Act 60 vs Act 20/22: The Complete Guide to Puerto Rico's Tax Incentive Evolution
In 2019, Puerto Rico revolutionized its tax incentive system by consolidating the successful Act 20 and Act 22 programs into a more robust framework: Act 60. But what exactly changed? Are the tax benefits still the same? Do you need to take action if you already hold a decree under the previous laws?
CRITICAL 2025 UPDATE: Recent Act 60 amendments have extended all tax benefits until 2055 (20 additional years from the original 2035 expiration), while introducing a new 4% passive income structure for future applicants. Complete grandfathering protection remains in place for existing decree holders.
This comprehensive guide explains everything you need to know about the key differences between Act 60 vs Act 20/22 and their impact on your Puerto Rico tax optimization strategy.
Executive Summary: What You Need to Know
The Core Transformation
From 2012 to 2019, Puerto Rico operated under a dual-law system where Act 20 focused on export services with a 4% corporate tax rate, while Act 22 offered individual investor benefits with 0% capital gains tax. Although these tax benefits were powerful, the system presented significant challenges due to fragmented administration between two separate laws, different processes for each decree, and limited oversight that created uncertainty.
Act 60, implemented in 2019, consolidated everything under a unified law with multiple chapters that preserve the same core benefits while adding new tax incentives. The result is a much more professional and streamlined process, with enhanced oversight and compliance systems that benefit both applicants and the overall program integrity.
The Bottom Line
Act 60 is superior in almost every aspect. The tax benefits remain equally powerful, but with better administration, more options, and greater long-term stability for Puerto Rico tax optimization.
Existing Decrees: What Happens If You Already Have Act 20/22?
Complete Grandfathering Protection
If you already hold an Act 20 or Act 22 decree, the news is excellent. The Puerto Rico government implemented a comprehensive grandfathering system that fully protects your existing investment. Your tax benefits remain exactly as they were when you originally applied, with no reductions or forced modifications. You don't need to take any immediate action or worry about sudden changes to your tax structure.
CRITICAL 2025 UPDATE: Existing Act 20 and Act 22 decrees that originally expired in 2035 now automatically benefit from the extension until 2055. This means your current decree not only remains valid until its natural expiration date, but that date has been extended by 20 additional years. When it comes time to renew, you have the option to continue under the same original Act 20 or Act 22 terms, but now with the certainty that the program will continue until 2055.
This extension provides unprecedented stability for long-term planning and significantly protects the investment you've already made in establishing your Puerto Rico presence. For many beneficiaries, this completely eliminates the pressure to consider immediate migration to Act 60.
When to Consider Transition
Transitioning to Act 60 may benefit you if your current decree expires soon and you want access to new benefits like manufacturing incentives. It's also a strategic option if you need to substantially modify your business structure or seek to leverage new compliance options that offer greater clarity and protection.
Transition Process
If you decide to make the change, the process requires a comprehensive cost-benefit analysis specific to your situation, followed by careful timing planning to minimize operational disruptions. Subsequently, you'll need to apply under Act 60 with a new structure, voluntarily revoke your previous decree, and activate operations under the new Act 60 decree.
Detailed Comparison: Tax Benefits Analysis
Individual Investors: From Act 22 to Act 60 Chapter 2
For individual investors, the transition from Act 22 to Act 60 Chapter 2 maintains all core tax benefits intact. Capital gains remain 0% tax-exempt, as do dividends and interest from Puerto Rico sources. Charitable donation requirements stay at $10,000 USD annually, and the physical presence obligation continues at 183+ days per year.
However, where Act 60 truly excels is in administrative process improvements. While Act 22 operated with more basic processes and limited oversight, Act 60 introduced a more professional application process and robust oversight that reduces risks for beneficiaries. In essence, you get the same powerful tax benefits but with better administration and enhanced regulatory security.
Export Services: Evolution from Act 20 to Chapter 3
The transformation from Act 20 to Act 60 Chapter 3 represents a significant improvement in flexibility and clarity. While the 4% corporate tax rate and distribution exemptions remain identical, Act 60 introduced important operational enhancements.
Employment requirements became more flexible, allowing 3-5 full-time equivalent employees instead of the fixed minimum of 5 under Act 20. Minimum investment requirements also became more adaptable to different business types. Perhaps most importantly, the list of eligible services expanded considerably, providing greater clarity about which activities qualify for the benefits.
The compliance aspect experienced the most notable transformation. While Act 20 operated with less clear guidelines that could create confusion and uncertainty, Act 60 established a more structured compliance framework that provides greater certainty for both beneficiaries and administrators.
New Benefits in Act 60
Chapter 4: Manufacturing Incentives
One of Act 60's most significant advances was introducing robust manufacturing incentives—something completely absent in Act 20 and Act 22. The new Chapter 4 offers a 4% industrial tax rate instead of the regular 18.5% rate, representing substantial savings for manufacturing companies. Additionally, companies can import machinery with 100% duty exemption, obtain 75% municipal license exemption, and receive a 50% credit on R&D expenses. These benefits are available for 15 years with renewal options.
