The headline pitch is intoxicating: a 4% corporate tax rate on eligible export services and 0% Puerto Rico tax on certain post-residency capital gains. For founders, investors, and operators, that’s the fiscal equivalent of a tailwind and a turbocharger. But here’s the tension, incentives are policy; compliance is practice. On paper, Act 60 is a straight line to savings. In practice, it’s a maze with motion sensors.
I’ve spent two decades straddling the mainland U.S. and Puerto Rico tax systems. Some entrepreneurs pull off a “do-it-yourself” move. Many more underestimate the moving parts—timelines, filings, residency tests, audits—and end up paying for the lesson. Cheap can be very expensive.
If you’re considering Act 60, the core decision isn’t just whether to pursue the incentives. It’s how you’ll execute, go it alone or work with a team that knows both jurisdictions and the island’s reality. The difference shows up in time, money, risk, and peace of mind.
What Act 60 Is—and Why It Exists
Act 60 is Puerto Rico’s consolidated incentives law (2019) designed to attract investment, high-value services, and residents by offering tax benefits across categories. Two chapters drive most interest among entrepreneurs and investors:
- Export Services (formerly Act 20): Eligible businesses that export services from Puerto Rico to clients outside the island may qualify for a 4% corporate income tax rate, plus significant exemptions on property and municipal taxes, and a 100% Puerto Rico tax exemption on dividends from the exempt entity. Decrees typically run 15 years, extendable for another 15.
- Individual Resident Investors (formerly Act 22): New bona fide residents of Puerto Rico may receive 100% Puerto Rico tax exemption on dividends, interest, and on post-residency capital gains realized generally through December 31, 2035 (with special rules for pre-residency appreciation).
The front door to these benefits is an official tax grant (decree) issued by Puerto Rico’s Department of Economic Development and Commerce (DDEC). The durability of the benefit is statutory; the durability of your savings depends on how cleanly you meet the rules—especially bona fide residency for individuals and operational substance for businesses. For residents, the IRS framework under IRC §937 sets the tests: physical presence, tax home, and closer connection.
Why People Care
For operators of global service businesses (SaaS, digital marketing, advisory, trading desks) and asset-heavy investors, Act 60 can free up capital that would otherwise go to taxes—capital to reinvest, hire, or return to owners. But those savings are earned by execution, not by headlines.
The DIY Route: “Looks Straightforward. Is a Labyrinth.”
Here’s what “doing Act 60 yourself” typically entails. Each item is feasible. The trap is sequencing, substantiation, and enforcement.
1) Application & Decree Mechanics
You’ll prepare the application on the DDEC incentives portal, assemble corporate and personal documentation, define activities and projections, and respond to clarifications. If approved, you’ll receive a decree spelling out your benefits, conditions, and the exempt period (commonly 15 years, with a potential 15-year extension).
Where DIY goes sideways: Misstating activities, using the wrong NAICS framing, or failing to align your business model with export-of-services definitions can jeopardize the decree or future compliance. You also have to implement what you promised: local books, PR operations, sometimes a local employee once revenue thresholds are crossed (e.g., one FTE after $3 million of revenue in many export grants).
2) Residency, Sourcing, and the U.S. Angle
Individuals must meet bona fide Puerto Rico residency each year (presence, tax home, closer connection) to access the individual investor benefits—and understand how gains are sourced under PR and federal rules. Form 8898 may be required to notify the IRS when you begin or end bona fide PR residency.
Where DIY goes sideways: Mid-year moves, travel patterns, or ties retained in the States can break residency. Investors sometimes mishandle pre-residency appreciation, which can face a 5% PR tax if realized after 10 years of residency and before 2036. Others assume corporate benefits carry to the U.S. federal level—they don’t; the U.S. exclusion for PR-source income is an individual concept under §933, not a corporate one.
3) Annual Compliance & Fees
Expect Exempt Annual Reports (EAR/EBAR) filed via DDEC’s portal. For the 2024 tax year, DDEC announced an EAR due date of November 15, 2025 (or the 15th day of the 11th month after year-end), with separate rules for prior-law decrees and for individual investors’ annual reports.
