For seven years Puerto Rico offered American investors something no US state could: a 0% local tax on capital gains, interest and dividends, available to US citizens who became genuine residents of the island and obtained a decree under Act 60-2019. That offer now has an end date for newcomers. Under Act 38-2026, the 0% rate is available only to applications filed by 11:59 pm on 31 December 2026. Applications filed from 1 January 2027 come under a new regime with a 4% rate.
The program itself is not being abolished. It is being repriced and extended, and the details of who gets which terms were set out by Puerto Rico's Department of Economic Development and Commerce (DDEC) in an Informative Bulletin published on 24 April 2026. With eleven weeks left before the cut-off, these are the rules that matter.
What the program is
Act 60-2019 created Puerto Rico's Incentives Code, which consolidated the island's tax incentives, including the Individual Resident Investor (IRI) program inherited from the earlier Act 22 of 2012. An IRI who holds a decree from the DDEC's Office of Incentives for Businesses (OIN) pays a fixed preferential Puerto Rico tax rate on net capital gains, interest and dividends, in place of ordinary Puerto Rico income tax.
Until this year, that rate was 0%, and decrees ran until 31 December 2035. Act 38-2026, enacted on 10 March 2026 according to the DDEC bulletin, changed both numbers for future applicants.
The cut-off, precisely
The bulletin answers the first question directly. The OIN will receive IRI applications for the 0% rate until 31 December 2026. All applications received no later than 11:59 pm on that day, as shown by the Incentives Portal's filing fee time stamp, are treated as 0% applications with a decree expiring on 31 December 2035.
Two points in the bulletin protect people who file in time:
- Applications filed before 1 January 2027 retain all substantive benefits in effect at the time of filing, including the 0% rate and the earlier rules on buying a primary residence, regardless of when the decree is approved. A late approval does not cost the applicant the old terms.
- The test is the filing, evidenced by the payment time stamp, not the decision.
The new terms from 1 January 2027
Applications filed from 1 January 2027 come under the amended Code:
- a fixed rate of 4% on net capital gains, interest and dividends;
- decrees running until 31 December 2055, twenty years longer than before;
- a new prior residency condition: the applicant must not have been a Puerto Rico resident during the six years immediately before relocating to the island;
- a stricter primary residence rule, described below.
Choosing between 0% to 2035 and 4% to 2055
Act 38-2026 does not let anyone have both terms in sequence by default. The bulletin is explicit that an investor cannot ask for a decree at 0% until 2035 that then switches automatically to 4% from 2036. An investor who elects coverage to 2055 is subject to the 4% rate for the whole term.
Instead, the bulletin describes three routes:
- Pending applicants who want the longer term can file a sworn amendment through the Incentives Portal, expressly waiving the 0% rate in favour of a 4% decree expiring in 2055.
- Applicants who keep the 0% decree to 2035 may later, for example in 2035, request an extension to 2055, provided the Act 38-2026 framework is still in force at that time. A request filed in the final year of the decree is treated as a new application at 4%, effective 1 January 2036.
- Existing decree holders, including those under Act 22, can request an extension to 2055 at any time up to 31 December 2035. The extension brings the 4% rate from 1 January of the year in which the request is filed.
The trade-off is plain. Filing by 31 December 2026 secures 0% until the end of 2035, with the option, but not the guarantee, of extending later on whatever terms then apply. The 2055 decree secures length at a higher rate. Which is better depends on the investor's expected gains, time horizon and appetite for legislative risk, a question the Brief's ten-year test frames well.
Who can still apply under the old terms
The old prior-residency rule stays for applications filed before 1 January 2027. According to the bulletin, such applicants must not have been Puerto Rico residents between 17 January 2006 and 17 January 2012, inclusive. From 2027 that fixed window is replaced by the rolling six-year look-back.
The bulletin also restates a long-standing practice: applicants must submit a criminal record report from their last place of residence, and convictions for wire, bank, securities, tax or mail fraud, or other financial crimes, or a pattern of criminal behaviour, are grounds for dismissal or denial. The OIN conducts or commissions a full background check.
