Act 60 vs Act 20/22: Understanding Puerto Rico's Tax Law Transition

Act 60 vs Acts 20/22: The Transition

Act 60 (Ley 60-2019), known as the Puerto Rico Incentives Code, consolidated multiple prior incentive laws into a single framework. This included Act 20 (Export Services) and Act 22 (Individual Investors), among others.

What Changed

• Unified framework: Multiple laws consolidated under one code
• Chapter structure: Act 20 became Chapter 3 (Export Services), Act 22 became Chapter 2 (Individual Investors)
• Additional chapters: Manufacturing (Ch. 4), Tourism (Ch. 5), and other sectors added
• Updated compliance: Enhanced reporting and enforcement provisions
• DDEC administration: Centralized under the Department of Economic Development

What Generally Remained

• 4% corporate rate for qualifying export services (Section 2032.01(a))
• Preferential treatment for individual investor capital gains
• Benefit horizons that differ by income type, rather than a single end date (see below)
• Bona fide residency requirement (under IRS IRC Section 937)

2027 Rate Change

Two Tracks, Two End Dates

The program horizon and the exemption horizon are not the same thing, and the difference matters for anyone comparing the old and new regimes.

• Decree applications on or before December 31, 2026: qualifying interest and dividends are fully exempt (totalmente exento) from Puerto Rico income tax, including the alternate basic tax, for income earned after establishing residency but before January 1, 2036 (Section 2022.01(a)). This applies only where the decree has not been revoked under Section 6020.09(a).
• Applications from January 1, 2027 onward: the same categories of interest and dividends are instead subject to a 4% flat preferential rate, for income earned before January 1, 2056 (Section 2022.01(b)).
• Capital gain on post-residency appreciation: for grandfathered applicants, fully exempt where recognized before January 1, 2036, with ordinary Puerto Rico Internal Revenue Code treatment after December 31, 2035 (Section 2022.02(b)). For applications from January 1, 2027 onward, a 4% preferential rate applies where the gain is recognized before January 1, 2056 (Section 2022.02(d)).

So while the program itself extends into the 2050s, the fully exempt treatment available to grandfathered applicants carries the earlier 2036 date, and it carries that date for capital gains as well as for interest and dividends. Anyone relocating primarily for passive income or for an eventual liquidity event should plan against 2036 rather than the program-wide horizon.

A significant change under the Ley 38-2026 amendment to Section 2022.01:

• Applications on or before December 31, 2026: May qualify for grandfathered 0% rate on interest and dividends
• Applications from January 1, 2027: Subject to 4% flat rate on passive income
• Six-year non-residency: Post-2026 applicants must demonstrate they were not PR residents for at least six years prior to relocating (Section 1020.02(a)(4), Ley 38-2026)
• Capital gains: For grandfathered applicants, pre-move appreciation is taxed at 5% where recognized after 10 years of residency and before January 1, 2036 (Section 2022.02(a)), and post-move appreciation is fully exempt where recognized before January 1, 2036 (Section 2022.02(b)). Both revert to ordinary Code treatment after that date.

Legacy Act 20/22 Decree Holders

Existing decree holders under Acts 20 and 22 generally continue operating under their original decree terms. Compliance obligations have been updated to align with Act 60 reporting requirements. The DDEC annual report deadline is November 15 (Section 6020.10(a)(3)).

Charitable Contributions

Chapter 2 decree holders are generally subject to a $10,000 annual contribution requirement (Section 6020.10(b)), allocated: $5,000 to child poverty nonprofits, $2,500 to other qualifying entities under Section 1101.01 of the PR Internal Revenue Code, and $2,500 to the Fondo Especial para la Igualdad Social.

Frequently Asked Questions

Do Act 20/22 decree holders need to convert to Act 60? Not necessarily. Existing decrees generally remain valid under their original terms. However, compliance and reporting requirements have been aligned with the Act 60 framework.

Is Act 60 better than Act 20/22? Act 60 consolidated and in some cases expanded the incentive framework. Whether the current structure is more or less favorable depends on individual circumstances and decree terms.

What is the most important difference? The 2027 rate change for individual investors is the most significant recent development, affecting new applicants filing from January 1, 2027 onward.

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Virtus Advisory provides this content solely for informational purposes. Nothing in this article should be construed as a guarantee of any particular tax outcome, an endorsement of any specific tax strategy, or an offer to provide professional services. For personalized guidance, contact a licensed CPA or tax professional.