If you’re an Individual Resident Investor, there’s a statutory annual charitable contribution of $10,000 to PR nonprofits, and an annual report fee—set by statute at $5,000 (raised by Act 40-2020 from the earlier $300). Missing reports can trigger administrative fines up to $10,000 and potential decree revocation.
Where DIY goes sideways: Misreading report types and deadlines, or assuming “no activity, no filing.” DDEC filings are distinct from Puerto Rico Treasury (Hacienda) tax returns, and both differ from U.S. filings. Calendar control is everything.
4) Puerto Rico Returns, U.S. Returns, and State Separations
Export entities file PR returns with Hacienda; individuals file PR returns if required, and U.S. returns to the extent federal rules apply—carefully coordinating PR-source vs. U.S.-source income and information reporting.
Where DIY goes sideways: Blending state residency, payroll, and PR presence creates “nowhere is home” arguments that auditors relish. Misallocations between PR and U.S. sourcing invite scrutiny from both Hacienda and the IRS. Ignoring Puerto Rico Volume of Business and Property Taxes filings due to a lack of knowledge.
5) Exams & Scrutiny
Federal interest in Act 60 has grown. Professional journals and practitioner briefings note heightened IRS examination and data-driven campaigns around PR residency and sourcing. Translation: your Instagram of palm trees is not probative. Your travel logs, books, and ties are.
Bottom line on DIY: It’s doable—but the opportunity cost is steep. The burden sits on you to design the structure, defend the facts, and keep two tax systems synchronized.
The Boots-on-the-Ground Advantage
When people ask what a seasoned PR/U.S. team actually does, the answer is simple: we transform a policy promise into a defensible operating reality—with less friction and less risk. Here’s how that looks in the field.
Local Knowledge, Real Timelines
We live in the nuance—how DDEC is interpreting grant language this quarter, which municipalities require what, and how Hacienda is currently vetting substance. A decree is a contract with conditions; we make sure your operations match the decree and the decree matches your business.
Bilingual, Bidirectional Compliance
Two jurisdictions, one story. We keep PR filings, U.S. filings, and residency documentation telling the same story across forms, deadlines, and audits. No loose ends between your PR entity’s returns and your U.S. reporting; no gaps between your travel calendar and your residency representations. (If you changed residency, Form 8898 is on our checklist.)
Audit Readiness from Day One
We help you set up the appropriate documentation as if an examiner will read it tomorrow: travel logs, lease and utility support, corporate minutes, local payroll records, charity receipts meeting Act 60 rules, and books maintained in Puerto Rico go to show the substance of your strategy. We also keep an eye on employee thresholds (e.g., adding an FTE when revenue requires it) to keep your decree in good standing.
Time Savings and Opportunity Capture
The platform work—entity setup, banking, municipal registrations, merchant accounts, property tax notices, and portal filings—gets done in the right order. Meanwhile, we help you actually use the incentives: paying dividends from the exempt entity appropriately, planning recognition of capital gains under the 2035 horizon, and structuring compensation to avoid accidental leakage.
What This Looks Like in Real Life (Illustrative Scenarios)
- The Mid-Year Mover: A founder relocates in August, but keeps a family home and board meetings in the States. DIY thinking: “I hit 183 days next year; I’m fine.” Reality: They blew tax home and closer connection this year and didn’t file Form 8898. We ensure you have the proper guidance to structure the move, document connections, and align travel, lease, bank, and community ties to support residency in the first eligible year—and file what the IRS expects.
- The Export-of-Services Startup: A digital agency gets the decree and books clients worldwide, but leaves the accounting to a mainland provider who misses the decree’s FTE trigger when revenue crosses $3M. We build the PR accounting spine, tracking revenue vs. the FTE requirement, and align contracts to prove export—not local—services.
- The Active Trader/Investor: An individual misclassifies pre-residency appreciation as fully exempt. We help you structure the realization of gains appropriately to maximize the savings and ensure that certain gains recognized after 10 years and before 2036 may face a 5% PR tax, while post-residency gains remain PR-exempt. Then we pair that with federal sourcing rules so returns match the statute.
The Human Element
A few years back, we doubled down on helping individuals and business owners navigate Puerto Rico’s tax incentives—the right way.
