Puerto Rico offers substantial property tax incentives through Act 60, including up to 75% property tax exemptions and 4% fixed income tax rates for qualifying investors. These incentives don't apply to all property purchases and require meeting strict residency and business operation requirements that many buyers overlook.
Key Takeaways
- Act 60 can deliver major breaks on property, income, and dividends, but only for very specific investor profiles and uses.
- Export Services and Individual Investor decrees serve different goals: operating export businesses vs relocating high-net-worth individuals with passive income.
- Opportunity Zones and construction incentives can layer on top of Act 60 to boost returns on targeted development and rehab projects.
- Strict residency, business-use, and reporting rules make expert Puerto Rico tax and legal guidance essential before acting on these incentives.
Export Services Investor Incentives
The Export Services Act within Act 60 delivers the most substantial property tax breaks for businesses operating eligible export services from Puerto Rico. This program requires active business operations, making it ideal for entrepreneurs and companies relocating operations to the island. Property used directly in export business activities qualifies for up to 75% property tax exemption, representing significant savings on luxury commercial and mixed-use properties.
Many investors establish consulting firms, trading companies, or technology services under this program to take advantage of the available incentives. The property tax savings alone can justify the business restructuring costs for many high-net-worth individuals.
Export Services Program Benefits
- Up to 75% property tax exemption on real property used in export business operations
- Up to 50% municipal tax exemption on qualifying business properties
- 4% fixed income tax rate on export services income
- 100% tax exemption on dividend distributions from export services
- Construction excise tax exemptions for new business facilities
- Sales and use tax exemptions on machinery and equipment purchases
Export Services Requirements and Restrictions
- Active business operations required - passive real estate investment doesn't qualify
- Export services must serve clients outside Puerto Rico - local clients don't count toward qualification
- Minimum investment thresholds apply based on business type and location
- Annual compliance reports must demonstrate ongoing export activities
- Property must be used directly in business operations to qualify for exemptions
Individual Investor Property Tax Benefits
The Individual Investor Act targets high-net-worth individuals seeking to relocate to Puerto Rico while maintaining investment portfolios. This program offers more modest property tax benefits compared to export services but applies to personal residences and doesn't require active business operations. The recent 2025 reforms increased the passive income tax rate from 0% to 4% for new applicants, creating urgency among potential relocators.
Many luxury home buyers in Condado and Dorado pursue this program for its relative simplicity and its benefits tied to a primary residence. The program works particularly well for retirees or investors with substantial passive income streams.
Individual Investor Program Advantages
Property owners under the Individual Investor Act receive targeted benefits that reduce overall tax burdens while enjoying Puerto Rico's luxury lifestyle. The program focuses on attracting genuine new residents rather than temporary tax tourists.
Tax Benefits for Individual Investors
- 4% tax rate on Puerto Rico-sourced passive income for new decrees issued after December 31, 2025; existing decrees generally preserve the 0% rate on qualifying post-residency interest, dividends, and capital gains.
- 0% tax on capital gains accrued after becoming Puerto Rico resident
- 100% exemption on dividend distributions from Puerto Rico sources
- Property tax reductions on primary residences in certain municipalities
- Municipal tax benefits vary by location but can include significant reductions
Residency and Compliance Requirements
- 183 days minimum annual presence in Puerto Rico required
- Primary residence must be in Puerto Rico - vacation homes don't qualify
- Must not have been a bona fide resident of Puerto Rico during the previous six years under the post-2025 Act 60 reforms.
- Annual tax filings must demonstrate compliance with residency requirements
- Closer connection test requires demonstrating stronger ties to Puerto Rico than mainland US
Opportunity Zones and Enhanced Property Incentives
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Puerto Rico's Opportunity Zones program layers additional incentives on top of existing Act 60 benefits for qualifying real estate developments. These zones target economically distressed areas and provide enhanced property tax exemptions plus income tax benefits for long-term investments. The program particularly benefits developers and investors focusing on new construction or substantial rehabilitation projects.
