Puerto Rico changed the rules of its most widely used tax incentive program in March 2026, and the change carries a hard deadline. Act 38-2026, signed into law on March 10, 2026, extends the Individual Resident Investor program under Chapter 2 of Act 60 through December 31, 2055. The same law sets a 4 percent tax rate on passive income for anyone who submits an application on or after January 1, 2027. Applications submitted on or before December 31, 2026 keep the 0 percent treatment that has defined the program since 2012. The filing date is what separates the two outcomes, and roughly five months remain on that clock.
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What Act 38-2026 Actually Did
The Individual Resident Investor decree, known to most people by its original name of Act 22, was scheduled to close to new benefits at the end of 2035. That sunset created a planning problem. Anyone considering relocation in 2026 or later faced a benefit period that shortened every year, which made the decision harder to justify against the cost and disruption of moving a household and a business to the island.
Act 38-2026 resolved that problem by extending the program horizon by twenty years, to December 31, 2055. A decree granted under the new framework now carries a benefit period long enough to support genuine long term planning rather than a race against a fixed end date.
The extension came with a price. The Puerto Rico legislature paired the longer horizon with a higher rate for future applicants and with tighter eligibility conditions. The result is a program that remains among the most favorable tax regimes available to a United States citizen without expatriation, while costing more than it did before.
The December 31, 2026 Filing Deadline
The single most important detail in Act 38-2026 is which date controls. The applicable rate depends on when the application reaches the Office of Incentives at the Department of Economic Development and Commerce, commonly called the DDEC. It does not depend on when the decree is granted, and it does not depend on when Puerto Rico residency begins.
An application that reaches the Office of Incentives by 11:59 PM on December 31, 2026 is evaluated under the current rules. The decree may not issue until well into 2027, and the applicant may not establish residency until later still, and the 0 percent treatment holds. An application that arrives on January 1, 2027 falls under the new rate, even if the applicant had been preparing the file for a year.
Applicants should preserve documentation of the submission timestamp from the Incentives Portal. That record is the proof of which regime applies, and it becomes relevant if a question arises during processing.
The Two Rate Tracks Compared
Applications filed on or before December 31, 2026 receive the following treatment through December 31, 2035:
- 0 percent Puerto Rico tax on interest and dividends earned after residency is established
- 0 percent Puerto Rico tax on capital gains attributable to appreciation occurring after residency is established
- 5 percent Puerto Rico tax on appreciation that accrued before residency, where the gain is recognized ten or more years after residency begins
Applications filed on or after January 1, 2027 receive the following treatment through December 31, 2055:
- 4 percent Puerto Rico tax on interest, dividends, and capital gains attributable to post residency appreciation
- 5 percent Puerto Rico tax on pre residency appreciation, unchanged from the current rule
The arithmetic is straightforward. A decree holder who files in 2026 and later recognizes a 5 million dollar gain from post residency appreciation pays nothing to Puerto Rico on that gain. The same person filing in 2027 pays 200,000 dollars. Both figures compare favorably against the combined federal and state treatment of the same income in most United States jurisdictions, which is the reason the program exists in the first place. The four point difference comes down to a filing date.
Anyone weighing the two tracks should also weigh duration against rate. A 2026 filing buys 0 percent for a period ending in 2035. A 2027 filing buys 4 percent for a period ending in 2055. For an investor with a long holding period and a liquidity event that may fall well after 2035, the later filing with the longer horizon can produce the better result. That analysis depends on facts that vary from one person to the next.
New Eligibility Conditions for 2027 Applicants
Act 38-2026 tightened who may apply under the new framework. Two conditions stand out.
The first is a prior residency lookback. Applicants who file starting January 1, 2027 must establish that they were not Puerto Rico residents for at least six years immediately before relocating. The prior standard was shorter. The change is aimed at people who move away and return in order to claim benefits on income that has always been connected to the island.
The second condition concerns real property. Title to the Puerto Rico principal residence must be recorded in the Property Registry, or pending recordation, under the name of the applicant, jointly with a spouse, or through a qualifying trust arrangement. Informal ownership structures and unrecorded transfers will not satisfy the requirement, and Property Registry recordation in Puerto Rico can take considerable time.
