On March 10, 2026, Governor Jenniffer González-Colón signed Act 38-2026, a law that changes how Puerto Rico taxes the investment income of future Individual Resident Investors under Act 60. For applications filed on or before December 31, 2026, the earlier rules keep applying, including a 0% rate on interest, dividends and certain capital gains. For applications filed after that date, a 4% rate takes over. The line between the two regimes is a calendar date, and that is why the end of this year has drawn so much attention.
A date like this invites rushed decisions, and a rushed decision about residency, taxes and a move is rarely a good one. This guide is meant to slow things down and make them clear. You will see what the law changed, what the December 31 date actually refers to, who is affected and who is not, what 4% looks like in dollars and why federal scrutiny of residency claims matters. It is educational, not a recommendation to move or to file.
It is also written with Puerto Rico’s own residents in mind. Many local professionals, investors and small business owners hear about Act 60 through headlines and wonder whether it affects them. In most cases it does not change their tax situation directly, but it shapes the economy around them and raises useful questions about their own planning. If you own a business, advise clients or are simply trying to understand the news, this article will give you a clear map.
What Act 38-2026 Changed
Act 38-2026 amends the Puerto Rico Incentives Code, known as Act 60-2019, and focuses on the program for Individual Resident Investors. It did not rewrite the entire code, and it left the business incentive programs alone. The changes are narrower than the headlines suggest, which is exactly why the details matter.
The Law in One Paragraph
Act 38-2026 is Law No. 38 of March 10, 2026, and it amends sections 1020.02(a)(4), 2022.01, 2022.02, 6020.03 and 6020.10 of the Incentives Code. Under Article 8, it took effect immediately after approval. DLA Piper’s March 2026 summary notes that early reports described it as pending review by the Financial Oversight and Management Board, so confirm the current status with counsel before relying on it.
From 0% to 4%
Under the earlier rules, a qualifying Individual Resident Investor paid 0% Puerto Rico tax on interest, dividends and post-residency capital gains. For applications filed after December 31, 2026, the law sets a flat 4% rate on that income. The rate applies to income recognized before January 1, 2056. If another provision of Puerto Rico law offers a lower rate, that lower rate can apply instead.
Pre-Residency Gains and the 2055 Horizon
Gains that accrued before the investor became a resident are handled separately. Appreciation recognized after 10 years of residency is taxed at 5%, and that treatment was extended along with the program. The law also extends the program itself from 2035 to 2055, so an individual now has until the tax year ending December 31, 2055 to become a Puerto Rico resident under it.
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The December 31 Deadline, Decoded
The date in the headline is real, but it is often described loosely. The details determine who benefits and what they need to do.
It Is a Filing Date, Not a Moving Date
According to a Mitrani Rynor Adamsky & Toland summary, the controlling date is the date the decree application is submitted, not the date you move or the date the decree is issued. An application filed by December 31, 2026 keeps the earlier regime even if the decree issues in 2027 or later. Processing can take months, so keep proof of the submission date. What counts as a complete application is a question for your attorney.
What the Earlier Regime Keeps
Applicants who file by the deadline keep the earlier structure. The list below summarizes the main differences in plain terms:
- Rate: 0% on interest, dividends and post-residency capital gains for the earlier regime, versus 4% for later filings.
- End date: The earlier regime runs through December 31, 2035, while the new regime runs through December 31, 2055.
- Non-residency history: The earlier regime asks for no Puerto Rico residency between January 17, 2006 and January 17, 2012, while later filers must show at least six years of non-residency immediately before moving.
- Real estate: Later filers must show that title to their primary residence is recorded, or pending recording, in the Property Registry.
What Does Not Change With the Date
Filing earlier does not remove the program’s other obligations. These include buying a primary residence in Puerto Rico within two years of getting the decree, annual reporting to the Department of Economic Development and Commerce and a charitable contribution requirement, which one law-firm summary puts at $10,000 a year. They also include meeting the bona fide residency tests. Confirm the current amounts and rules with counsel.
