PUERTO RICO Trends and Developments Contributed by: Anthony O. Maceira Zayas, Simón Carlo Valentín and Carlos M. Fontán, Maceira Zayas
which examined IRS oversight of taxpayers claim - ing the Puerto Rico resident investor incentive, adds congressional weight to this enforcement picture. The report found that the IRS compliance campaign launched in January 2021 operated for more than four years without current, complete data on the decree- holder population and did not act on a DDEC referral identifying 179 individuals who could not demonstrate they met Puerto Rico’s 183-day residency require - ment. The IRS agreed with all three GAO recom - mendations, committing to establishing systematic data-sharing procedures with Hacienda and written protocols for processing Puerto Rico government referrals. The report’s data showing that average fed - eral taxes paid by incentive recipients fell 46% after relocation, with the aggregate reduction potentially amounting to hundreds of millions of dollars per year, provides the quantitative basis for the sustained con - gressional scrutiny that generated the investigation and is unlikely to diminish. The 2025 enforcement cycle also helped identify a recurring pattern in deficiency cases where decree holders who had relied on non-attorney consultants or self-administered their compliance obligations were disproportionately represented among those who received deficiency notices, underscoring that the technical and legal complexity of sustained decree compliance warrants qualified counsel. Federal Tax Changes Under OBBBA Affect Chapter 3 Planning The One Big Beautiful Bill Act (OBBBA), signed 4 July 2025, made permanent or modified several federal provisions that interact directly with Act 60’s Chapter 3 export services programme. Chapter 3, the Export of Services incentive and the successor to the for - mer Act 20 framework, offers qualifying businesses a fixed 4% Puerto Rico income tax rate on export services income and a 100% Puerto Rico exemption on dividends distributed by eligible entities. Because Chapter 3 entities frequently operate within structures involving US shareholders and controlled foreign cor - porations (CFCs, foreign corporations in which US persons own more than 50% by vote or value), OBB - BA’s international tax changes carry direct structural consequences. OBBBA’s permanent reinstatement of 100% bonus depreciation under IRC Section 168 (k),
along with the possession carve-out, materially reduc - es the after-tax cost of capital investment required to establish and maintain a bona fide office and opera - tional infrastructure in Puerto Rico. In parallel, the per - manent qualified business income deduction under IRC §199A enhances the after-tax return profile for US individual investors utilising pass-through struc - tures. However, in the context of a Puerto Rico entity treated as a CFC, these provisions do not eliminate the requirement for US shareholders to include tested income. Rather, they function to reduce the underly - ing earnings base subject to inclusion and improve overall capital efficiency, thereby partially mitigating, but not eliminating, the US tax friction associated with Chapter 3 structures owned, directly or indirectly, by US persons. Notwithstanding the foregoing benefits, OBBBA intro - duces additional complexity into the cross-border tax analysis applicable to Puerto Rico structures. The recharacterisation of Global Intangible Low-Taxed Income (GILTI) as Net CFC Tested Income (NCTI), coupled with a permanent 40% deduction under IRC §250, results in an effective US tax rate of approxi - mately 12.6% (before foreign tax credits), such that the 4% Puerto Rico tax rate does not, standing alone, eliminate residual US taxation for corporate US share - holders. OBBBA further modifies the Subpart F pro rata share rules to require inclusion where a US share - holder owns CFC stock at any time during the tax - able year, rather than solely on the last day, expanding the scope of potential inclusions. Collectively, these changes necessitate careful ownership and structural planning to avoid unintended CFC classification and to preserve the intended tax benefits of Puerto Rico incentive regimes. Puerto Rico’s Broader Tax Reform Remains Unfinished Senate Bill 912 and its companion House Bill 1014, introduced in January 2026, proposed amendments to Puerto Rico’s IRC of 2011 that would reduce individual income tax rates to close the substantial gap with fed - eral rates (a marginal rate of 33% applies in Puerto Rico on income above USD61,500; the proposal is to raise this threshold to USD150,000) and adjust per - sonal exemptions for inflation. The bills proposed to offset the fiscal cost by eliminating certain sales and
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