Why Puerto Rico Matters

For a US citizen, every other country in this set comes with the same footnote: the United States taxes citizens on worldwide income wherever they live, and only renunciation, with its exit tax and its permanence, ends that. Puerto Rico is the exception written into the Internal Revenue Code. Section 933 excludes Puerto Rico-source income of a bona fide resident from federal tax, and Puerto Rico's own Incentives Code, Act 60 of 2019, which consolidated the former Act 20 and Act 22, then taxes that income at 0% for qualifying investment income and 4% for qualifying export services. The combined outcome, near-zero tax on post-move capital gains and 4% on an export business, has moved several thousand founders, investors, fund managers and traders to San Juan and Dorado since 2012.

It matters now because the door is narrowing. Legislation extending the programme to 2055 also introduced a 4% rate on interest, dividends and capital gains for individual decrees applied for from 1 January 2027, and a six-year prior non-residence requirement for those applicants; a decree obtained by 31 December 2026 keeps the 0% rate through 1 January 2036. A client considering Puerto Rico has a few months to decide whether to file under the current terms.

It matters third as the honest comparator to expatriation. Renouncing removes future US tax and reporting entirely, at the cost of the passport and a one-way decision; Puerto Rico keeps the passport, the dollar, US law and courts, and Medicare, in exchange for a residence that must be real and an IRS that has made Act 60 a named enforcement campaign since 2021. Against Panama, for an American, the choice is Puerto Rico with US citizenship intact or Panama with US worldwide taxation continuing regardless.

For a non-US person Puerto Rico is mostly irrelevant, with one narrow exception discussed under the Structural Layer.

Visa and Residency Routes

There is no visa question for the primary audience: US citizens and permanent residents move to Puerto Rico as they would to another state. The route is the decree, and the residence test is federal.

Bona fide residence under IRC Section 937. Three tests, all of which must be met for the tax year. The presence test: 183 days in Puerto Rico in the year, or one of the alternatives in the regulations (549 days over the current and two preceding years with at least 60 in each, no more than 90 days in the United States, US-source earned income of USD 3,000 or less with more days in Puerto Rico than in the United States, or no significant connection to the United States). The tax home test: no tax home outside Puerto Rico during the year. The closer connection test: no closer connection to the United States or a foreign country than to Puerto Rico, judged on the location of the permanent home, family, belongings, banks, driving licence, voter registration and the like. Form 8898 must be filed with the IRS in the year residence begins and ends; the penalty for not filing is USD 1,000 and the real cost is the lost credibility.

Individual Resident Investor decree. Application to the Department of Economic Development and Commerce through its online portal, a background check, the USD 750 filing and USD 5,000 acceptance fees, and typically three to nine months to grant, with the decree effective from the residence start date once bona fide residence is established. Conditions: the prior non-residence look-back, the USD 10,000 annual donation split between an approved child-poverty list and other Puerto Rico non-profits, purchase of a residential property as primary home within two years, and the USD 5,000 annual report. This is the route for the investor, founder-post-exit or trader whose income is investment income.

Export Services decree. For a Puerto Rico entity providing services to clients outside Puerto Rico: consulting, software, marketing, investment management, trading, professional services. Grant takes three to nine months; the decree runs 15 years, renewable for 15 more. Conditions include reasonable compensation to the owner-operator taxed at ordinary Puerto Rico rates, at least one full-time Puerto Rico-resident employee once revenue exceeds USD 3 million, an annual report and filing fees. This is the route for the online business owner and the fund manager.

Non-US persons. A foreigner needs US immigration status to live in Puerto Rico: an E-2 treaty investor visa, EB-5 (USD 800,000 in a targeted employment area), an employment-based green card or family sponsorship. FTR does not treat Puerto Rico as a destination for non-US clients, but it is not entirely a dead letter for them, for the reason below.

What fails in practice is the commuter: the executive who keeps the family in Connecticut, spends 183 nights in a Condado apartment counted with an app, and treats the closer connection test as a formality. The IRS has audited that profile specifically and has referred cases for criminal investigation.

Tax Peculiarities and Traps

Sourcing, not residence, is the mechanism. Section 933 excludes Puerto Rico-source income. US-source income remains federally taxable: dividends from US corporations, US real estate rent, US business income, wages for work performed on the mainland, and pensions attributable to mainland service. Capital gains on personal property, including securities, are sourced to residence, which is why Act 60 works for a stock or crypto portfolio and does not work for a mainland dividend portfolio.

