practice page.
No, not automatically. Article 6 of Act 38-2026 expressly preserves all rights and obligations acquired under decrees granted before the law's enactment. Existing decree holders continue to operate under the terms of their current decrees. However, qualifying decree holders may elect to modify their decrees to adopt the new framework — trading the 0% rate through 2035 for the 4% rate through 2055.
Under the statute, the applicable tax regime is determined by the date the application is submitted, not the date the decree is issued or the date Puerto Rico residency is established. An application submitted on or before December 31, 2026, if subsequently approved, qualifies for the pre-2027 rate structure. Applicants should retain documentation confirming their submission date.
For applications submitted after December 31, 2026, amended Section 1020.02(a)(4) requires that the applicant demonstrate they were not a Puerto Rico resident for at least six years immediately preceding the date they relocated to Puerto Rico. The six-year period is measured backward from the applicant's actual relocation date. This is a rolling lookback tied to the individual's move date — distinct from the fixed-period exclusion (January 17, 2006 to January 17, 2012) that governs pre-2027 eligibility.
Yes. The 4% preferential tax rate — while higher than the prior 0% exemption — remains significantly below U.S. federal and most state income tax rates applicable to interest, dividends, and capital gains. The program's extension through 2055 also provides a longer planning horizon. An individual applying in 2028, for example, who obtains a decree could potentially access preferential treatment on qualifying Puerto Rico-source income through the end of 2055, subject to decree terms and compliance requirements.
Act 38-2026 was signed by Governor González-Colón and, per its Article 8, takes effect immediately upon enactment. However, as of the date of this article, the law is pending final endorsement by the Fiscal Oversight and Management Board (FOMB) for Puerto Rico. Prospective applicants should monitor FOMB developments and consult counsel regarding the current status before taking action.
Maceira Zayas advises individuals, family offices, and investment managers on Puerto Rico tax incentive matters, including Act 60 decree applications, bona fide residency planning, and the federal-Puerto Rico tax interface, from its offices in San Juan and Washington, D.C. For questions about Act 38-2026 or the Individual Resident Investor program, contact Simón Carlo Valentín, Esq., CPA, Tax Law Director at Maceira Zayas, or visit our Tax Law practice page.
This article is for informational purposes only and does not constitute legal or tax advice. Consult qualified counsel before taking any action based on this content.
