PUERTO RICO Trends and Developments Contributed by: Anthony O. Maceira Zayas, Simón Carlo Valentín and Carlos M. Fontán, Maceira Zayas
Act 38-2026, just signed into law, extends Puerto Rico’s Resident Individual Resident Investor pro - gramme, one of the two flagship incentives under Act 60-2019 (Act 60, also known as the Puerto Rico Incen - tives Code), from 2035 to 2055, while restructuring its terms for new applicants. Since the programme’s original creation under Act 22-2012 and its consolida - tion into Act 60, qualifying individuals who established bona fide residency in Puerto Rico could be subject to a 0% Puerto Rico income tax rate on interest, divi - dends and capital gains derived from securities and other assets, accrued and realised after their date of move. Act 38-2026 preserves that zero-rate structure for individuals who submit their decree applications on or before 31 December 2026, and replaces it with a 4% fixed preferential rate for everyone who applies on or after 1 January 2027. The 20-year extension removes the expiration risk that had introduced uncer - tainty for long-term planners, while simultaneously raising the price of entry for those who wait to submit their application. For the pre-2027 cohort, interest and dividend income earned after becoming a bona fide Puerto Rico resi - dent remains fully exempt from Puerto Rico income tax on amounts recognised before 1 January 2036. Capital gains accrued after relocation, on assets held at the time of arrival and those acquired after arrival, are likewise fully exempt if recognised before 1 Janu - ary 2036. For the post-2026 cohort, those same income streams are subject to the 4% preferential rate with benefits running through 31 December 2055. A savings clause in Section 2022.01 (b)(2) preserves the right of any decree holder to apply a more favourable rate if one is available under other provisions of Puerto Rico or federal law. Both cohorts face the same treatment for any gain accrued before becoming a bona fide Puerto Rico resident. Any gains accrued before relocating to Puerto Rico are not covered by the decree. If the asset is held for more than ten years after the inves- tor becomes a Puerto Rico resident and is sold before the programme’s applicable end date, the long-term capital gain attributable to pre-relocation appreciation is taxed at 5%; if the gain is recognised at any point
before that, the ordinary rates of Puerto Rico Internal Revenue Code (IRC) apply. The application submission date, not the date of phys - ical relocation or decree approval, determines cohort membership under the statute. An investor who sub - mits a complete application by 31 December 2026 qualifies for zero-rate treatment even if the decree is approved and residency is established in 2027 or later. An investor who files in 2026 but never genuinely establishes Puerto Rico residency will hold a decree without the ability to claim the income tax benefits it describes. The tax benefit requires actual bona fide residency, not paperwork alone. Act 38-2026 also provided clarity regarding two com - pliance measures applicable to decree holders that have been modified several times across the years. For post-2026 applicants, a new prior non-residency requirement bars individuals who have been Puerto Rico residents within the six years before their appli - cation date, directed at cyclical relocation rather than genuine new arrivals, and the primary residence own - ership requirement was limited to the decree holder individually, jointly with their spouse, or through an eligible trust. Key distinctions between the two cohorts under Act 38-2026 include: • Legacy 0% cohort (application filed on or before 31 December 2026): (a) 0% Puerto Rico tax rate on qualifying interest, dividends and post-move capital gains (b) Applies to amounts recognised before 1 Janu - ary 2036 (c) Keeps the historically more favourable treat - ment (d) Applicants must not have lived in Puerto Rico between 2006 and 2012 (e) Existing decree holders remain fully protected and may optionally seek a decree modification to adopt post-2026 terms if the extended 2055 horizon is preferable • New 4% cohort (application filed on or after 1 January 2027): (a) 4% fixed preferential Puerto Rico tax rate on the same qualifying income streams
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