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!
Comparing the Cost of Living in PR to Major U.S. Cities
Condado neighborhood in San Juan, with combination of residential condos, hotels, restaurants, and shopping
For many individuals and businesses looking to relocate, Puerto Rico offers not just stunning beaches and a tropical lifestyle but also significant financial advantages. The cost of living in Puerto Rico is often lower than in major U.S. cities, making it an attractive destination for those seeking affordability and tax benefits. But how do everyday expenses compare, and how do tax incentives balance out living costs? Let’s break it down.
Comparing Puerto Rico’s Cost of Living to Major U.S. Cities
In general, Puerto Rico’s cost of living is lower than that of major metropolitan areas like New York, San Francisco, or Miami. While some expenses, like electricity and imported goods, can be higher, the overall affordability—especially in housing—makes Puerto Rico an attractive option. To provide an accurate comparison, we used data from sources such as Numbeo, Expatistan, and local market research as of 2024.
Budget Breakdown: Everyday Expenses in Puerto Rico
1. Housing in Puerto Rico
Bayshore Villas in San Juan’s Punta de Tierra neighborhoodHomes in Old San Juan
The cost of housing in Puerto Rico is significantly lower than in major U.S. cities. Rent for a middle-class one-bedroom apartment in San Juan’s prime locations, like Condado or Old San Juan, ranges from $1,000 to $1,500, whereas high-end apartments in these areas can exceed $2,000 per month. By comparison, similar apartments in New York or San Francisco cost over $3,000 per month.
For those looking to buy, real estate prices can be attractive, with beachfront condos available for as low as $200,000 to $400,000 in some areas. Additionally, Puerto Rico offers luxury gated communities and high-end condo buildings with extensive amenities for those seeking a more upscale lifestyle.
Tip: If you’re flexible with location, areas outside of San Juan—such as Mayagüez, Ponce, Rincón or other towns outside of the main metro area—offer lower rent while maintaining a high quality of life.
Utility costs in Puerto Rico can be higher than on the mainland due to the island’s reliance on imported fuel for electricity. The average electricity bill runs between $150 and $300 per month, depending on air conditioning use. The power grid in PR is also a bit fragile, so it is important to look into mitigation strategies such as generators and solar panels should you experience a power outage.
Tip: Solar energy is becoming more popular, and many homeowners invest in solar panels and battery backup systems to reduce electricity costs and avoid being without power. Additionally, solar panel installations may be eligible for tax credits, providing further incentives for homeowners looking to lower their energy bills.
3. Food & Groceries in Puerto Rico
Plaza de Mercado de Santurce – InteriorPlaza de Mercado de Santurce – Shoppers
Grocery prices are generally higher than in the U.S. mainland due to import costs. Expect to pay around $300 – $400 per person per month for groceries. Local markets offer fresh produce at lower prices, so shopping at farmers’ markets or buying local brands can help save money.
Tip: Opt for locally grown fruits, vegetables, and seafood to save on imported grocery costs.
4. Transportation in Puerto Rico
Old San Juan Streets at night, with Christmas decorations on display
Car ownership is common in Puerto Rico, and gas prices are comparable to mainland averages, around $4.00 – $4.50 per gallon. However, vehicle purchase prices tend to be higher due to import taxes, as there are no cars manufactured in Puerto Rico. Public transportation options are limited outside of San Juan, so having a vehicle is often necessary.
Public Transit: The Tren Urbano metro system operates in the San Juan metropolitan area but it is not as extensive as subway systems in major U.S. cities. While it provides some connectivity, most residents still rely on personal vehicles or rideshare services for daily transportation.
Tip: If living in San Juan, you can reduce costs by using Uber (currently the only rideshare app in PR) or walking. Several attractive neighborhoods allow residents to walk to most daily necessities, minimizing the need for a car.
How Tax Savings Can Offset Living Costs
One of the biggest financial incentives for moving to Puerto Rico is the potential tax savings under Act 60 (formerly Acts 20 and 22, and others). Here’s how these world-class tax incentives can benefit you:
0% Capital Gains Tax – Investors relocating to Puerto Rico can benefit from no tax on both short and long-term capital gains, compared to the 15-20% tax rate on the mainland.
2 or 4% Corporate Tax Rate – Entrepreneurs setting up qualifying businesses in Puerto Rico can enjoy a flat 2 or 4% corporate tax rate versus the 21% federal rate in the U.S.
No State Taxes – Unlike the mainland, which levies both state and federal taxes, residents of Puerto Rico are only taxed by PR for income sourced there.