Pre-move appreciation. Gain that accrued before residence is not Puerto Rico-source. Under the federal rules, a bona fide resident who sells within ten years of moving allocates the pre-move portion of the gain to the United States; for securities the allocation follows the value at the move date or a time-based split. On the Puerto Rico side, the pre-move portion realised within ten years is taxed at Puerto Rico's ordinary 15% long-term rate and at 5% after ten years. A founder sitting on a low-basis stake should value it at the move date and expect the accrued gain to be taxed by the United States when realised, whatever the decree says.

Self-employment and payroll taxes continue. Section 933 excludes income tax, not Social Security and Medicare; a Puerto Rico self-employed resident still pays self-employment tax, and an Export Services company pays FICA on wages.

Reasonable compensation. An owner-operator of an Export Services company cannot take everything as 4% corporate profit and 0% dividend; Puerto Rico requires a reasonable salary taxed at ordinary rates, and the IRS treats an implausibly low salary as evidence the business is not what it claims.

Federal estate tax. A US citizen born on the mainland who dies a Puerto Rico resident is subject to US federal estate tax on worldwide assets; only a citizen whose citizenship derives solely from birth or residence in Puerto Rico is treated as a non-resident non-citizen for estate purposes. Puerto Rico's own estate and gift taxes were effectively eliminated for residents in 2011, so the estate question is federal.

The IRS campaign. Act 22/60 residents have been a named Large Business and International compliance campaign since 2021. Audits focus on the presence and closer connection tests, on pre-move gains reported as Puerto Rico-source, on charitable donations, and on Export Services companies whose services are really performed on the mainland. Several grand jury investigations and settlements have followed. The programme is legal; the enforcement is real.

The 2027 change. The 0% rate on interest, dividends and capital gains is for decrees obtained by 31 December 2026. From 1 January 2027, new applicants pay 4% on that income and must show six years of non-residence before relocation; existing decrees keep 0% to 1 January 2036 and the programme runs to 2055. A client who intends to come should file in 2026.

Treaties. US tax treaties generally define the United States to exclude Puerto Rico, so a Puerto Rico resident receiving foreign dividends or interest cannot usually claim US treaty rates, and a Puerto Rico corporation has no treaty network of its own. Foreign withholding is a cost to model.

The Structural Layer

FTR's default does not fit. A Panamanian Private Interest Foundation owning a Panamanian SA under a US citizen in Puerto Rico brings the full US foreign-reporting suite (Forms 3520, 3520-A, 5471, 8938, FBAR), the controlled foreign corporation and GILTI rules and the passive foreign investment company rules, and adds nothing, because the tax outcome Puerto Rico offers is domestic and depends on income being Puerto Rico-source. Panamanian entities make Puerto Rico-source income foreign-source and destroy the result.

What FTR would actually build for an Act 60 client is entirely onshore: a Puerto Rico LLC or corporation holding the Export Services decree, with the owner as a Puerto Rico-resident employee on a defensible salary, and the client's investment portfolio held personally under the individual decree at a Puerto Rico-registered address. A Puerto Rico corporation is a foreign corporation for federal purposes, so the Export Services entity is itself a CFC of its US-citizen owner and needs Form 5471 and GILTI analysis; the Puerto Rico exemption for GILTI purposes and the high-tax exception need to be worked through by a Puerto Rico CPA who does this daily. Succession is handled with US instruments: revocable trusts, and for larger estates the standard federal estate planning, because the federal estate tax follows the client to San Juan.

The narrow non-US case: a foreign national living in Puerto Rico on an E-2 or similar visa is not a US resident alien under the substantial presence test, because days in a possession do not count as days in the United States for that purpose, and may be a bona fide Puerto Rico resident taxed by the United States only on US-source income and by Puerto Rico under a decree. It is a real position, aggressively marketed, and it turns on immigration status, the source of the client's income and their home country's own rules; FTR would take it only with US counsel on both the immigration and the tax side.

For a client who might return to the mainland, the decree ends with residence, gains accrued while resident that are realised after moving back are US-source again, and the whole exercise should be planned with the exit as well as the entry in view.

