Act 38-2026 (HB 505): What Changed for Act 60 Investors

The most significant changes to Act 60 since the program’s creation.

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Content current as of April 2026. Tax law is subject to change. This page is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Consult qualified counsel before acting.

Overview

In March 2026, Puerto Rico enacted Act 38-2026 (originally House Bill 505), the most significant amendment to the Act 60 Individual Resident Investor (IRI) program since its creation as Act 22-2012. The law changes the preferential tax rate for new applicants, extends the program’s lifespan, and introduces new requirements—while grandfathering existing decree holders.

Key Changes

New 4% Tax Rate for Post-2026 Applicants

Applications filed on or after January 1, 2027 will be subject to a 4% preferential tax rate on post-residency capital gains, interest, and dividends. The 0% rate is available only for applications submitted on or before December 31, 2026.

Important: The decree guarantees the Puerto Rico tax treatment for its duration. However, the separate federal tax exclusion under IRC §933 depends on maintaining bona fide resident (BFR) status under IRC §937 and proper income sourcing. Federal tax treatment is not guaranteed by the decree and remains subject to IRS examination and potential legislative change.

Grandfathering of Existing Decree Holders

Existing decree holders are fully grandfathered under their current terms and retain the 0% rate for the duration of their decree. Applications pending or filed before December 31, 2026 also qualify for the grandfathered 0% rate.

Program Extension to 2055

Act 38-2026 extends the IRI program through December 31, 2055, from the prior 2035 sunset date. This provides long-term certainty for both existing and future decree holders.

Federal 10-Year Lookback Rule

Critical federal limitation: Capital gains on investment property owned before establishing bona fide PR residency are subject to the federal 10-year lookback rule under Treas. Reg. §1.937-2(f). Under this rule, gains on pre-move assets are not treated as Puerto Rico-source income for federal tax purposes and remain subject to U.S. federal capital gains tax. Taxpayers may elect to split-source gains using the possession holding period method. See IRS AM 2024-005 (Dec. 2024); CCM 202538025.

Annual Charitable Donation Requirement

All decree holders must make a $10,000 annual charitable donation—at least $5,000 to organizations focused on eradicating child poverty as listed by the CECFL (Comisión Especial Conjunta de Fondos Legislativos para Impacto Comunitario), plus $5,000 to other qualifying Puerto Rico nonprofits under PR IRC §1101.01.

In addition, decree holders pay a $5,000 annual report fee, bringing the total annual obligation to $15,000.

Important: Qualifying nonprofit organizations cannot be controlled by the decree holder or their family members. Donations must be made annually as a condition of maintaining the decree.

Employment Requirement

New applicants with annual revenue exceeding $3 million must create or maintain at least one full-time employee (other than the owner) in Puerto Rico within two years. Businesses below this threshold are not subject to the employee requirement. This reinforces the program’s economic development purpose.

Six-Year Non-Residency Requirement

Under Act 38-2026, new applicants must demonstrate that they have not been bona fide residents of Puerto Rico for at least six years prior to their application. This requirement is designed to ensure the program attracts new residents rather than benefiting individuals already living on the island.

What This Means for Current Decree Holders

  • No change to your 0% rate—existing decrees are grandfathered
  • No change to your $10,000 donation obligation or $5,000 annual report fee
  • Program extended to 2055—your decree’s longevity is more secure
  • Compliance obligations unchanged—continue meeting residency, reporting, and Act 52 certification requirements

What This Means for Prospective Applicants

  • Apply before December 31, 2026 to lock in the 0% rate
  • After 2026: the 4% rate still represents a significant tax benefit compared to mainland capital gains rates of 20–23.8%
  • Plan for the $10,000 donation, $5,000 annual report fee, and employment requirements when budgeting your relocation
  • Note the donation allocation: $5,000 to CECFL-listed organizations + $5,000 to qualifying PR nonprofits (not controlled by you or your family)

Frequently Asked Questions

Applications filed on or after January 1, 2027 will be subject to a 4% preferential tax rate on post-residency capital gains, interest, and dividends. The 0% rate is available only for applications submitted on or before December 31, 2026.

No. Existing decree holders are grandfathered under their current terms and retain the 0% rate and $10,000 donation requirement. Applications filed before December 31, 2026 also qualify for the grandfathered terms.

Act 38-2026 extends the Individual Resident Investor program through December 31, 2055, from the prior 2035 sunset date.

The DDEC charges: (1) a $5,005 application fee at the time of filing; (2) a $105 acceptance fee upon decree grant; and (3) an annual compliance filing fee of $5,000+ thereafter. These are material costs that should be factored into your relocation budget in addition to legal and CPA fees.

If you are seriously considering relocating to Puerto Rico under Act 60, filing your application before December 31, 2026 locks in the 0% rate. However, the decree application process involves establishing bona fide residency, structuring entities, and compliance planning—start early to ensure your application is filed on time.

Related Resources

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The information on this page is for general educational purposes only and does not constitute legal or tax advice. Tax outcomes depend on individual circumstances including residency, income sourcing, decree terms, and applicable law. No attorney-client relationship is formed by viewing this content. For advice specific to your situation, schedule a consultation.