Today CPA Rachel Farris joins us to talk about how you can benefits from Puerto Rico’s Act 60 tax incentives by becoming bona fide residents of the island. Rachel explains how the program was created to attract capital and talent to Puerto Rico, the rules around residency and post-move appreciation, and the common pitfalls people face when trying to qualify. She also discusses lifestyle differences, cost of living, and more, as the Act requires genuine relocation and compliance with IRS rules to be done correctly. Today we discuss...

Maximize Wealth Through Puerto Rico's Act 60: A Pathway to Financial Freedom

By Rachel Farris, CPA

My name is Rachel Farris, CPA, Managing Partner of Rachel Farris, CPA, P.C., a firm dedicated to helping individuals and businesses with tax minimization strategies with a particular focus on Puerto Rico's Act 60. As a recipient of the Top 40 Under 40 Tax and Accounting Professionals award, I have the privilege of working with a wide range of clients seeking to legally minimize their tax burden while maintaining full compliance with U.S. and Puerto Rico tax
laws. I am also the founder of MaximizeWealth.com, an educational course designed to empower individuals with knowledge and tools to leverage Puerto Rico's Act 60 incentives.

Today, I want to introduce you to the significant wealth-building opportunities available under Act 60 and illustrate how individuals and businesses can achieve financial freedom, potentially retire early, or gain a substantial competitive edge by understanding and utilizing this powerful tax incentive.

What Is Puerto Rico's Act 60?

Puerto Rico's Act 60 is a tax incentive program aimed at bringing capital and entrepreneurship to the Island. The two most well-known incentives for individuals and businesses are:

1. Individual Resident Investor Incentive (formerly Act 22): This offers significant tax benefits on capital gains for individuals who become bona fide residents of Puerto Rico.
2. Export Services Incentive (formerly Act 20): This provides highly favorable corporate tax rates for businesses that export services from Puerto Rico to clients outside the island.

Because Puerto Rico is a U.S. territory, residents are generally exempt from federal income tax on Puerto Rico-sourced income, allowing for unique planning opportunities while remaining fully compliant with U.S. tax law and keeping their U.S. citizenship.

Key Benefits of Act 60

Individual Resident Investor Benefits:

• 0% Tax on Puerto Rico-Sourced Capital Gains, Dividends, and Interest: Once you become a bona fide resident, future gains on qualifying investments are fully exempt from income tax.

Export Services Business Benefits:

• 4% Corporate Tax Rate on Eligible Export Services Income: Qualifying businesses that export services to non-Puerto Rico clients pay only 4% corporate tax on net income.
• Distributions from Puerto Rico entities may also be tax-advantaged: With proper structuring, dividends from Puerto Rico corporations may be tax exempt.

Who Is Eligible?

Act 60 is open to U.S. citizens who can become bona fide residents of Puerto Rico.

Generally, bona fide residents must meet the following:

• Spend at least 183 days physically present in Puerto Rico per year.
• Have a tax home in Puerto Rico.
• Demonstrate a closer connection to Puerto Rico than to the U.S. mainland.
• Sever or significantly reduce financial and personal ties to your previous state of residence.

For businesses, the Export Services Incentive applies to companies that provide eligible services to clients outside Puerto Rico, such as:

• Digital marketing
• Consulting
• Software development
• Financial services
• Advertising and public relations
• Other export services

Case Study: The Power of Act 60 in Action

Let’s take a look at a hypothetical example to illustrate the savings potential.

Meet Sarah: The Digital Marketing Entrepreneur

Sarah is a 35-year-old entrepreneur who owns and operates a digital marketing agency in California. Her company generates $2 million in net income annually. Sarah also has $3 million invested in publicly traded stocks.

Sarah’s Tax Situation in California:

• State income tax (California): 13.3% (highest bracket)
• Federal income tax: 37% (highest bracket)
• Net Investment Income Tax (NIIT): 3.8%

On her $2 million business income:

• Federal tax: $740,000
• State tax: $266,000
• NIIT: $76,000
• Total Tax Liability: $1,082,000
• Effective Tax Rate: 54%

On her $3 million investment portfolio, if she sells with $2 million in long-term gains:

• Federal capital gains tax: 20% ($400,000)
• NIIT: 3.8% ($76,000)
• State capital gains tax (California): 13.3% ($266,000)
• Total Capital Gains Tax: $742,000

Sarah’s Total Tax Liability in California (Business + Capital Gains):

$1,082,000 (business) + $742,000 (capital gains) = $1,824,000

Sarah’s Tax Situation After Moving to Puerto Rico Under Act 60:

Business income under Export Services Decree (4% corporate rate):

• Puerto Rico corporate tax: $80,000

Capital Gains under Individual Resident Investor Decree:

• Puerto Rico capital gains tax: $0
  • Please note that this only applies to post-move appreciation

Sarah’s Total Tax Liability in Puerto Rico (Business + Capital Gains):

$80,000 (business) + $0 (capital gains) = $80,000

Total Tax Savings:

$1,824,000 (California) - $80,000 (Puerto Rico) = $1,744,000 annual savings

The Bigger Picture: Financial Freedom and Strategic Advantages

The numbers speak for themselves. By relocating to Puerto Rico under Act 60, Sarah could save over $1.7 million per year in taxes. This level of savings can profoundly impact an individual’s wealth-building capacity. Here’s how:

1. Financial Independence & Early Retirement: With significantly more after-tax income, individuals can reinvest, grow their wealth faster, and achieve financial goals such as early retirement, funding generational wealth, or philanthropic endeavors.
2. Business Competitive Edge: Lower corporate tax rates enable businesses to reinvest more into growth, hire additional employees, increase marketing budgets, or expand into new markets.

Important Considerations

While Act 60 offers extraordinary opportunities, it is not without complexity. To fully comply and maintain eligibility, individuals must carefully:

• Document bona fide residency.
• Maintain proper corporate structuring.
• Stay updated on evolving tax laws and IRS guidance.
• Avoid common pitfalls related to state residency audits and improper sourcing of income.

Conclusion

Puerto Rico’s Act 60 is one of the most powerful and legal tax minimization strategies available to U.S. citizens. Whether your goal is to grow your business, accelerate your path to financial independence, or optimize your investment returns, Act 60 can provide a uniquely valuable tool when executed properly.

This is exactly why I created the Maximize Wealth educational course: to help individuals like Sarah — and perhaps like you — fully understand the rules, requirements, and enormous potential available under Act 60. With the right planning, Act 60 can be your gateway to financial freedom. For more information, please see MaximizeWealth.com or RachelFarrisCPA.com.

-- Rachel Farris, CPA