If you have been researching Puerto Rico tax incentives for more than a few years, you have probably seen references to Act 20 and Act 22. Those laws no longer exist as standalone statutes. In 2019, Puerto Rico consolidated its entire incentive framework into a single piece of legislation: Act 60 of 2019, the Puerto Rico Incentives Code.
Here is what changed, what stayed the same, and what it means if you are considering a move to Puerto Rico or already operating under an older decree.
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What Were Act 20 and Act 22?
Before Act 60, Puerto Rico's two most prominent individual incentive laws were:
Act 20 of 2012 — The Export Services Act This targeted businesses exporting services from Puerto Rico to outside markets. It offered a 4% corporate tax rate on eligible export income and a 100% dividend exemption. It was designed to attract service businesses and their owners to establish genuine operations on the island.
Act 22 of 2012 — The Individual Investors Act This targeted individual investors who relocated to Puerto Rico and became bona fide residents. It offered a 100% exemption on Puerto Rico-sourced capital gains, dividends, and interest income. It was particularly attractive to traders, investors, and crypto holders sitting on significant unrealized gains.
Both laws were highly effective at attracting high-net-worth individuals and service businesses to Puerto Rico. They were also controversial, drawing criticism that wealthy newcomers were displacing local residents without contributing meaningfully to the local economy.
What Act 60 Changed
Act 60 did not eliminate the benefits of Act 20 and Act 22. It restructured, consolidated, and in some cases tightened them.
The benefits largely survived. The 4% corporate rate for export services is still available. The capital gains and dividend exemptions for individual investors are still available. The core economic proposition that made Puerto Rico attractive remains intact.
The compliance requirements got stricter. Act 60 added new obligations that did not exist under the original Act 20 and Act 22 framework. These include:
- A $10,000 annual donation to Puerto Rico-based nonprofit organizations for Individual Investors decree holders
- A $10,000 one-time filing fee for Individual Investors applications
- Stricter bona fide residency requirements with increased scrutiny on the number of days spent on the island
- Enhanced annual reporting obligations for both business and individual decrees
- A requirement for Individual Investors to purchase residential property in Puerto Rico within two years of receiving the decree
New categories were added. Act 60 expanded the incentive framework beyond Act 20 and Act 22. It created new decree categories covering manufacturing, agricultural businesses, creative industries, and a dedicated chapter for international financial entities under Act 273. The consolidation created a more comprehensive but also more complex system.
Existing decrees were grandfathered. If your business or individual decree was issued under Act 20 or Act 22 before Act 60 took effect, your original decree terms remain in force for its stated duration. You are not automatically subject to the new Act 60 requirements. However, when your decree expires and you apply for renewal, the Act 60 framework applies.
The Individual Investors Decree Under Act 60
The successor to Act 22 is now Chapter 2 of Act 60, commonly still referred to informally as the Individual Investors decree. The core benefits remain:
- 0% tax rate on Puerto Rico-sourced capital gains accrued after becoming a bona fide resident
- 0% tax rate on Puerto Rico-sourced dividend and interest income
- Partial exemption on capital gains accrued before relocating, subject to a 5% rate on assets held for more than 10 years after relocation
The addition of the $10,000 annual charitable contribution requirement and the residential property purchase requirement are the most significant practical changes from the original Act 22.
Bona fide residency remains the cornerstone requirement. Puerto Rico uses a facts-and-circumstances test that looks at where you spend the majority of your time, where your closest social and economic ties are, and where your primary home is located. The IRS also scrutinizes Puerto Rico residency claims closely, particularly for high-income individuals.
The Export Services Decree Under Act 60
The successor to Act 20 is now Chapter 3 of Act 60. The core benefits are unchanged:
- 4% fixed corporate income tax on eligible export services income
- 100% exemption on dividends paid from export services profits
- 100% municipal and property tax exemption during the decree term
The main changes from Act 20 involve enhanced substance requirements and more detailed annual reporting. The government is more focused on ensuring decree holders are running genuine operations in Puerto Rico rather than paper entities with no real economic activity on the island.
The job creation requirement remains at a minimum of one full-time position for most service businesses.
What This Means If You Are Evaluating Puerto Rico Now
The opportunity is still real. Act 60 preserved the economic substance of what made Puerto Rico's incentive framework attractive in the first place. The tax math for a profitable service business or a high-net-worth investor with significant capital gains exposure remains compelling.
The compliance burden is higher than it was under the original Act 20 and Act 22 framework. Annual reporting, charitable contribution requirements, residency documentation, and substance requirements demand ongoing attention. Treating Act 60 as a set-and-forget arrangement is how decree holders end up with revoked decrees and retroactive tax liability.
The window is not guaranteed to stay open. Puerto Rico's incentive laws have been modified before and could be modified again. Existing decrees are contractual and carry protection for their stated term. Waiting to evaluate the opportunity means waiting on terms that are available today.
What This Means If You Hold an Active Act 20 or Act 22 Decree
Your existing decree remains valid under its original terms. You do not need to take any action to convert to Act 60. Your annual reporting obligations continue under the terms of your original decree.
When your decree term ends and you seek renewal, you will be applying under the Act 60 framework. Planning for that transition before it arrives, rather than at the deadline, gives you time to structure properly and avoid gaps in coverage.
If you have an active decree and have not been filing your annual reports, address that immediately. Non-compliance is grounds for revocation regardless of which version of the law your decree was issued under.
Next Steps
Act 60 is a well-structured incentive framework for the right business and the right individual. Getting the structure right from the beginning, and maintaining compliance throughout the decree term, determines whether the benefits hold up under scrutiny.
The Puerto Rico Business Law Firm offers a free initial evaluation for businesses and individuals exploring Act 60 Export Services and Individual Investors decrees. We also handle ongoing decree compliance, annual report filings, and commercial litigation for clients operating under active decrees.
Request your free initial evaluation to discuss whether Act 60 is the right structure for your situation.
Christian M. Frank Fas, Esq. is a Puerto Rico licensed attorney with over 25 years of commercial and business law experience. RUA License No. 16,407.