For example, a business owner earning $500,000 per year could potentially save over $100,000 in taxes compared to living in a high-tax state like California or New York. (This estimate is based on Puerto Rico’s tax incentives versus combined federal and state tax rates in high-tax jurisdictions. Actual savings depend on individual circumstances, and consulting a tax professional is advised. Contact Puerto Rico Advantage to schedule a free initial consultation)
For those relocating primarily for tax benefits, Puerto Rico offers substantial savings. While some costs, like utilities and groceries, can be higher, the reduced housing costs and major tax incentives often result in a significantly improved financial outlook.
For those less concerned about affordability but looking for a transparent picture of what to expect, Puerto Rico provides a mix of high-end and budget-friendly living options. Luxury accommodations, fine dining, and premium services are available, but so are cost-saving opportunities for those who seek them.
If you’re considering a move, it’s important to weigh not just the numbers but also the lifestyle trade-offs. If you’re looking for an island paradise with financial perks, Puerto Rico may just be the perfect fit.
Need help with your move? Contact Puerto Rico Advantage for guidance on relocation, tax incentives, and settling in!
Below are some of the most common questions we hear from people considering Puerto Rico as a relocation destination. Contact us for more details, and for a free consultation about your unique situation.
Doesn’t Puerto Rico Have a High Crime Rate?
Puerto Rico’s issue has more to do with public relations than actual crime! This image is partly formed by cultural stereotypes and political history.
Like everywhere else, Puerto Rico’s crime rate varies depending upon what area you happen to be in. Its metropolitan areas tend to be higher, especially in less wealthy parts of town. However, it can be argued that the crime in the cities is comparable to US cities. For example, Puerto Rico’s murder rate is half that of Washington DC and Detroit. If Puerto Rico were ranked for safety as if it were a State, it would be 19th in the list.
For those who are relocating and want an extra degree of protection, there are a number of gated community options that are extremely safe.
What is the Food Like in Puerto Rico?
The local cuisine is Spanish with Caribbean accents. It is heavy in meat, particularly pork, and moderately spicy, though typically less spicy than what you might find in other parts of Latin America. As in many “island” cuisines, sweet and coconut flavors can be found in many dishes. Plantains are a major staple.
Dining out, we have found that while many fine options exist in Puerto Rico, good restaurants featuring Asian cuisines, in particular, are rare.
Grocery stores are plentiful, and the locally grown food is inexpensive. For organic food, and other items that are not produced on-island, you may have to go to specialty stores, where the prices are higher.
Is it Safe to Drink the Water?
The tap water is considered safe to drink in Puerto Rico, as the sanitation standards are the same here as in the States.
Is it Necessary to Learn Spanish to Live in Puerto Rico?
The great news is that it is not necessary to learn Spanish to relocate to Puerto Rico!
Both Spanish and English are official languages in Puerto Rico. Most government forms and official sites, as well as most menus and other things you might need to read, are available in English. Also, most service providers and customer service representatives are either fluent in both English and Spanish, or at least know enough English to get by.
However, you will almost definitely encounter some people who speak little to no English. For these encounters, it can be helpful to learn at least a little conversational Spanish, though we have never yet encountered a situation when it was absolutely necessary. Puerto Ricans are generally very friendly and accommodating of a limited Spanish vocabulary; rather than being judgmental or impatient, as some cultures can be in this type of situation, the folks in Puerto Rico usually appear to us to graciously appreciate whatever genuine effort you can make.
What is the Cost of Living in Puerto Rico?
The cost of living varies depending upon the area in which you live. Gated communities tend to be more expensive for real estate, and the dining and entertainment in those areas are also pricier. However, people who move to more expensive areas in Puerto Rico may well have lived incomparably expensive areas prior. There are many areas to live which are still desirable and safe, but affordable.
Gas tends to be just slightly more expensive in Puerto Rico than in the States. (Also note that it is sold in liters rather than gallons, which can be confusing at first.) Electricity is currently about twice the price; however, there is never a need to heat your living space here, and while you may choose to run your air conditioner more, fuel efficient inverter air conditioners are common in most modern homes.
Food can be more expensive, particularly if you prefer to buy organic products, as there is currently very little organic farming happening in Puerto Rico. Other items that must be imported may cost more as well.
Here is a cost of living comparison tool which may give you a good idea of what you might expect, based on an average price for living in Puerto Rico, compared to wherever you may be moving from.
What would happen if Puerto Rico Became a State?
If Puerto Rico became a US State, its residents would become subject to US federal tax. This almost completely eliminates the benefits of the tax incentive Acts, as the low Puerto Rico tax would then become a state tax, owed in addition to what must be paid to the IRS.
It should be noted, however, that the people of Puerto Rico have declined Statehood, by public referendum, on more than one occasion in the past. Many Puerto Ricans are proud of their independence; Puerto Rico competes as its own country in the Olympic Games. Also, with so many of the population living in poverty, few are eager to accept the additional tax burden for many that would come with Statehood. Finally, it appears to us that many Puerto Ricans are savvy about the prospects for economic recovery, growth, and prosperity made possible by the Commonwealth’s unique legal status. Though Statehood may be inevitable at some point in the farther future, we judge it to be unlikely in the near term.