Info-Sharing Reality (CRS and FATCA)

There is no CRS because the United States does not participate, and Puerto Rico sits inside the US reporting perimeter. Puerto Rico banks are within FATCA's territory financial institution rules and report their account holders to the IRS through the ordinary US information-return system; a Puerto Rico account is not a foreign account for FBAR or Form 8938 purposes, because the territories count as the United States for both. A US person's Puerto Rico accounts are, in short, exactly as visible to the IRS as a Miami account, and a foreign national's Puerto Rico account is a US account that the United States does not report to anyone under CRS.

Nobody markets Puerto Rico as private. What it is sometimes marketed as, wrongly, is a place the IRS does not look; the compliance campaign above is the answer to that. Puerto Rico's Hacienda and the IRS share information under a standing coordination agreement, and decree holders' annual reports are available to both.

Banking Reality

The banks are Banco Popular de Puerto Rico (the largest by far), FirstBank Puerto Rico (which absorbed Santander's operation in 2020) and Oriental Bank. All are FDIC-insured US banks. Citibank keeps a limited presence; the large mainland retail banks do not operate branches. Opening an account is a mainland-style process with a Social Security number, identification and proof of a Puerto Rico address, done in person in a week or less; minimums are nil to USD 100. Wires, cards and online banking are US-standard, if slower and more compliance-heavy than a mainland bank, and cash deposits attract scrutiny.

Most Act 60 residents keep their mainland brokerage and simply change the address; Schwab, Fidelity and Interactive Brokers accept Puerto Rico addresses, as do the major crypto exchanges. Private banking is available through Popular One, Oriental Wealth and UBS's San Juan office at roughly USD 1 million; larger clients use mainland or international private banks and hold assets at a Puerto Rico address. The island is on no blacklist or grey list and has full correspondent access as part of the US system.

Cost of Doing Business

A Puerto Rico LLC or corporation costs USD 1,500–5,000 to form with legal fees, Department of State registration and municipal licence, and USD 5,000–15,000 a year to run once a decree is in place: Puerto Rico corporate return, decree annual report, municipal returns, IVU filings, and financial statements that must be audited above USD 3 million of volume. The decree application itself costs USD 10,000–25,000 in legal and government fees, and the individual decree carries USD 15,000 a year in fees and donations before any tax is paid.

Against the set: a Panamanian SA runs about USD 1,500–2,500 to form and USD 1,000–1,800 a year; Singapore about three times the Panamanian setup at USD 4,500–7,500 and USD 4,000–8,000 a year. Puerto Rico is expensive to run and cheap to be taxed in, which is the right way round for an Export Services business earning USD 500,000 or more and the wrong way round below about USD 200,000, where the fixed costs eat the saving.

Cost of Living

Monthly figures for San Juan (Condado, Miramar, Ocean Park) and Dorado; the west coast and the interior run 30–50% lower on housing, but decree holders cluster where the schools and the professional community are.

Lean, single or couple: USD 3,500–5,000. One-bedroom in Condado or Miramar USD 2,000–3,000, groceries USD 600–900 (mainland prices plus shipping), health cover USD 300–500, electricity USD 200–350 at LUMA's rates, a car USD 500–700.

Comfortable, family of four: USD 7,000–10,000. Three-bedroom in Condado or a Dorado community USD 4,000–6,000, private school USD 15,000–25,000 a year per child at TASIS Dorado, Saint John's or Baldwin, family health cover USD 800–1,500, two cars, a generator or solar system.

HNW: USD 20,000–40,000 and up. A Dorado Beach or Palmas del Mar house purchased at USD 3–10 million, staff, two international school places, mainland-based healthcare and the flights that go with it.

Decree holders have inflated housing in the enclaves well beyond local incomes. Healthcare is the weakest part of the offer: the island has lost a large share of its physicians to the mainland, specialist waits are long, and the standard plan for anyone with a serious condition is a flight to Miami or New York. The grid is unreliable and expensive; every serious home runs backup power.

Cultural and Practical Considerations

Puerto Rico is a Spanish-speaking country inside the US legal system, and the two facts pull against each other in daily life. English is spoken in professional circles, in the decree-holder enclaves, in San Juan's better hospitals and in the tourism trade; government offices, CRIM, Hacienda, the courts, contractors, most doctors' front desks and ordinary commerce run in Spanish. A resident who cannot function in Spanish will manage in Dorado and Condado and will be dependent on intermediaries everywhere else, and will also miss most of the country.