The house you must buy
An IRI must acquire a primary residence in Puerto Rico. DDEC's Circular Letter 2026-001 describes the duty: evidence of buying real property in Puerto Rico within two years after obtaining the decree, from an unrelated seller, to serve as the principal residence, and keeping it as such for the life of the decree.
Act 38-2026 tightened how that home may be held. For applications filed on or after 1 January 2027, compliance must be shown by evidence of full ownership and title, registered or pending registration with the Property Registry, in the name of the individual, jointly with a spouse, or in a qualifying grantor trust. Applications filed before 2027, and decrees already approved, may still hold the home through an eligible Puerto Rico entity. One exception: current decree holders who request an extension to 2055 before they have bought and reported their home become subject to the new ownership rule.
The annual donation
Every IRI must also show, in the annual report, donations of at least $10,000 a year to non-profit entities operating in Puerto Rico. Circular Letter 2026-001 sets out how the money must be split: $5,000 to non-profits working to eradicate child poverty that appear on a list published by a special legislative commission, and of the remaining $5,000, at least $2,500 to the Fondo Especial para la Igualdad Social, with the balance to other qualifying non-profits. The circular also explains why DDEC issued it: the commission's lists had been published late and inconsistently, leaving donors unsure whether their gifts would count.
The federal side does not change
None of this alters the US federal rules that make the program work in the first place. Puerto Rico's decree governs Puerto Rico tax. For a US citizen, the federal position rests on becoming a bona fide resident of Puerto Rico, and on income being Puerto Rico-source.
The IRS sets out the tests in Publication 570. A bona fide resident must meet a presence test, for example being present in Puerto Rico at least 183 days in the tax year, a tax home test, and a closer connection test. Income from Puerto Rico sources is then excluded from US tax under section 933 of the Internal Revenue Code. People who begin or end bona fide residence may have to file Form 8898.
Those federal tests are where most of the real risk lies, and they apply equally at 0% and at 4%. A decree does not make anyone a bona fide resident, and the source of a gain is a federal question: Publication 570 carries its own section of special rules for gains from dispositions of certain property, which a Puerto Rico decree does not override. The Brief's explainer on citizen-based taxation explains why Puerto Rico is one of the very few places a US citizen can move to change their federal position at all.
Is the window worth rushing for?
The honest answer is that the deadline matters only for people who were going to move anyway. Filing an application commits the applicant to a set of obligations: becoming a genuine resident, buying a home within two years, donating $10,000 a year and filing annual reports. A rushed application for someone who does not then move gains nothing and risks a great deal.
For someone already planning a move, the arithmetic is straightforward. The difference between 0% and 4% on investment income and post-move gains is real, and the cut-off is fixed by statute and by a portal time stamp. As the Brief argued in Zero Tax Is Not Zero Cost, a low rate is never the whole bill, and Puerto Rico's donation, property and residence duties are part of the price. Its list of countries with no capital gains tax shows the alternatives, almost all of which, for a US citizen, do nothing for the federal bill.
The checklist for anyone considering it before year-end:
- Confirm you can genuinely move, and pass the federal bona fide residence tests from the first full year.
- Check the prior-residency window: no Puerto Rico residence between 17 January 2006 and 17 January 2012 for a 2026 filing.
- File through the Incentives Portal by 11:59 pm on 31 December 2026, and keep the fee time stamp.
- Plan the home purchase within two years of the decree, and decide how it will be held.
- Budget the $10,000 annual donation and the annual report.
- Decide deliberately between the 0% decree to 2035 and the 4% decree to 2055.
Work with Sebastian
If you are an American weighing a move to Puerto Rico before the 2026 cut-off, or already hold a decree and are deciding whether to extend it, Sebastian works with internationally mobile clients on making residence, assets and filings hold together on both the local and the federal side. Book a consultation.
