The Puerto Rico Act 22, also known as the Individual Investors Act, is a groundbreaking tax incentive designed to attract high-net-worth individuals to Puerto Rico. It offers zero tax on capital gains, dividends, and interest income, making it one of the most powerful legal tax strategies available to U.S. citizens and global investors alike.
Background of Act 22
Introduced in 2012, Act 22 was created to stimulate Puerto Rico’s economy by encouraging wealthy individuals to relocate and invest locally.
In 2019, it was merged into the broader Act 60 (Puerto Rico Incentives Code), which consolidated multiple incentive programs — including Act 20 (Export Services) and Act 22 — into a single, modernized system.
The aim remains the same: to drive capital inflow, entrepreneurship, and long-term investment on the island.
Who Can Benefit from Act 22?
Eligibility Requirements
Act 22 applies to new residents of Puerto Rico who:
Were not residents of Puerto Rico in the previous 10 years before applying.
Become bona fide residents of Puerto Rico.
Obtain an individual tax decree from the Puerto Rico Department of Economic Development and Commerce (DDEC).
Ideal Candidates
Investors with significant capital gains
Entrepreneurs seeking tax-efficient relocation
Retirees with passive income streams
copyright investors and traders
The Core Benefits of Act 22
1. 100% Exemption on Dividends
Dividends from Puerto Rico-sourced income are completely tax-free.
2. 100% Exemption on Interest Income
Interest earned from Puerto Rican banks or bonds is also fully exempt.
3. 100% Exemption on Capital Gains
Capital gains accrued after establishing residency are completely exempt from Puerto Rico income tax — and from U.S. federal tax as well.
4. Tax Exemption Period
The tax decree is typically valid until December 31, 2035, locking in your benefits for years to come.
Residency Requirements
To qualify as a bona fide Puerto Rico resident, you must satisfy three key tests under U.S. tax law:
Physical Presence Test – You must spend at least 183 days in Puerto Rico per year.
Tax Home Test – Your principal place of business must be located in Puerto Rico.
Closer Connection Test – You must have stronger personal, social, and economic ties to Puerto Rico than anywhere else.
How to Become a Bona Fide Puerto Rico Resident
Relocate to Puerto Rico and establish your primary residence.
Spend at least 183 days per year on the island.
Transfer key connections — such as bank accounts, driver’s license, and voter registration — to Puerto Rico.
Apply for the Act 22 decree through DDEC.
File annual reports and maintain compliance with all residency requirements.
Maintaining residency is critical, as failure to do so can result in disqualification from the program.
Application Process for Act 22
The application process is straightforward but requires precision:
Register an account on the DDEC portal.
Complete the online application for an Act 22 (now Act 60) decree.
Submit required documents, including ID, proof of residency, and tax filings.
Pay the application fee (around $750) and the annual report fee thereafter.
Await approval, typically within 3–6 months.
Once granted, you receive a tax decree contract, guaranteeing your benefits.
What Income Qualifies for Exemption
Act 22 primarily applies to Puerto Rico-sourced income — not U.S. mainland income.
Qualified Income Includes:
Dividends from Puerto Rican corporations
Interest earned from Puerto Rican financial institutions
Capital gains realized after establishing residency
Non-Qualified Income
U.S.-sourced wages or rental income
Income generated before moving to Puerto Rico
Lifestyle Benefits of Act 22
Living in Puerto Rico isn’t just about taxes — it’s about lifestyle.
Residents enjoy:
A warm, tropical climate
U.S. currency and legal system
No copyright requirements for U.S. citizens
A growing community of entrepreneurs and investors
You can enjoy island life while maintaining access to U.S. markets and protections.
Common Mistakes to Avoid
Spending too much time in the mainland U.S.
Retaining U.S.-based primary residence or business ties
Ignoring annual report filings
Assuming copyright gains prior to relocation are exempt (they are not)
Compliance is key to maintaining your tax-free status.
Act 22 vs. U.S. Federal Taxes
Under mainland U.S. tax law, citizens pay capital gains up to 20% and additional 3.8% Net Investment Income Tax (NIIT).
In contrast, Act 22 residents in Puerto Rico pay 0% on qualified gains and income — a major difference for investors.
However, U.S. citizens must still file a federal tax return indicating Puerto Rico residency.
The Economic Impact of Act 22
Act 22 has helped bring billions of dollars into Puerto Rico’s economy.
It’s boosted:
Real estate investment
Local employment
Tourism and services
However, it has also faced criticism for not benefiting all local communities equally — prompting new reforms for social responsibility and local contributions.
Legal and Ethical Considerations
Puerto Rico’s government has implemented anti-abuse measures to ensure participants genuinely contribute to the island.
For example, decree holders must donate at least $10,000 annually to local charities and purchase a primary residence within two years.
Legal guidance ensures compliance with both Puerto Rican and U.S. tax laws.
Recent Updates to Act 22 (Now Part of Act 60)
The decree application now falls under Act 60’s Chapter 2.
Charitable donations and local investments are mandatory.
Enhanced reporting and residency verification requirements are in place.
These reforms strengthen the program’s integrity and long-term sustainability.
The Future of Act 22
Puerto Rico continues to position itself as a premier destination for investors, especially in copyright, finance, and remote work sectors.
With the rise of digital entrepreneurship and remote income, Act 22 offers a modern solution for individuals seeking tax efficiency and global mobility.
Conclusion
The Act 22 program remains a transformative opportunity for individuals seeking to reduce taxes legally while contributing to Puerto Rico’s growth.
By becoming a bona fide resident and maintaining compliance, you can unlock life-changing benefits — all under the protection of U.S. law.
Act 22 isn’t just a tax incentive; it’s a lifestyle shift toward financial freedom and tropical living.
FAQs
1. What is Act 22 in Puerto Rico?
Act 22, now part of Act 60, grants 100% tax exemption on capital gains, dividends, and interest income to new residents.
2. Who qualifies for Act 22 benefits?
Any U.S. citizen or foreign national who becomes a bona fide resident of Puerto Rico and hasn’t lived there in the past 10 years.
3. How long do the benefits last?
The tax decree is typically valid until December 31, 2035.
4. Do copyright traders qualify for Act 22?
Yes, as long as copyright gains are realized after establishing residency in Puerto Rico.
5. Is Act 22 still active?
Yes, though it has been consolidated into Act 60, the benefits remain largely the same.