Chapter 5: Additional Benefits
Act 60 significantly expanded the scope of available incentives beyond export services and individual investment. New chapters include specialized tourism incentives, agricultural benefits, renewable energy incentives, and rural development programs. This diversification allows Puerto Rico to attract a much broader range of industries and investment types.
Enhanced Administration
Perhaps one of the most important improvements is the professionalization of administrative processes. Act 60 introduced clearer application processes with more defined timeframes, better communication with DDEC, and improved digital systems that make the entire process more efficient and transparent for both applicants and administrators.
Statistics: Before vs. After
Growth in Adoption
The numbers reveal the success of the transformation to Act 60. During Act 20/22's seven years (2012-2019), approximately 4,000 decrees were approved, averaging 570 per year, concentrated mainly among high-income individuals.
In contrast, Act 60 has attracted approximately 15,000 new decrees in just five years (2019-2024), averaging 3,000 per year. More importantly, it has achieved significant diversification in applicant types, attracting a much broader range of companies and industries.
Economic Impact
The economic impact also demonstrates the new system's superiority. Act 20/22 attracted approximately $1.5 billion in total investment during its seven years of operation, while Act 60 has attracted $2.5 billion in just five years.
In terms of job creation, the difference is even more pronounced. Act 20/22 generated approximately 15,000 jobs during its operation period, while Act 60 has created 45,000 additional jobs in a shorter period, demonstrating its greater effectiveness in generating real economic impact in Puerto Rico.
Which Is Better for You?
If You Already Have Act 20/22
The decision to maintain your current decree versus migrating to Act 60 depends on several factors specific to your situation. Maintaining your current decree makes sense if it has many years remaining until expiration, your current structure works perfectly for your needs, you don't need access to the new benefits Act 60 offers, and you prefer to avoid the complexities and costs of a transition process.
On the other hand, you should seriously consider switching to Act 60 if your decree expires in the coming years, you want access to new benefits like manufacturing incentives, you seek greater compliance clarity to reduce regulatory risks, or you plan significant expansion that could benefit from Act 60's greater flexibility.
If You're Applying for the First Time
For new applicants, the decision is clear: Act 60 is the only available option, as Act 20/22 no longer accept new applications. Fortunately, this is an advantage, not a limitation. New applicants benefit from a more streamlined process, better government support, access to a more established community of beneficiaries, and lower regulatory risk due to Act 60's more robust frameworks.
Transition ROI Analysis
Cost-Benefit Calculation
Typical transition costs include legal fees of $25,000-$50,000, management time equivalent to 40-80 hours, and possible operational downtime of 2-4 weeks, totaling approximately $30,000-$75,000.
Benefits include better compliance that reduces regulatory risks, access to potential new incentives, improved networking that can generate business opportunities, and more efficient processes that reduce long-term administrative costs.
Recommendations by Beneficiary Type
Technology Entrepreneurs
For technology entrepreneurs, the recommendation is to migrate to Act 60 when renewing your current decree. Greater clarity about software services, networking with a more robust tech ecosystem, and faster processes for modifications provide significant competitive advantages.
Individual Investors
For individual investors, the decision requires case-by-case evaluation. If your Act 22 decree has five or more years remaining, maintaining the current structure probably makes sense. If it expires in 2-3 years, you should consider transition. If you plan to establish a family office, you should definitely migrate to leverage the more sophisticated structures available under Act 60.
Family Offices
For family offices, the recommendation is clear: migrate to Act 60. The law provides better structure for complex operations, better-defined wealth management services, and flexibility for multiple entities that facilitate sophisticated wealth management structures.
Professional Consultants
For professional consultants, migration is advisable if feasible. Professional services are better categorized under Act 60, there's less ambiguity about eligibility, and there's better protection against regulatory challenges.
How Virtus Advisory Helps You
Free Transition Analysis
Our analysis evaluates the specific cost-benefit of your situation, determines optimal transition timing, identifies the ideal structure under Act 60, and develops risk mitigation strategies.
Migration Services
Our complete process includes free initial analysis, strategic planning (2-3 weeks), application preparation (4-6 weeks), processing (8-12 weeks), and operational transition (2-4 weeks).
Post-Migration Support
Support includes setup of new compliance processes, training on new requirements, continuous compliance monitoring, and ongoing optimization to ensure you maximize the benefits of your new structure.
Conclusion: The Necessary Evolution
Act 20 and Act 22 were pioneers that put Puerto Rico on the map as a tax optimization destination. Act 60 is their natural evolution—maintaining all the benefits that made the previous laws successful, but with better administration, more options, and greater stability.
For new applicants, Act 60 is clearly superior.
For existing beneficiaries, migration depends on specific factors, but the general direction is clear: Act 60 represents the future of Puerto Rico tax incentives.
The question isn't whether Act 60 is better than Act 20/22—the question is when to migrate to maximize your benefits.
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*Need help evaluating your specific situation? Our team of Act 60 experts can guide you through the analysis and, if applicable, the migration process.*