Puerto Rico's taxes at a glance
Structure used: Act 60 export services decree held by the self-employed resident as a new small business: 2% Puerto Rico income tax on net export services income for the first 5 years (4% after), plus 15.3% US self-employment tax on 92.35% of profit. A decree company must pay its owner-officer a reasonable salary taxed at ordinary rates (Treasury Administrative Determination 15-22), so it does not beat this route unless the salary is well below the profit the owner earns. Bands are the effective tax on profit for a remote worker using this structure, with clients abroad and costs of 15% of revenue.
Puerto Rico tax residency: 183 days and the IRS bona fide residence tests
Puerto Rico treats as resident anyone domiciled on the island, and 183 days of presence in the calendar year creates a presumption of residence (Puerto Rico Internal Revenue Code of 2011, Section 1010.01(a)(30)). A resident is taxed in Puerto Rico on worldwide income, with a credit for income tax paid to the US on US-source income.
The test that decides the federal side is stricter. A US citizen excludes Puerto Rico-source income from US tax only as a bona fide resident for the tax year, which means passing a presence test, having no tax home outside Puerto Rico, and having no closer connection to the US or a foreign country than to Puerto Rico (IRS Publication 570). The presence test is passed in any 1 of 5 ways:
- At least 183 days in Puerto Rico during the tax year.
- At least 549 days in Puerto Rico over the current and 2 preceding tax years, with at least 60 days in each.
- No more than 90 days in the US during the tax year.
- No more than $3,000 of US earned income, with more days in Puerto Rico than in the US.
- No significant connection to the US during the tax year.
Your tax home is your regular or main place of business, so running the business from the island matters as much as sleeping there. The closer connection test weighs where your permanent home, family, belongings, bank accounts, driver's license and voter registration are, and in the year you move the IRS looks at the last 183 days of the year. When you start or end bona fide residence in a year with worldwide gross income above $75,000, you file Form 8898, and missing it can cost a $1,000 penalty (IRS Publication 570).
Becoming a bona fide resident: the version that holds up
Works
You move with your family, lease a home in Dorado, run the business from a desk in San Juan, bank locally, switch your driver's license and voter registration, and spend 220 days on the island. Your US home is sold or rented out, and trips to the mainland are visits.
Fails
You rent an apartment in San Juan and count 183 nights there, while your spouse and children stay in your house in Austin, your bank, doctor and voter registration stay in Texas, and you fly back most weekends. The day count passes; the closer connection test does not, so Puerto Rico income stays taxable by the IRS.
Puerto Rico income tax rates for 2026
Ordinary income is taxed on a 5-band scale that tops out at 33% above $61,500 of net taxable income (Puerto Rico Internal Revenue Code, Section 1021.01). The currency is the US dollar, so no conversion is involved.
Puerto Rico individual income tax on ordinary net taxable income
| Net taxable income | Rate on that slice | Tax at the top of the slice |
|---|---|---|
| Up to $9,000 | 0% | $0 |
| $9,000 to $25,000 | 7% | $1,120 |
| $25,000 to $41,500 | 14% | $3,430 |
| $41,500 to $61,500 | 25% | $8,430 |
| Over $61,500 | 33% | $8,430 plus 33% of the excess |
Above $500,000 of net taxable income, a gradual adjustment adds 5% of that income, and the tax computed on the scale is then multiplied by 95%, or by 92% when gross income is $100,000 or less (Section 1021.01). An alternate basic tax applies to higher incomes. Income covered by an Act 60 decree leaves this scale and is taxed at the rate in the decree instead.
Remote work, Puerto Rico-source income and section 933
Source follows the work, not the client. All pay for services performed in Puerto Rico is Puerto Rico-source income (IRS Publication 570), so fees from clients in New York or London for work done on the island are Puerto Rico income, and section 933 removes them from a bona fide resident's US income tax. Work done during a trip to the mainland is US-source, and the IRS taxes it at ordinary rates whatever the client's address.
Self-employment tax is the part that does not move. A self-employed bona fide resident still pays US self-employment tax of 15.3% on 92.35% of net profit, computed without the section 933 exclusion, and a non-citizen resident of Puerto Rico owes it too (26 USC 1402). Puerto Rico is inside the US Social Security system, so no totalization agreement replaces it.
| Revenue from clients outside Puerto Rico | $100,000 |
|---|---|
| Business costs at 15% | $15,000 |
| Net profit | $85,000 |
| Puerto Rico income tax at 2% (new small business, years 1 to 5) | $1,700 |
| US income tax on Puerto Rico-source incomeExcluded under section 933 | $0 |
| US self-employment tax: 15.3% of $78,497.50 (92.35% of profit) | $12,010 |
| Total in years 6 onward, at the 4% decree rate | $15,410 |
| Total in years 1 to 5 | $13,710 |
Sole proprietor holding the decree personally, all work done in Puerto Rico. A decree company paying exempt dividends is a different calculation, and it depends on how the owner is paid.