Interest in Opportunity Zone properties has increased as investors seek to maximize tax benefits while contributing to community development initiatives.
|
Incentive Type |
Act 60 Export Services |
Act 60 Individual Investor |
Opportunity Zones |
|---|---|---|---|
|
Property Tax Exemption |
75% on business property |
Varies by municipality |
25% exemption on property and municipal license taxes within the OZ regime |
|
Income Tax Rate |
4% fixed rate |
4% on passive income |
18.5% fixed income tax rate on eligible OZ business income |
|
Municipal Tax Benefits |
Up to 50% exemption |
Varies by location |
25% exemption |
|
Capital Gains Treatment |
4% on business gains |
0% on post-residency gains |
Deferred and reduced |
|
Dividend Exemptions |
100% from export services |
100% from PR sources |
100% distribution exemption |
New Construction and Development Incentives
Puerto Rico offers specific incentives for new construction projects that complement existing Act 60 benefits. These programs target developers and investors creating new housing stock or rehabilitating existing properties for tourism or residential use. Construction excise tax exemptions can save substantial amounts on luxury development projects, while tourism tax credits provide ongoing operational benefits.
Developers often combine multiple incentive programs to maximize tax savings throughout both the construction and operational phases of their projects.
Construction-Specific Benefits
- Construction excise tax exemptions on qualifying new construction projects
- Tourism tax credits for hospitality and vacation rental developments
- Accelerated depreciation schedules for qualifying business properties
- Sales tax exemptions on construction materials and equipment
- Municipal permit fee reductions in participating jurisdictions
Development Program Requirements
- Minimum investment thresholds vary widely by program and project type; many tourism and development incentives require substantial six- or seven-figure capital commitments, which should be confirmed with counsel for each specific project.
- Job creation requirements may apply for larger commercial developments
- Compliance with local zoning and environmental regulations mandatory
- Annual reporting obligations continue throughout benefit period
- Clawback provisions apply if requirements aren't maintained
Compliance Checklist Before Acting on Incentives
Successfully claiming Puerto Rico property incentives requires careful planning and ongoing compliance with program requirements. Many investors underestimate the documentation and reporting obligations that accompany these tax benefits. Investors should work with experienced tax professionals and real estate specialists who understand both the opportunities and potential pitfalls of these programs.
The following checklist helps ensure you meet all requirements before and after claiming incentive benefits.
Pre-Purchase Planning Steps
- Determine program eligibility based on your investor profile and intended property use
- Calculate total tax savings including property, income, and municipal tax benefits
- Engage qualified tax counsel familiar with Puerto Rico incentive programs
- Review residency requirements and plan for 183-day annual presence if applicable
- Assess business operation requirements for export services program participants
- Identify qualifying properties in appropriate zones and municipalities
- Prepare required investment documentation and business plans if applicable
Ongoing Compliance Requirements
- File annual compliance reports with Puerto Rico Department of Economic Development
- Maintain detailed residency records including travel logs and utility bills
- Document business operations and export activities for services program participants
- Track property usage to ensure continued qualification for exemptions
- Monitor program changes and reform impacts on existing benefits
- Engage annual tax preparation with Puerto Rico-qualified professionals
- Maintain required insurance and property maintenance standards
Strategic Considerations for Property Investors
The 2025 Act 60 reforms create both urgency and opportunity for property investors considering Puerto Rico. Existing program participants maintain grandfathered benefits, while new applicants face higher tax rates and longer commitment periods. This dynamic favors investors who can move quickly while carefully evaluating long-term compliance obligations.
Investors are best served by focusing on properties that support their chosen incentive program while also offering strong investment fundamentals independent of tax benefits.