Who This Does and Does Not Apply To
Headlines can make it sound as if the law touches everyone with a Puerto Rico address. It does not. The categories are specific, and it is worth finding yours.
Prospective Newcomers
The law is aimed at future Individual Resident Investors, meaning people who were not Puerto Rico residents and are considering relocating. For those who file after December 31, 2026, the six-year non-residency rule applies. Students who studied abroad after living in Puerto Rico, and government workers temporarily posted abroad, remain domiciled in Puerto Rico and do not qualify.
Existing Decree Holders
Rights under decrees issued before the law took effect continue to be honored. Holders keep the benefits their decrees provide. According to the summary above, holders who obtained or requested a decree by the deadline may elect to modify it to the new regime, trading the 0% rate through 2035 for the 4% rate through 2055. Whether that trade makes sense depends on how long the holder expects to stay and on their expected income, so it is a question for tax counsel.
People Who Already Live Here
If you are a long-time Puerto Rico resident, Act 38-2026 does not change your own tax rates. Local press coverage from March 2026 quoted the governor as saying she hopes the new revenue can eventually lower taxes that local residents pay on interest, dividends and capital gains, but she noted the Legislature had not yet acted on that. Until it does, treat it as an idea, not a benefit you can plan around.
What 4% Looks Like in Dollars
Percentages feel abstract until they meet a portfolio. This example is hypothetical, and it ignores federal tax, which is a separate question covered below.
A Hypothetical Investor
Daniel is considering a move in 2027. He holds a $1 million portfolio that produces $35,000 a year in interest and dividends and, in a typical year, $65,000 of realized gains after he becomes a resident. His combined recognized income is $100,000 a year.
The Difference
At 4%, Daniel’s Puerto Rico tax on that income is $4,000 a year. Under the earlier regime it would have been $0 through 2035. Over the nine tax years from 2027 through 2035, the gap is about $36,000, before any growth in the portfolio. The earlier regime ends in 2035, however, while the new one runs to 2055, so a longer horizon changes the comparison. The right answer depends on how long he expects the benefit to matter, which is why a comprehensive financial analysis in Puerto Rico that models several scenarios is worth the effort before any filing.
What the Example Leaves Out
The example leaves out federal taxes, the cost of buying a home, annual program obligations, professional fees and the cost of moving. It also assumes the income stays constant. Real decisions involve all of these. A planner and a tax attorney can build a version of this calculation with your actual numbers.
Residency Is the Real Test
The rate is the part of Act 60 that gets attention. The residency requirements are the part that gets scrutinized. Anyone considering a move should understand how seriously both Puerto Rico and the federal government treat them.
What Federal Scrutiny Looks Like
Metro Puerto Rico reported in March 2026 that the IRS stepped up attention to decree holders in 2025. The report described a guilty plea in a first criminal case tied to false residency documents and a December 2025 federal watchdog report recommending closer oversight. It also noted that residency is examined well beyond the 183-day rule, and that questions about cryptocurrency are increasingly common.
Why Federal Tax Still Matters
Puerto Rico incentives do not remove U.S. federal tax considerations. Whether income is taxed federally depends on where it is sourced and on whether the taxpayer meets the federal definition of a bona fide Puerto Rico resident. Dividends and interest from U.S. sources, for example, may be treated differently from Puerto Rico-source income. This is exactly where specialist counsel is essential.
Documentation Is Not Optional
Advisors commonly recommend documenting physical presence, a tax home, economic ties, the timing of the relocation and compliance with the decree. A residency claim that cannot be supported with records is a liability, whatever the rate. If the paperwork feels like too much, that is useful information in itself.
What Small Business Owners Should Take From This
If you run a business in Puerto Rico, you may be wondering whether any of this is relevant to you. In most cases the direct answer is no, but the surrounding picture is worth understanding.
Business Programs Were Not Changed
Reports on the law indicate that the business incentive programs, including export services, manufacturing and tourism, were left unchanged by Act 38-2026. If your company holds a decree under one of those programs, this law does not alter its terms. Confirm with your attorney, since decree terms are individual.
