This Puerto Rico tax guide covers the rules in force from 1 January 2026. Residents pay 0%–33% income tax on worldwide income, companies up to 37.5% and consumers an 11.5% sales tax — yet US citizens who become bona fide residents generally fall outside federal income tax on Puerto Rico-source income under Section 933. Act 60 decrees cut local tax to 4% for export services companies and 0% on investors’ post-move gains; Act 38-2026 raises the investor rate to 4% for applications filed from 1 January 2027.
Introduction
Puerto Rico is a Caribbean island of about 9,100 km² and 3.2 million people, lying between the Dominican Republic and the US Virgin Islands, some 1,000 miles southeast of Miami. It has been a US territory since 1898 and its residents have been US citizens since 1917; under its 1952 constitution it governs itself as a Commonwealth, but it has no vote in presidential elections and only a non-voting delegate in Congress. The US dollar, US federal courts, US immigration law and the US social security system all apply, while private law keeps a Spanish civil-law tradition. Spanish and English are both official, with Spanish dominant in daily life. The climate is tropical, with a June–November hurricane season. Housing outside the San Juan metro can be cheaper than the mainland, but electricity is among the most expensive and least reliable under the US flag, and shipping rules raise the cost of imported goods. Public finances have been supervised by a federal Oversight Board since 2016, after a debt crisis that ended in the largest municipal bankruptcy in US history.
This Puerto Rico tax guide matters because the island is the only place a US citizen can move to — without renouncing citizenship — and legally step outside federal income tax on locally sourced income. The Incentives Code (Act 60-2019) adds decrees that turn that gap into near-zero tax: a 4% rate for service businesses exporting from the island and a full exemption on investors’ Puerto Rico-source dividends, interest and post-move capital gains. That second deal is changing. Act 38-2026, signed on 10 March 2026, extends the investor programme to 2055 but charges 4% to anyone applying from 1 January 2027 — making 31 December 2026 the most important date in Puerto Rican tax planning.
Direct Taxes
Puerto Rico taxes residents on worldwide income and non-residents only on Puerto Rico-source income; presence of 183 days or more in a calendar year creates a presumption of local residence. Rates are progressive on net taxable income, with a separate alternate basic tax for high earners. A corporation organised in Puerto Rico is taxed on worldwide income, a foreign one only on income connected with the island. The key concepts for investors sit on two layers: Section 933 of the US Internal Revenue Code, which keeps Puerto Rico-source income out of federal tax, and the Act 60 decree, which replaces local rates with fixed preferential ones.
Personal income tax (2026 bands)
| Net taxable income (USD) | Rate |
|---|---|
| Up to $9,000 | 0% |
| $9,001 – $25,000 | 7% |
| $25,001 – $41,500 | 14% |
| $41,501 – $61,500 | 25% |
| Over $61,500 | 33% |
These bands have not changed since 2018; Act 257-2018 added a rule that multiplies the total tax by 95%, or 92% where gross income is $100,000 or less. Above $500,000 of net taxable income a 5% gradual adjustment claws back the benefit of the lower bands and personal exemptions. An alternate basic tax of 1%–24% applies to income from $25,000 to over $250,000 once exempt items are added back, and self-employed service providers may instead elect an optional tax of 6%–20% on gross income. The 2026 reform bill (House Bill 1014 / Senate Bill 912) would raise the 0% band to $12,500, introduce rates of 6%, 12%, 24% and 29%, and push the 33% band above $150,000, but the Oversight Board found it inconsistent with the certified fiscal plan and it remains unenacted. Instead, Joint Resolution 6-2026 funded a one-off $554 million relief payment, applying the proposed rates retroactively to 2025 for residents with net taxable income of $150,000 or less.
Federal tax for bona fide residents (Section 933)
A US citizen who is a bona fide resident of Puerto Rico for the whole year excludes Puerto Rico-source income from federal gross income and files a federal return only for income that is not excluded, or to pay self-employment tax. Bona fide residence requires three tests: the presence test (183 days on the island, or one of four alternatives), no tax home outside Puerto Rico, and no closer connection to the mainland or a foreign country. Form 8898 is filed in the year residence starts or ends. The exclusion is only as good as the sourcing of each income item:
| Income type | Federal tax | Puerto Rico, standard | Act 60 investor (filed by 31 Dec 2026 / from 2027) |
|---|---|---|---|
| Wages for work physically done in Puerto Rico | Excluded (FICA still due) | 0%–33% | Not covered |
| Dividends from Puerto Rico corporations | Excluded | 15% | 0% / 4% |
| Interest from Puerto Rico sources | Excluded | Regular rates, or 10%/17% on eligible interest | 0% / 4% |
| Gains on securities — post-move appreciation | Excluded (sourced to seller’s residence) | 15% long-term | 0% / 4% |
| Gains on assets held before the move, sold within 10 years | Taxed on pre-move appreciation | 15% long-term | Regular rules |
| Same gains recognised after 10 years of residence | Excluded | 15% long-term | 5% |
| US-source dividends, US real estate, mainland business income | Taxed | Taxed, with credit for US tax | Not covered |
The table shows why the move only works for income that genuinely becomes Puerto Rico-source. A portfolio of S&P 500 shares still throws off US-source dividends taxed federally; a mainland LLC still earns US-source profit; and appreciation that built up before the move stays federally taxable for ten years. Post-move trading gains and income from a Puerto Rico export services company are where the arithmetic collapses toward zero.