We Can Help
Our company helps people like you take advantage of Puerto Rico’s excellent tax incentives! We can help you determine which tax incentives are right for you, help you plan your residency and relocation strategy, and simplify the entire process for you.
Most of what has been covered in the news lately is Puerto Rico’s debt, and there is no doubt that this is a serious issue. Currently, the new PROMESA board is at work to determine the plan to restructure Puerto Rico’s debt, and plan what changes may go with it to ensure ongoing accountability.
What is not included in these news reports is the stunning opportunities for new business growth that the island and all its many advantages make possible. In addition to incredible, world-class tax incentives, Puerto Rico is also attractive in other ways. These opportunities are very likely to continue since they are part of the means for improving the economy long-term. (There have been no signs that the recent passage of the PROMESA bill by the US Congress will negatively impact the ability or intention of the Puerto Rican government to continue to incentivize economic growth and recovery through the excellent legal tax advantages that it currently makes available to its legal residents.)
Beneficial for Businesses
Puerto Rico is a great place to do business for many industries. A number of fortune 100 companies have established operations here, including 10 of the world’s top 20 pharma and biotech companies; 2 Fortune 1000 companies are even headquartered in Puerto Rico. And out of 174 active Foreign Trade Zones, Puerto Rico ranks 13th in imports and 11th in exports (report reference from 2012).
Additionally:
Puerto Rico’s tax incentives are world class!
All needed infrastructure is in place.
The tax incentives are creating an entrepreneurial environment, where it is easy to meet potential business partners.
For many people, Puerto Rico’s weather, beaches, and beautiful places to live make it a very desirable place to relocate, so some employees and business partners may be easy to convince.
PR has a bilingual population.
One of the best engineering schools in the country is located in Mayaguez, and US companies heavily recruit all types of Puerto Rico STEM graduates.
Puerto Rico is very accessible by air travel, with many non-stop flights daily from New York and other major US cities.
Puerto Rico Has the Most Developed Economy in Latin America
Puerto Rico’s annual gross domestic product is about $100 billion. The economy is already strong in the following sectors:
Manufacturing
Pharmaceuticals
Electronics
Processed foods
Clothing
Textiles
Service
Tourism
Technology is a growing industry, and some predict it may be the next big wave.
Future Plans for Economic Development
Puerto Rico is currently still losing some of its most highly educated residents to higher paying jobs in other locations. Many of the plans to improve the economy involve creating additional and more substantial jobs locally, to retain top talent on the island. Attracting more business to Puerto Rico naturally also impacts the economy indirectly by creating more services jobs to support these businesses and new residents relocating to Puerto Rico.
The PR government’s plans include encouraging growth in Manufacturing, Services, and Tourism businesses. Act 73 (the Economic Development Incentives Act) and Act 20 (the Export Services Act), have been put in place to attract new businesses of these types to the island, to create new jobs for Puerto Rican residents, and to boost the local economy. The Tourism Development Act has been put in place to offer tax credits and exemptions for businesses constructing and operating tourism endeavors.
Puerto Rico is fortunate to be located in an advantageous geographic position along the Mona Passage, between the Atlantic Ocean and the Panama Canal. Puerto Rico’s Port of the Americas is designed as a modern, containerized import/export and transshipment cargo facility. Located in Ponce, Puerto Rico’s second largest city, on the southern coast, it is also very near to Mercedita International Airport (PSE).
With Act 214, Puerto Rico embraces innovation via the Science, Technology, and Research Trust. The Trust provides access to grants for projects involving technology commercialization, research, and the creation of science and technology jobs.
Plans are also underway to transform the former Roosevelt Roads Navy base into a diverse community including tourist attractions, residential properties, schools, and hospitals.
Read more about these and several other plans in progress to stimulate Puerto Rico’s economy in the official government report. Feel free to contact us with any questions.
Our company helps people like you take advantage of Puerto Rico’s excellent tax incentives! We can help you determine which tax incentives are right for you, help you plan your residency and relocation strategy, and simplify the entire process for you.
Puerto Rico is a land of economic opportunity, endless beaches, a rich culture, and friendly people. The weather is amazing year-round, and Puerto Rico offers many beautiful and safe places to live. Let us help you discover the many benefits and joys that life in Puerto Rico has to offer!
Puerto Rico is in the process of implementing tax reforms that are likely to impact the Investor program. If you are considering a move to PR soon, it is beneficial to consider applying for the Investor program before the end of 2025 to lock in the current benefits.