The standing obligations that apply to every decree holder continue without change. A decree holder must maintain bona fide residency in Puerto Rico under the applicable federal tests, file the annual report with the DDEC, and make the annual charitable contribution to qualifying Puerto Rico nonprofit organizations, currently set at 10,000 dollars. Failure on any of these points exposes the decree to revocation, and revocation can reach back to prior years.
What Happens to Existing Act 22 and Act 60 Decrees
Holders of decrees granted under Act 22-2012, or under Act 60 before the amendment, keep the terms of those decrees. Existing benefits run through December 31, 2035 unless the decree is revoked for noncompliance. Nothing in Act 38-2026 shortens an existing grant.
Act 38-2026 does offer existing holders an election. A holder may apply to modify a decree in order to adopt the new framework, trading 0 percent treatment ending in 2035 for 4 percent treatment ending in 2055. Whether that trade makes sense depends on the remaining decree term, the character and expected timing of the income, the size of unrealized positions, and how long the holder intends to remain a Puerto Rico resident.
The election deserves a deliberate analysis rather than a default answer. A holder planning to sell a large position in 2030 has little reason to give up 0 percent. A holder in the early years of a decree who expects the bulk of recognition events after 2035 may benefit substantially from the longer horizon.
Export Services Under Chapter 3 Remain Unchanged
Act 38-2026 addresses the Individual Resident Investor program. It does not alter the export services incentives under Chapter 3 of Act 60, formerly Act 20. Businesses holding or seeking an export services decree continue under the existing 4 percent corporate rate and the existing dividend treatment.
The distinction matters because many people relocating to Puerto Rico use both programs together, one for the operating business and one for personal investment income. The December 31, 2026 deadline reaches the personal decree only. A business formation and export services filing follows its own timeline. Further detail on both programs is available on our Puerto Rico tax incentives page.
What a Complete Application Requires
A 2026 filing is realistic for many people, and it is not a same week exercise. A complete Individual Resident Investor application generally requires financial records supporting the applicant profile, identity and background documentation, a certified criminal background check, evidence of the intended Puerto Rico residence, tax filings from the prior period, and the government filing fees. Documents originating outside Puerto Rico often require certification or apostille, and those steps run on the timeline of another agency rather than yours.
Applicants with digital asset holdings carry an additional layer. Basis documentation, exchange records, wallet histories, and the character of prior gains all bear on how the decree applies once residency begins, and reconstructing that record late in the process is difficult. Guidance on the compliance side of that work is available on our blockchain compliance page.
The Cost of Waiting
Roughly five months remain before the filing deadline, and the practical runway is shorter than the calendar suggests for three reasons.
Document assembly takes weeks, and it depends on third parties who set their own pace. Filing volume at the Office of Incentives rises through the fourth quarter as applicants respond to the same deadline, which slows intake review. An incomplete or deficient submission lodged in late December leaves no room to correct before the year closes, and a correction filed in January carries the 2027 rate.
Anyone weighing a 2026 filing should open the file now rather than in November. The work is sequential, and the first steps determine whether the last ones are possible.
Full Briefing Presentation
We prepared a presentation covering the amendment in detail, including the two rate tracks side by side, the conditions applying to 2027 applicants, the position of existing decree holders, and what a complete 2026 application requires. The briefing is available here: Act 60 Amendment 2026: The 0 Percent Window Closes December 31.
A Note on Legislative Status
Act 38-2026 took effect upon signature on March 10, 2026. Reporting through the spring indicated that final endorsement from the Financial Oversight and Management Board remained outstanding. Anyone relying on the amendment for a filing decision should confirm the current status with counsel before submitting.
Next Steps
The question worth answering now is whether a 2026 filing is realistic for your situation, and what your file requires to get there. That determination depends on your income profile, your residency timeline, your property arrangements, and the character of the assets you hold.
Our firm offers a free initial evaluation. Start at lawyerinpr.com/start and we will follow up with the questions that apply to your circumstances, then provide a written proposal within one to two business days.
Christian M. Frank Fas, Esq. is a Puerto Rico licensed attorney with over 25 years of commercial and business law experience.
This article provides general information about Puerto Rico law. It does not constitute legal or tax advice and it does not create an attorney client relationship.