Investment income, the resident investor decree and the 10-year rule
Interest, dividends and gains are taxed on the ordinary scale in Puerto Rico unless a Resident Individual Investor decree covers them. The federal side is where movers get caught: section 933 excludes only Puerto Rico-source income, so dividends from US companies stay taxable by the IRS, and gains on stocks, bonds and similar property you owned before the move are not Puerto Rico-source if you sell within 10 years of having been a mainland resident (IRS Publication 570).
A special election lets you treat the appreciation after the move as Puerto Rico-source, measured from the value on the first day your tax home is in Puerto Rico, and it is made on the return for the year of the sale. The 3.8% net investment income tax still applies once modified adjusted gross income from outside Puerto Rico passes $200,000 for a single filer (IRS Publication 570).
David's note
The day count is the easy test to pass and the easy one to prove. The closer connection test is where these moves fail, so if the family home, the bank, the doctors and the voter registration are still on the mainland, I would not rely on the 183 days at all.
Filing in Puerto Rico and with the IRS
The Puerto Rico return is filed electronically through SURI, and the return for 2025 was due April 15, 2026; an automatic extension on Form SC 2644 moves the filing date but not the date to pay (Puerto Rico Treasury). A bona fide resident whose income is all Puerto Rico-source files no Form 1040, but still files Form 1040-SS to pay self-employment tax.
Moving to Puerto Rico as a self-employed US citizen
- Move your tax home: run the business from Puerto Rico, not from the mainland.
- Shift your closer connection: home, family, bank, driver's license, voter registration.
- Count days for both tests: 183 in the calendar year, or one of the 4 other presence options.
- Apply for the export services decree before relying on the 4% or 2% rate.
- Keep a log of workdays spent on the mainland; that income is US-source.
- File Form 8898 for the year you become a bona fide resident if worldwide gross income tops $75,000.
- File the Puerto Rico return in SURI by April 15, and Form 1040-SS (or Form 1040 if you have US-source income) with the IRS.
Ways to move to Puerto Rico
| Route | Minimum income or investment | Permit length | Makes you tax resident | Status |
|---|---|---|---|---|
| US E-2 treaty investor visa (non-US citizens) Source: law.cornell.edu, checked September 29, 2026. The statute sets no fixed minimum investment, only a substantial amount of capital, and requires nationality of a country with a qualifying treatyInvestment route | Varies | Renewable | With enough daysNo tax effect by itself; a holder who lives in Puerto Rico 183 days is taxed as a Puerto Rico resident and can apply for Act 60 decrees. | Open |
| US citizens and green card holders Source: law.cornell.edu, checked September 29, 2026Visa-free stay | None | Not stated | With enough daysA bona fide resident excludes Puerto Rico-source income from US federal income tax (section 933) but still pays US self-employment tax. | Open |
Special tax regimes in Puerto Rico
Act 60 export services decree
A person with an office or bona fide establishment in Puerto Rico that sells eligible services to clients outside Puerto Rico can get a decree taxing that net income at a flat 4%. Dividends from the decree income are exempt. Employment income does not qualify.
Open to new applicants. Lasts up to 15 years. Source: bvirtualogp.pr.gov, checked September 29, 2026. OGP English consolidation revised May 18, 2026. Act 38-2026 did not amend the export services sections (it amended Sections 1020.02, 2022.01, 2022.02, 6020.03 and 6020.10)
Act 60 Resident Individual Investor decree
A new resident who was not resident in the prior 10 years pays no Puerto Rico tax on interest and dividends earned until 2035, or on gains on assets bought after the move, if the decree is applied for by December 31, 2026. Applicants from January 1, 2027 pay 4% under Act 38-2026.
Closing to new applicants. Source: bvirtualogp.pr.gov, checked September 29, 2026 Deadline: December 31, 2026.
Running your own business from Puerto Rico
Most people who move for the Act 60 export services decree face 1 structural choice: hold the decree personally as a sole proprietor, or through a Puerto Rico company. Either way the decree taxes net export services income at 4%, or 2% for a new small business's first 5 years, and dividends paid out of decree income are exempt from Puerto Rico tax (Act 60-2019, Section 2032.01).