Corporate income tax
| Item | Rate |
|---|---|
| Normal tax | 18.5% |
| Surtax on surtax net income (after a $25,000 deduction) | 5%–19% |
| Maximum combined nominal rate | ~37.5% |
| Alternative minimum tax | 18.5% (23% if gross receipts ≥ $10 million) |
| Act 60 export services decree — fixed rate | 4% |
| Withholding: dividends to foreign corporations / other passive income | 10% / 29% |
Act 257-2018 cut the normal tax from 20% to 18.5% for years beginning after 2018. Corporations deduct 85% of dividends from other domestic corporations and 100% from subsidiaries owned 80% or more, and net operating losses from years after 2012 carry forward for ten years. Puerto Rico has no tax treaties, and US treaties do not extend to it, so the 29% and 10% withholding rates apply in full to non-resident payees. The export services decree — successor to Act 20 — fixes tax at 4% on eligible income from services performed in Puerto Rico for clients outside it, makes distributions to Puerto Rico-resident owners fully exempt and grants partial relief from municipal licence and property taxes, typically for 15 years and renewable. Act 38-2026 left it untouched. Groups inside the OECD global minimum tax should still model top-up exposure on 4% income, although the January 2026 side-by-side package largely shields US-parented groups from foreign top-up taxes.
Social security and health contributions
| Contribution | Employee | Employer | Self-employed |
|---|---|---|---|
| Social Security (federal, first $184,500) | 6.2% | 6.2% | 12.4% |
| Medicare (federal, no cap) | 1.45% | 1.45% | 2.9% |
| Additional Medicare (over $200,000 / $250,000 joint) | 0.9% | — | 0.9% |
| Puerto Rico unemployment insurance (first $7,000) | — | 1.2%–5.4% (2.8% new employers) | n/a |
| Disability insurance, SINOT (first $9,000) | 0.3% | 0.3% | n/a |
| Federal unemployment, FUTA (first $7,000) | — | 0.6% after credit | n/a |
Puerto Rico sits fully inside the US Social Security and Medicare system, so the Section 933 exclusion does not remove payroll tax: an Act 60 resident on a $150,000 salary still pays 7.65% and so does the employer. The federal wage base rises to $184,500 for 2026. Chauffeurs’ social security and State Insurance Fund (workers’ compensation) premiums also apply. For self-employed founders, the 15.3% self-employment rate up to the wage base is often the largest tax they pay after moving.
Indirect Taxes
Puerto Rico has no VAT. Its main indirect tax is the IVU (Impuesto sobre Ventas y Uso), a single-stage sales and use tax on the final consumer, administered by the Treasury Department (Hacienda) and collected monthly. Use tax also reaches imports for business use and services bought from non-residents.
Sales and use tax (IVU)
| Rate | Applies to (examples) |
|---|---|
| 11.5% (10.5% territorial + 1% municipal) | Most goods, taxable services, software and digital products |
| 4% (special) | Business-to-business services and designated professional services — no municipal portion |
| 7% | Prepared food at qualifying restaurants |
| Exempt | Unprepared food (groceries) and other statutory exemptions |
At 11.5%, the IVU is one of the highest sales tax rates under the US flag, and it reaches services and digital products that many states leave alone. Professional firms mostly meet it at the 4% rate on business clients.
Excise and other indirect taxes
| Tax | Notes |
|---|---|
| Excise taxes (arbitrios) | Cigarettes, fuel and crude oil, motor vehicles, alcoholic beverages, cement, sugar and plastics, among others |
| Room occupancy tax | 9% hotels; 11% hotels with casinos; 7% short-term rentals under 90 days, motels and paradores |
| Municipal licence tax (patente) | Up to 0.5% of gross volume of business, rate set by each municipality; volumes of $5,000 or less exempt |
| Property transfer | No transfer tax as such; internal revenue and registry stamps on deeds scale with price (confirm current schedule) |
The municipal licence tax is the one most often missed: it falls on gross receipts, not profit, and an export services decree only reduces it. Car buyers meet the vehicle excise up front, which is why vehicles cost noticeably more than on the mainland.
