Puerto Rico

Puerto Rico's tax incentive framework is governed by Act 60-2019 (the Puerto Rico Incentives Code), which consolidated prior incentive acts including the well-known Act 20 and Act 22. The rules for individual investors are clearly codified and administered by the Puerto Rico Department of Economic Development and Commerce (DDEC). However, clarity at the Puerto Rico level does not eliminate complexity at the federal level — Puerto Rico is a US territory, and the interaction between Act 60 benefits and ongoing IRS obligations is a persistent source of compliance difficulty. The IRS has explicitly flagged Act 60 as an area of enforcement focus.

Core Tax Treatment

Under Act 60, individual investors who establish genuine bona fide residency in Puerto Rico pay 0% capital gains tax on appreciation that accrues after their move. This applies to cryptocurrency held or acquired after the date of residency establishment. Gains on assets held before relocating remain subject to US federal capital gains tax at standard rates (0–20% long-term, 10–37% short-term), regardless of where the sale takes place.

Puerto Rico is a US territory. US citizens and green card holders do not relinquish their US tax obligations by moving there — but Puerto Rico residents are exempt from federal income tax on Puerto Rico-sourced income under Section 933 of the Internal Revenue Code. This exemption, combined with the 0% Act 60 rate on post-move gains, is what makes the territory attractive to crypto investors.

The Act 60 Mechanism

To qualify, an individual must apply for and receive an Act 60 Individual Investor decree from DDEC. The decree is not automatic — it requires a formal application, payment of a $5,000 filing fee, and an annual $10,000 donation to a Puerto Rico-based charity. The decree specifies the tax treatment that applies for its duration (typically 15 years, renewable). Operating without a decree while claiming Act 60 benefits is not a legitimate position and carries significant audit risk.

The Bona Fide Residency Test

Bona fide residency is the threshold condition — and the one most frequently contested by the IRS. It requires satisfying three tests simultaneously:

Presence test: At least 183 days physically present in Puerto Rico in each calendar year. Days spent in the US mainland are counted against this threshold. Travel records, phone location data, and financial transaction geolocation are all tools the IRS has used in residence challenges.

Tax home test: Your primary place of business or employment must be in Puerto Rico.

Closer connection test: You must have stronger ties to Puerto Rico than to the US or any other country — reflected in where you maintain your home, social connections, bank accounts, professional relationships, and property.

Additionally, Act 60 requires the purchase of a residential property in Puerto Rico within two years of establishing residency. This requirement is not optional — failure to meet it jeopardises the decree.

Pre-Move Gains

Appreciation accrued before establishing Puerto Rico residency is fully subject to US federal capital gains tax at standard rates. There is no step-up in basis on the date of arrival. If you hold Bitcoin acquired at $10,000 that is worth $80,000 on the day you establish Puerto Rico residency, the $70,000 gain is already embedded and will be taxed federally when realised — regardless of where you live at the time of sale.

This is the central planning point: Act 60 shelters future appreciation, not existing gains. Individuals with large unrealised gains who move to Puerto Rico and immediately sell are not avoiding US federal tax on those gains.

IRS Scrutiny

The IRS has announced targeted enforcement campaigns against Act 60 claimants. Common audit triggers include: spending fewer than 183 days in Puerto Rico, maintaining a primary residence or significant ties on the US mainland, failing to purchase qualifying residential property within the required period, and filing inconsistently between Puerto Rico and federal returns. A 10-year lookback applies in cases where the IRS determines residency was fraudulently established.

Reporting

Puerto Rico residents file Form 482 annually with the Puerto Rico Department of Treasury. US citizens must also continue to file federal Form 1040, claiming the Section 933 exclusion for Puerto Rico-sourced income. Crypto disposals giving rise to pre-move gains must still be reported on Form 8949 and Schedule D at the federal level. The interaction between Puerto Rico and federal filings requires careful coordination — errors in either return can trigger scrutiny of the other.