Market Timing Factors
- 2025 reform deadline creates urgency for securing grandfathered benefits
- Luxury market inventory remains limited in prime locations like Condado and Dorado
- Interest rate environment affects financing costs for large property purchases
- Currency stability impacts international buyers' purchasing power
Property Selection Criteria
- Location compatibility with chosen incentive program requirements
- Property type alignment with business operations or residency needs
- Municipal tax policies vary significantly across Puerto Rico jurisdictions
- Future development potential affects long-term property values
- Infrastructure quality impacts both lifestyle and business operations
Final Recommendations
Puerto Rico's property incentives offer genuine tax savings for qualifying investors, but success requires careful planning and ongoing compliance. The combination of Act 60 benefits, opportunity zone incentives, and construction tax credits can create substantial value for the right investor profile. Acting promptly to secure grandfathered benefits can be advantageous, provided investors also evaluate and accept the long-term obligations these programs require.
Our deep understanding of the local market, combined with our expertise in Act 60 Puerto Rico and other regulatory requirements, positions us ideally to cater to the sophisticated needs of luxury real estate investors. Let us guide you in leveraging these remarkable incentives to build wealth, enjoy a luxury lifestyle, and contribute to the thriving real estate market in Puerto Rico.
FAQs
Can foreign investors also benefit from Act 60 incentives when purchasing luxury real estate in Puerto Rico?
Foreign investors can benefit from Act 60 incentives when investing in luxury real estate in Puerto Rico. Act 60's tax benefits apply to residents and non-residents who meet the eligibility criteria.
Additionally, foreign investors should be aware of any additional tax implications in their home countries and ensure compliance with international tax laws.
Are there any restrictions on the types of luxury properties eligible for Act 60 incentives in Puerto Rico?
Act 60 incentives for luxury real estate in Puerto Rico generally apply to properties that contribute to the island's economic development, such as those used for tourism, business development, or other approved purposes.
While no specific restrictions are based on property type, investors should ensure their intended use aligns with Act 60 guidelines to qualify for the tax incentives.
How does Act 60 impact inheritance and estate taxes for luxury real estate properties in Puerto Rico?
Act 60 provides significant tax benefits during an individual's lifetime, including interest, dividends, and capital gains exemptions. Additionally, it's essential to consider its implications for inheritance and estate taxes.
While Puerto Rico does not impose estate taxes, individuals should consult with legal and tax professionals to understand how Act 60 may affect inheritance planning and potential tax obligations for beneficiaries outside of Puerto Rico.
Do Puerto Rico residents have to pay federal income taxes on income earned from luxury real estate investments?
Generally, Puerto Rican residents do not pay federal income taxes on income earned in Puerto Rico. Instead, they are subject to Puerto Rico income tax laws. However, any income earned outside of Puerto Rico may still be subject to federal income taxes, depending on the individual's overall tax situation.
What are the key differences between the Export Services Act and the Individual Investor Act?
The Export Services Act provides substantial property tax exemptions and a fixed income tax rate for businesses actively engaged in export services, whereas the Individual Investor Act offers more modest benefits targeted at high-net-worth individuals who relocate to Puerto Rico without requiring active business operations. The Export Services Act necessitates serving clients outside Puerto Rico, while the Individual Investor Act focuses on personal residences with specific residency requirements.
How do Opportunity Zones enhance property tax incentives in Puerto Rico?
Opportunity Zones in Puerto Rico provide an additional 25% property tax exemption on top of the existing Act 60 benefits for qualifying developments. These zones are designed to attract long-term investments in economically distressed areas, offering both property tax and income tax benefits to developers and investors focused on new construction or substantial rehabilitation projects.
What are the compliance requirements for claiming property tax incentives in Puerto Rico?
To successfully claim property tax incentives, investors must meet various compliance requirements, including filing annual reports with the Puerto Rico Department of Economic Development, maintaining detailed residency records, documenting business operations, and tracking property usage. Additionally, ongoing monitoring of program changes and engaging qualified tax professionals is essential to ensure continued eligibility for the benefits.