Other Taxes Worth Knowing
| Tax | Puerto Rico treatment |
|---|---|
| Capital gains tax | 15% on long-term gains (held over one year); short-term gains at regular rates; gain on a principal residence exempt (Act 180-2025); Act 60 investors: 0% on post-move gains (applications by 31 Dec 2026) or 4% (from 2027) |
| Dividends (resident individual) | 15% on Puerto Rico-source dividends; Act 60: 0% / 4% |
| Interest (resident individual) | Regular rates, or optional 10%/17% on eligible Puerto Rico interest; Act 60: 0% / 4% |
| Rental income | Long-term residential rent exempt under Act 132-2010, extended by Act 66-2025 through 2040; short-term rentals excluded from the exemption and taxed at regular rates |
| Wealth / net worth tax | None |
| Inheritance / estate tax | None in Puerto Rico (abolished for deaths after 31 December 2017); federal estate tax may still apply |
| Gift tax | None in Puerto Rico (abolished after 31 December 2017); federal gift tax applies to US citizens |
| Immovable property tax (annual) | Municipal, roughly 8%–12% of an assessed value pegged to 1957 market values; first $15,000 of assessed value of a principal residence exempt |
The estate line needs care. Puerto Rico’s own estate and gift taxes ended with Act 76-2017, but a US citizen who moves from the mainland stays within federal estate and gift tax on worldwide assets, with a $15 million exemption for 2026 under the One Big Beautiful Bill Act. The exception in Section 2209 covers only citizens who acquired citizenship through birth or residence in Puerto Rico itself. Property tax looks high on paper but is low in practice, because the 1957 assessed value is typically a fraction of today’s price — confirm the rate for the municipality with the collection agency, CRIM.
Disadvantages & Risks
The first risk is enforcement. The IRS has run an Act 60 compliance campaign since 2021, and a Government Accountability Office report of December 2025 found that the average claimant paid far less federal tax after moving, criticised the IRS for slow follow-up and noted that complete decree-holder data only reached the IRS in 2025. Expect audits to focus on day counts, the tax home and closer-connection tests, and on US-source income relabelled as Puerto Rico-source. Outside the decrees the system is high-tax: 33% from $61,500, corporate rates near 37.5%, an 11.5% IVU and a gross-receipts licence tax. There are no tax treaties, and public finances remain under the Oversight Board, which blocked the 2026 rate cuts as inconsistent with the fiscal plan.
Daily life carries its own costs: an unreliable, expensive power grid, hurricane exposure and insurance costs, and shipping rules that inflate prices. The incentives are politically contested — in Congress after the GAO report and locally over housing costs — and Act 38-2026 shows how terms can tighten for new applicants even though existing decrees are protected as contracts. Puerto Rico is not on the EU list of non-cooperative jurisdictions updated on 9 October 2026, which does name American Samoa, Guam and the US Virgin Islands, and it sits inside the US anti-money-laundering framework. Non-US nationals need a US immigration status to live there at all.
Strategy & Ideal Profile
Two structures do most of the work, often together. The resident individual investor decree suits anyone whose wealth produces gains, dividends and interest: file by 31 December 2026 to lock in 0% on Puerto Rico-source passive income and post-move gains through 2035, or apply later for 4% through 2055 — after six years of prior non-residence. The price is a $10,000 annual donation to Puerto Rico nonprofits (part to government-listed child-poverty charities — confirm the current split), an annual report fee of about $5,000, and the purchase of a primary residence within two years, which from 2027 must be held directly or through a trust rather than an LLC. The export services decree suits a business that can be run from the island: profits taxed at 4%, distributions tax-free, with the owner drawing a reasonable salary taxed at regular rates plus FICA. Large pre-move gains are usually cleaner to realise before moving, or to hold for ten years and pay the 5% rate.
The profile is unusually specific. US citizens gain most, because no other route ends federal income tax without renouncing citizenship. Traders and crypto investors expecting large post-move gains benefit directly from the 0% or 4% rate. Owners of location-independent service businesses — consulting, software, fund management, marketing — can relocate the business and the founder together. Founders expecting an exit benefit to the extent their company’s value grows after the move, since the pre-move share of the gain stays federally taxable for ten years. Residence is practical rather than formal: live there at least 183 days, keep the main home, family, car, bank and doctors on the island, and document it.
Puerto Rico does not suit salaried employees, who pay up to 33% locally with no general decree available and would usually do better in Florida or Texas. It does not suit investors whose income stays US-source — US dividends, US real estate, mainland business profits — or anyone unwilling to cut real ties with the mainland. The headline benefits are time-limited: decrees filed by the end of 2026 expire in 2035, the new 4% regime in 2055, and the GAO report makes further federal action a live possibility.