For US tax a Puerto Rico company is a foreign corporation, but the controlled foreign corporation rules carve out its bona fide resident owners: for a Puerto Rico corporation, a bona fide resident is not a US person if its dividends would be Puerto Rico-source for section 933 (26 USC 957(c)). Dividends from a Puerto Rico corporation are generally Puerto Rico-source, with extra rules for owners of 10% or more of the voting stock in Regulations section 1.937-2(g).
The catch is how the owner of a one-person decree company gets paid. The Incentives Code exempts decree dividends and has no owner salary rule of its own, but Treasury Administrative Determination 15-22, issued in 2015 for the Act 20 export decrees that Act 60 replaced, requires each owner-officer of an export services company to take a reasonable annual salary, taxed at ordinary rates with payroll tax, and lets the Secretary impute salary up to $350,000 a year under Code Section 1040.09. In a one-person service company the owner's work produces all the profit, so the company beats a sole proprietor's bill only if Treasury accepts a salary below about 60% of that profit.
How each structure is taxed for a bona fide resident doing the work in Puerto Rico
| Structure | Puerto Rico income tax | US tax | Open question |
|---|---|---|---|
| Sole proprietor with an export services decree | 2% for years 1 to 5 as a new small business, then 4% | No income tax on Puerto Rico-source profit; 15.3% self-employment tax on 92.35% of profit | None: every rate is in the statute |
| Puerto Rico company with an export services decree | 2% or 4% at company level; decree dividends exempt | No self-employment tax on dividends; salary taxed as wages | How much salary counts as reasonable: Treasury can impute up to $350,000 |
| No decree | 0% to 33% on the ordinary scale | 15.3% self-employment tax on 92.35% of profit | None |
Keeping a company formed in the United States does not move the source of the work: pay for services you perform in Puerto Rico is Puerto Rico-source, while the US company's own US-source income stays taxable by the IRS.
US citizens in Puerto Rico: what the IRS still taxes
Puerto Rico is the rare move where a US citizen stops paying federal income tax on most earned income without renouncing anything, but section 933 has edges. US-source income (US dividends, US rental income, workdays on the mainland) and income from foreign countries stay taxable by the IRS, self-employment tax stays (IRS Publication 570). Deductions and credits tied to excluded income are not allowed on the US return.
Non-citizens can use the same rules only with US immigration status, because Puerto Rico is part of the United States for immigration and has no remote worker visa. A non-citizen bona fide resident files a Puerto Rico return on worldwide income and a US return on non-Puerto Rico income, and still owes US self-employment tax on self-employment income.
Puerto Rico tax mistakes: mainland workdays and the investor deadline
Work done on the mainland is outside the decree
The expensive mistake is treating the decree as covering the business rather than the work. Export services income has to come from services performed in Puerto Rico; a month of client work from a rented house in Miami is US-source income, taxed by the IRS at ordinary rates on top of the 15.3% self-employment tax, and the 4% never touches it.
The Resident Individual Investor decree has a hard date. Applications filed by December 31, 2026 keep 0% on interest, dividends and post-move gains until 2035, while applications from January 1, 2027 pay 4% under Act 38-2026 and must buy a home in Puerto Rico within 2 years (AAFAF). The decree also requires at least $10,000 a year in donations to Puerto Rico nonprofits (Act 60-2019, Section 6020.10).
Who Puerto Rico suits, and who it does not
Good fit
- US citizens who will genuinely live in Puerto Rico at least 183 days a year and run a service business for clients outside Puerto Rico under an export services decree.
- US citizens with large investment income who can file a Resident Individual Investor application by December 31, 2026 and lock in 0% until 2035.
Poor fit
- Non-US citizens: there is no remote worker visa, and living there needs US immigration status.
- Self-employed people counting on paying 4% and nothing more: 15.3% US self-employment tax applies on top, and a decree company does not escape it, because the owner must take a reasonable salary (Puerto Rico Treasury Administrative Determination 15-22) that carries 15.3% US payroll tax and ordinary Puerto Rico income tax.
- Anyone who works much of the year on the US mainland or while traveling, since that work is not Puerto Rico-source.
Recent tax and visa changes in Puerto Rico
Act 38-2026 (House Bill 505) sets a 4% rate on interest, dividends and post-move gains for Resident Individual Investor applicants from January 1, 2027, extends the program to 2055, cuts the non-residence look-back from 10 to 6 years and requires a home purchase within 2 years. Applications filed by December 31, 2026 keep 0% until 2035. aafaf.pr.gov