New Residents Are Also New Customers
Individual Resident Investors buy homes, hire contractors and use professional services. A rising or falling number of new residents affects demand for real estate services, construction, restaurants and professional firms. Owners who serve that market can track the filing activity around the deadline as one input to their planning, without making business decisions on rumors.
Your Own Planning Questions
For owners in general, the more useful lesson is about timing and structure. This law shows how quickly a tax regime can change and how much depends on filing dates and documentation. Good financial planning for business owners in Puerto Rico looks at your entity structure, your retirement plan, your exit options and your personal investments together, so a change in one area does not catch you off guard in another.
A Practical Timeline for the Weeks Left
As of early November, roughly eight weeks remain before the filing date. If you are seriously considering the program, a calm, ordered approach helps more than a sprint.
Steps to Consider
Use this checklist as a starting point, and adapt it with your advisors:
- Confirm eligibility, including your Puerto Rico residency history between 2006 and 2012 for the earlier regime.
- Engage a tax attorney and a CPA who work with Puerto Rico decrees and U.S. federal rules.
- Gather identity, income and residency records, along with statements for your investments in Puerto Rico and elsewhere.
- Ask your attorney what a complete application includes, and how to document the filing date.
- Model the 0% and 4% paths side by side, including federal tax and the end dates.
- Plan for the home purchase requirement and annual obligations.
- Decide with a clear head, not a countdown.
Who Should Be at the Table
A decree application is not a do-it-yourself project. The attorney prepares and files the application, the CPA models the tax picture on both the Puerto Rico and federal sides, and the financial planner looks at how the portfolio, income needs and long-term goals fit together. A real estate professional and a banker may also be needed for the home purchase. Sharing the same assumptions with each of them avoids conflicting advice.
When Not to File
If the move is uncertain, if the residency tests would be hard to satisfy honestly or if the numbers do not hold up under scrutiny, not filing is a legitimate choice. A deadline is a reason to get organized, not a reason to commit. Missing it does not close the door, because the program continues under the 4% regime through 2055.
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Questions to Ask Before You File
The best conversations with professionals start with precise questions. Bring these to your first meeting:
- How would my federal tax change under each regime, given my sources of income?
- What documents prove my filing date and my eligibility history?
- If I already hold a decree, would modification help or hurt me?
- How long do I realistically plan to live in Puerto Rico?
- How will the home purchase, annual reporting and charitable obligations affect my cash flow?
Finding the Right Advisory Team
Programs like this one sit at the intersection of law, tax and investing. An experienced investment advisor in Puerto Rico can help translate the tax decision into a portfolio and income plan, while an attorney and CPA handle the legal and filing work. Ask each professional what they will and will not cover, so nothing falls between them. A good tax planning in Puerto Rico team will also be comfortable saying when a strategy is not a good fit.
A Note on Realistic Expectations
No tax rate guarantees an outcome. Investment returns vary, laws change, and residency is a matter of facts. The responsible way to approach any incentive program is to treat the tax rate as one input among many, then build a plan that works even if the rate changes again.
Conclusion
Act 38-2026 changes the Individual Resident Investor program in three ways that matter: a 4% rate for applications filed after December 31, 2026, a program extended to 2055 and a six-year non-residency requirement for later filers. Applications filed by the deadline keep the earlier regime, and existing decree holders keep their rights, with an option to modify.
The date is real, but the right response to it is preparation, not panic. Understand which category you belong in, run the numbers under both regimes, weigh federal tax and residency requirements honestly, and decide with qualified professionals. For most Puerto Rico residents and business owners, the more valuable takeaway is how quickly tax rules can shift and why a flexible plan beats a reactive one.
Disclaimer: This article is for educational purposes only and does not constitute individualized legal, tax, investment or financial advice, or a recommendation to relocate or to file an application. Tax laws, decree terms and agency procedures change, and examples are hypothetical. Confirm current rules with a licensed Puerto Rico attorney and a CPA before acting.