FAQ
Is Puerto Rico a tax haven?
Not by default. Its standard system is heavy: income tax to 33%, corporate tax near 37.5% and an 11.5% sales tax. The low rates come only through Act 60 decrees — 4% for export services companies and 0% or 4% on investors’ Puerto Rico-source passive income — combined with the Section 933 federal exclusion for bona fide residents. It is not on the EU list of non-cooperative jurisdictions.
What is the corporate tax rate in Puerto Rico in 2026?
An 18.5% normal tax plus a graduated surtax of 5%–19%, for a maximum combined rate of about 37.5%, with an alternative minimum tax of 18.5% (23% above $10 million of gross receipts). Companies holding an Act 60 export services decree pay a fixed 4% on eligible income instead.
How does Act 60 work after the 2026 amendment?
Act 38-2026, signed on 10 March 2026, splits the investor programme in two. Applications filed by 31 December 2026 keep 0% on Puerto Rico-source dividends, interest and post-move gains until the end of 2035. Applications from 1 January 2027 pay 4% on that income through 2055 and require six years of prior non-residence. Existing decrees are protected and may opt into the new terms. Export services decrees are unchanged.
What is the 183-day rule for Puerto Rico residency?
To be a bona fide resident for federal purposes you must meet the presence test — usually 183 days on the island in the tax year — and have no tax home outside Puerto Rico and no closer connection to the mainland or another country. Day counts alone are not enough: the IRS looks at where your home, family, assets and business actually are.
Does Puerto Rico tax capital gains?
Yes. Long-term gains are taxed at 15% and short-term gains at regular rates of up to 33%. Act 60 investors pay 0% (applications by the end of 2026) or 4% (from 2027) on appreciation that accrues after they move, and 5% on pre-move appreciation recognised after ten years of residence. Gains on a principal residence are exempt.
Is there inheritance or wealth tax in Puerto Rico?
No. Puerto Rico has no wealth tax and abolished its estate and gift taxes for transfers after 31 December 2017. US citizens who moved from the mainland nevertheless remain subject to federal estate and gift tax, with a $15 million exemption for 2026.
Do I still pay US federal tax if I move to Puerto Rico?
On Puerto Rico-source income, generally no, provided you are a bona fide resident for the whole year. You still pay federal tax on US-source income such as US dividends or mainland business profits, on pre-move appreciation sold within ten years, and Social Security and Medicare contributions on wages and self-employment income.
Sources
All figures should be checked against the primary government sources below. Only official government bodies are listed here.
- Departamento de Hacienda (Puerto Rico Treasury) — income tax, IVU, room-tax notices and the Alivio Contributivo 2025 guide — hacienda.pr.gov
- Departamento de Desarrollo Económico y Comercio (DDEC) — Office of Incentives for Businesses: Act 60 decree applications and annual reports — incentives.ddec.pr.gov
- Biblioteca Virtual OGP — official texts of Act 60-2019, Act 38-2026, Act 76-2017 (estate and gift tax repeal), Act 66-2025 (rental exemption), the Municipal Code (Act 107-2020, property and licence taxes) and Joint Resolution 6-2026 — bvirtualogp.pr.gov
- AAFAF (Fiscal Agency and Financial Advisory Authority) — signing of House Bill 505 as Act 38-2026 — aafaf.pr.gov
- Senado de Puerto Rico — Senate Bill 912 (2026 individual tax reform) — senado.pr.gov
- Financial Oversight and Management Board for Puerto Rico — statements on the 2026 tax reform — juntasupervision.pr.gov
- Puerto Rico Tourism Company — room occupancy tax — tourism.pr.gov
- Departamento del Trabajo y Recursos Humanos — unemployment and SINOT disability insurance — trabajo.pr.gov
- Internal Revenue Service — Publication 1321 and Form 8898 instructions (Section 933, bona fide residence) — irs.gov
- Internal Revenue Service — 2026 estate and gift tax exclusion under the One Big Beautiful Bill Act — irs.gov
- Social Security Administration — 2026 contribution and benefit base — ssa.gov
- US Government Accountability Office — GAO-26-107225, IRS oversight of taxpayers claiming Puerto Rico incentives — gao.gov
- Council of the European Union — EU list of non-cooperative jurisdictions, 9 October 2026 update — consilium.europa.eu
Puerto Rico uses the US dollar, so every figure in this guide is already stated in US dollars and no currency conversion applies.
Last verified: 17 October 2026.
This is general information, not personal tax or legal advice. Tax outcomes depend on your specific facts; consult a qualified Puerto Rico tax adviser before acting.
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