Puerto Rico Tax Changes
Key Updates for Act 60 Investors and Businesses
Under the leadership of its new governor, Jenniffer González, the Puerto Rico government is considering a set of legislative proposals set to bring major tax changes. While the law changes have not yet been formally approved, they have reportedly strong support from local government leaders, suggesting they are likely to pass soon. We will be updating this article and notifying our mailing list as news is published.
These updates will impact investors, expatriates, and businesses relocating under Act 60 (the Puerto Rico Incentives Code), as well as those who have always lived in Puerto Rico. The goal is to balance tax benefits with fiscal sustainability and fairness. The tax reforms are projected to keep Puerto Rico attractive to investors and business owners wanting to save taxes, while creating more tax savings opportunities for Puerto Rico locals.
Here is an overview of the key changes for those using Puerto Rico’s tax incentives.
New 4% Tax for Future Act 60 Individual Investors
Introduction of the 4% Tax
A significant part of the Puerto Rico tax changes is a small increase in Act 60 investor income tax for new Investor program recipients starting January 1, 2026. The tax reforms propose to raise the current Act 60 0% tax on passive income to 4% for new Investors joining the program after 2025. These tax rates apply to Puerto Rico-sourced capital gains, interest, and dividends.
Grandfathering Existing Act 60 Recipients
Importantly, current Act 60 Investor incentive holders will keep their 0% tax rate. Those who obtain an Investor decree before the end of 2025 will not be subject to the new 4% tax. Over 4,000 investors enjoy this benefit, some still under the original Act 22 program.
Residency Requirement
Puerto Rico will add a prior residency requirement for new Act 60 applicants. Newcomers to PR must certify they have not been a resident for the 6 years prior to applying for the Investor program.
Extension of Act 60 to 2055
Another part of the Puerto Rico tax changes includes a plan to extend Act 60’s validity through 2055. Current Act 60 and Act 22 decrees are set to expire at the end of 2035, so this extension will represent a significant increase to these benefits.
It is possible that the new tax reforms will allow those decrees to be extended when they expire, but that the new 4% tax rate would apply starting in 2036. Details on this and other key points will be added as we receive them.
Continued 4% Tax Incentive for Businesses
Preservation of Core Business Incentives
Businesses relocating to Puerto Rico under Act 60 will continue to enjoy the 4% corporate income tax rate and a 100% tax exemption on Puerto Rico-sourced dividends. The new 4% tax only affects individual passive income under the Act 60 Investor program; the many business programs under Act 60 will remain unchanged.
Simplified Compliance
While no new corporate taxes were introduced, businesses must continue meeting requirements like hiring minimum staff and filing annual reports. The government also plans to simplify tax administration, including consolidating municipal sales tax (IVU) collections through the SURI system.
Tax Parity Measures and Other Reforms
Extending Low Tax Rates to All Residents
Puerto Rico proposes reducing the tax on capital gains, interest, and dividends for all residents to 4%. This move would match Act 60 benefits without requiring a special decree. If approved, this aspect of the reforms it would lower investment taxes dramatically for everyone, from the current 10%-15%.
Broader Tax Reform Package
The broader Puerto Rico tax changes come as part of a 13-measure tax reform package, supported by legislative leaders. Key reforms include:
- Boosting other incentives: Extending a 10-year exemption for hospital income and rental income exemptions for residential landlords until 2040. The plan also eliminates the inventory tax on prescription medicines, helping lower consumer costs.
- Encouraging savings: Increasing the deductible IRA contribution from $5,000 to $7,000 and doubling the education savings account deduction from $500 to $1,000.
- Simplifying the tax code: Unifying filing dates, standardizing definitions like “LLC,” requiring consistent documentation, and consolidating filings in the SURI portal.
These reforms aim to make the system fairer, simpler, and more competitive.
Compliance and Opportunities for Investors and Expats
Act Now to Lock in 0% Benefits
For prospective Act 60 Investor program participants, the message is clear: apply before the end of 2025. Those who do can still secure the 0% tax rate on Puerto Rico-sourced gains.
Many U.S. investors are accelerating their relocation plans to Puerto Rico. Acting early allows them to be grandfathered under the more generous current rules. Those moving in 2026 or later will face the new 4% tax but will still enjoy significant tax savings compared to U.S. rates.
Increased Emphasis on Compliance
Puerto Rico is also taking compliance seriously. Adding a prior residency requirement ensures genuine relocation. Tax authorities have already increased audits and enforcement against those misusing Act 60. Past cases highlight that failing to meet requirements like the 183-day rule, $10,000 charitable donations, and annual reporting can invalidate the tax incentive contract, subjecting the taxpayer to significantly higher taxes than expected.
Why Puerto Rico Remains Attractive
Even with the new 4% tax, Puerto Rico remains highly attractive for investors. The island exempts U.S.-source income for bona fide residents, while the IRS exempts Puerto Rico-sourced income. This creates powerful tax savings.
After 2025, even without an Act 60 decree, residents may pay just 4% on capital gains, one of the lowest rates globally. Thus, Puerto Rico will likely continue drawing entrepreneurs and investors seeking significant tax advantages.
Bottom Line for 2025-2026
Puerto Rico’s 2025 tax changes mark a new era in its economic strategy. The Puerto Rico tax changes aim to preserve the island’s appeal to investors while promoting fairness and fiscal health.
The Act 60 program’s extension to 2055 provides long-term certainty. Those who act quickly in 2025 can secure 0% rates, while future applicants can still benefit from a globally low 4% rate.
Puerto Rico remains a tax-friendly destination for investors and businesses. These reforms could create a new set of opportunities, and as always, consulting a tax professional familiar with Puerto Rico law is highly recommended. Contact Puerto Rico Advantage to schedule a free consultation!
(Related Sources: El Nuevo Día – Responsabilidad Contributiva a Nuevos Beneficiarios / El Nuevo Día – 13 Medidas Contributivas note that these sites are in spanish but your browser should be able to translate it)