As the lead CPA and founder, I’ve practiced in both Puerto Rico and the U.S., and I know one thing: Act 60 success requires more than tax knowledge—it requires the right team. So, I built one.
- Katherine, our CPA in Puerto Rico, keeps a direct line to the agencies that matter—from Hacienda to the permit office.
- Luis and Angel, our client-facing account managers, tailor each engagement and help clients settle on the island seamlessly.
- Pedro, our IRS expert, keeps stateside compliance airtight.
- Simon, our tax attorney on the island, tracks every legislative update so structures stay aligned with Act 60.
- Alejandro, our Act 60 advisor, pulls it all together with organized, proactive execution and dependable communication.
Together, our goal isn’t just to help you qualify—it’s to keep you qualified, protected in both jurisdictions, and positioned to realize the incentives you came for.
DIY vs. Professional Team: The Head-to-Head
Time
- DIY: Expect months of research, portal navigation, and back-and-forth with agencies, plus separate PR and U.S. calendars. Errors compound.
- Team: Front-loads the structure, streamlines filings, and prevents rework. You can focus on the decision-making, not detective work.
Money
- DIY: Lower upfront cash outlay, higher hidden costs—missed deadlines, incorrect sourcing, suboptimal gain timing, and potential penalties. The $10k annual donation and $5k investor report fee still apply—whether you plan or not.
- Team: Professional fees, yes—but designed to protect the 4%/0% benefits, line up dividend planning, and avoid the “cheap is expensive” outcome.
Compliance Risk
- DIY: You own residency documentation, employee thresholds, decree terms, EAR/EBAR filings, and multi-jurisdiction coordination. A missed report can mean fines up to $10,000; systemic gaps invite audit.
- Team: Operates as your control tower—periodic check-ins, audit-ready files, and consistent narratives across PR and U.S. returns.
Peace of Mind
- DIY: Every letter from an agency becomes a project.
- Team: Fewer surprises, more certainty. As is said “certainty is a luxury—buy some.”
Long-Term Strategy
- DIY: Tends to be reactive—especially around the 2035 capital gains horizon.
- Team: Maps multi-year plans: when to recognize gains, how to use the 100% dividend exemption from the export entity, when to revisit the decree as business scales.
Pitfalls and Best Practices
Residency Is an Annual Sport.
Bona fide residency isn’t a one-time hurdle; it’s a yearly test. Physical presence without a PR tax home or closer connection is a common fail. Keep contemporaneous travel logs, PR leases, utilities, voter registration where appropriate, bank accounts, professional affiliations—substance, not slogans.
Know What the Law Actually Says.
Rely on the statute and official guidance. Want the benefits that made the headlines? Align with the decree’s terms, the donation requirement, the annual report fee, and the EAR/EBAR deadlines. The law is clear; the calendar is unforgiving.
Export Means Export.
If revenue starts drifting to Puerto Rico clients, you may no longer be “exporting” services. That’s not a footnote—that’s existential to the 4% rate. Keep client bases and contracts organized to prove external sourcing.
Corporations Don’t Get the Individual Exclusion.
The §933 exclusion lives in the individual world. Treat the PR entity like an entity subject to PR rules; treat the owner’s residency and sourcing under federal rules. Blend them incorrectly and you’ll bleed value (or worse).
Expect Scrutiny. Prepare Accordingly.
There’s no need for fear—just preparation. The IRS and Hacienda are smarter, faster, and more data-driven than ever. If you can show your homework, you’ll keep what you’ve earned.
Closing Takeaway
Tax incentives are power tools. They can build wealth or punch holes in it. Act 60 works—the 4% corporate rate, the 100% PR exemption on post-residency gains through 2035, and the dividend relief are real. But execution is everything.
Going DIY may look cheaper in month one. By month twelve—after reconciling residency, filing two sets of returns, aligning decree obligations, timing gains, and responding to notices—it often isn’t. A team with boots on the ground in Puerto Rico and the U.S. doesn’t just “do paperwork.” It designs the operating reality that makes the statute pay off—and keeps it defensible.
Could you do this alone? Sure. But why spend months learning what we’ve already mastered?
Note: This article is for educational purposes and does not constitute legal or tax advice. Consult your advisors about your specific situation.