Act 60 (Puerto Rico’s Tax Incentives Code) attracts attention — and myths. Below I cut through the noise and debunk the ten myths we hear most often. Each answer points to what the law and practical compliance really require, so you can make a sound decision.
Myth 1 — “Move here one weekend and you get Act 60 benefits.”
Reality: Benefits under Act 60 require meeting legal tests — both for corporate decrees and for individual residency. For individuals, U.S. federal rules on bona-fide residency (physical presence, tax home, closer-connection tests) apply and are strict; simply owning property or spending a few days in Puerto Rico doesn’t cut it. For businesses, the DDEC expects real local substance and a demonstrable ROI. Don’t confuse vacationing with legal residency or corporate substance.
Myth 2 — “All my U.S. taxes disappear once I’m in Puerto Rico.”
Reality: Not automatically. Puerto Rico has a separate tax system; bona-fide residents may be exempt from U.S. federal income tax on Puerto Rico-source income, but U.S. tax rules still apply to U.S.-source income, self-employment taxes, and other special categories. Each shareholder or owner’s U.S. tax position depends on residency status and income sourcing — coordinate individual and corporate planning.
Myth 3 — “Any business can get the 4% export-services rate.”
Reality: The 4% fixed rate targets qualifying export services and other approved activities under Act 60. To receive a decree, applicants must show the required economic impact (jobs, payroll, capex, local spend). The code is activity-and-substance focused — not a blanket tax giveaway.
Myth 4 — “Act 60 benefits are always retroactive.”
Reality: Some decrees may be granted retroactive to filing, but that’s not guaranteed and depends on the filing date and decree terms. You should not assume retroactivity covers prior years of operations; always confirm timing with counsel and your CPA before relying on retroactive tax benefits.
Myth 5 — “I only need a mailbox and an LLC to qualify.”
Reality: It’s not quite that simple. While Act 60 doesn’t require you to lease a full office, you must establish a legitimate business presence. Co-working spaces and virtual offices are acceptable, but the address you use must be tied to valid permits and licenses — meaning you can’t just put down a random P.O. box. Payroll is only required if your export services business exceeds $3 million in gross income, so many smaller firms may not need employees right away.
Bank accounts are not required to be local, but you should still be prepared to show business activity tied to Puerto Rico. The key is demonstrating that your business is properly registered, licensed, and operating in compliance with DDEC requirements, not just a “paper entity.”
Myth 6 — “Capital gains are always 0% under Act 60.”
Reality: Act 60 provides very attractive capital-gains treatment in certain circumstances (e.g., qualifying gains realized after bona-fide residency is established), but timing and source rules are critical. Gains realized before you become a bona-fide resident generally don’t get the 0% treatment; planning must be exact and documented.
Myth 7 — “There’s no compliance after you get a decree — it’s a one-time setup.”
Reality: Decrees come with ongoing reporting and performance expectations. Companies and decree holders must file annual reports, maintain separate books for exempt activities, honor payroll and withholding obligations, and preserve the evidence used to support their revenue sourcing. Missing filings or weak records can lead to recapture, penalties, or loss of benefits.
Myth 8 — “I can’t know what DDEC expects.”
Reality: What the DDEC expects of decree holders is documented and increasingly formalized. The Incentives Code and DDEC materials require applicants to quantify jobs, payroll, capital investment, and local spillovers — then compare those benefits to the fiscal cost of incentives. Use conservative, audit-grade forecasts and follow DDEC guidance and published manuals. The agencies have published brochures and evaluation reports that outline the inputs they value.
Myth 9 — “Act 60 is only for the wealthy or big companies.”
Reality: Act 60 covers a range of activities and sizes — from export service shops to manufacturing and R&D. Small and medium businesses can qualify for certain incentive packages, though the expected local impact is still required. The key is whether your activity aligns with an incentivized sector and whether you can demonstrate real local benefit.
Myth 10 — “If I get a decree, I’ll never face IRS or local scrutiny.”
Reality: Decrees reduce tax costs but don’t eliminate scrutiny. Both Puerto Rican agencies and the U.S. IRS will examine substance, residency facts, and correct revenue sourcing. High-value incentives increase the likelihood of audits; strong documentation, conservative models, and ongoing compliance are essential defenses.
Practical Realities — How To Avoid the Common Traps
- Document everything. Contracts demonstrating non-PR clients, payroll records, bank statements, leases, and vendor invoices are the lifeblood of a decree file and future audits.
- Plan individual and corporate moves together. The tax outcome for owners depends on both corporate decrees and whether owners meet bona-fide residency rules. Coordinate residency timing with asset realization events.
- Build a defensible ROI. Use conservative hiring and spend assumptions, apply official multipliers where required, and provide sensitivity scenarios. DDEC values realism and traceability.
- Use local professionals. Puerto Rico-licensed CPAs and local counsel are often required to certify filings and provide credibility with DDEC reviewers. Our CPAs and attorneys at Delerme CPA are licensed in Puerto Rico to ensure seamless compliance.
Why Delerme CPA is the partner you want on this
Act 60 is powerful — but only when implemented correctly. At Delerme CPA we don’t sell quick fixes. We design and manage the full path: entity formation, DDEC application preparation, portal submission, and post-decree compliance. Our bilingual team has offices in Puerto Rico and the U.S., practical experience with DDEC reviewers, and a track record of building audit-grade documentation that stands up to scrutiny. If you want the benefits of Act 60 without the compliance risk, we’ll guide the move step-by-step so you can focus on growing the business.
Want help separating myth from reality for your situation? If you’re considering a move or a decree application, we’ll prepare a complimentary initial review of your facts: residency timing, likely incentives, etc. Tell us your business type (export services, investor, manufacturing, etc.), and we’ll provide an action plan with practical next steps.