The social position of Act 60 residents is the practical issue nobody puts in the brochure. Locals have watched a decade of mainland arrivals buy up Old San Juan, Condado and the coast, pay no income tax and, in some well-publicised cases, behave badly, and the resulting resentment is public, organised and directed. There have been protests, a sustained press campaign, and periodic legislative attempts to end the programme. A decree holder who lives in a gated enclave, does not learn Spanish and has no Puerto Rican friends is living the stereotype; one who integrates, hires locally, supports the schools and speaks the language is treated well. Social integration is entirely possible and entirely up to the client.

Women face no legal or practical constraints beyond those of any US jurisdiction; US federal civil rights law applies, and Puerto Rico's own gender-violence problem is a matter of public concern rather than of foreign women's safety in the areas they live in. Same-sex marriage is legal, federal protections apply and San Juan has an established LGBT community; Puerto Rico is by some distance the most legally secure Caribbean jurisdiction for LGBT residents. Family law is Puerto Rico's civil-law system, with a community-property default that differs from most mainland states and matters for anyone marrying or divorcing while resident.

Bureaucracy is slow, personal and often paper-based; permits, CRIM records and Hacienda correspondence take months and repeated visits, and a good local lawyer and CPA are not optional. The grid fails regularly, water pressure comes and goes, and the hurricane season from June to November is a real risk to property and continuity, as Maria in 2017 and the 2020 earthquakes showed. Personal security is good in the enclaves and in most of San Juan; the murder rate is high by US standards but concentrated in drug-trade areas foreigners do not frequent. Political life is dominated by the status question and by the federal fiscal oversight board's control of the budget; a resident feels this in public services, not in personal risk. Schooling is good at three or four private schools and poor in the public system. The climate is hot and humid year-round, which older clients tolerate less well than they expect.

For US citizens, the primary audience.

Act 60 is the strongest legal reduction of US tax available without renunciation, and it requires genuine relocation and real substance. Investors and post-exit founders use the individual decree; owner-operated service businesses use Export Services; many use both. File in 2026 for the 0% rate.

For Retirees

Generally a poor fit: pension and Social Security income is not Puerto Rico-source and stays federally taxable, healthcare is the island's weakest point, and the decree fees are dead cost for someone without a large taxable portfolio. The exception is the retiree with a substantial unrealised or actively traded portfolio.

For Digital Nomads and Remote Professionals

Only if they stop being nomadic. Bona fide residence and the closer connection test are incompatible with travelling most of the year.

For Online Business Owners and Entrepreneurs

Export Services at 4%, with the reasonable compensation and substance conditions above, and the onshore structure in the Structural Layer rather than anything Panamanian.

For Multinational Business Owners

A Puerto Rico entity for genuinely Puerto Rico-performed services; the wider group is unaffected. Manufacturing incentives exist under Act 60 for real operations.

For High Net Worth (HNW) Families and Investors

For Americans, the alternative to expatriation rather than a Plan-B. For non-US families, including Chinese HNW clients, Puerto Rico offers nothing: it is US jurisdiction, US reporting and US immigration law.

Common Traps

The commuter, described above. The presence test is the easy one; the closer connection test is where the family home, the children's school, the doctor and the voter registration are, and the IRS has audited exactly this profile.

Expecting all US tax to disappear. Mainland dividends, mainland rent, pensions, Social Security, mainland-performed work and pre-move gains all remain federally taxable; only Puerto Rico-source income is excluded.

Bringing the offshore structure. Panamanian or other foreign entities convert Puerto Rico-source income into foreign-source and trigger the full US reporting and anti-deferral regime.

Filing in 2027 and expecting 0%; new decrees will carry 4% and a six-year look-back.

Anyone who needs first-rate healthcare on the island, a reliable grid, or a mainland pace of administration; anyone unwilling to learn Spanish or to live among people who may resent their tax status; and any non-US person without a US immigration route.

Next Steps

If you are a US citizen with a substantial portfolio or an export-services business and can genuinely move your life to Puerto Rico, book a scoping call in 2026. The 0% decree terms are available to applications granted by 31 December 2026, the move-date valuation of your existing holdings sets the federal position for a decade, and the residence tests are met by how you live, not by what you file.

Important note: General information. Not personal tax, legal, or financial advice. Speak to a qualified adviser at FTR or elsewhere before acting.