More and more Americans, near and not so near retirement, are taking notice of Puerto Rico’s potential to become the “new” Florida. Florida has the golf courses and resorts that make it a popular choice for a retirement lifestyle. True, it is warm and beautiful and provides a great quality of life. However, did you know that moving to Puerto Rico can offer many of those same perks?
If you spend time researching a move to Puerto Rico, you will find that travel to and from the mainland is relatively easy, particularly by air, with numerous daily flights from major U.S. cities. If golf is your game, you will find plenty of golf courses and country clubs, with the rum freely poured at the 19th hole. And yes, you will find plenty of warm, beautiful weather living there, too.
The Tax Advantages of Moving to Puerto Rico
Tax advantages can be particularly significant for entrepreneurs and investors who can genuinely establish themselves as Puerto Rico residents and meet the requirements of Puerto Rico’s tax incentive programs. For someone considering a move before retirement or before selling a business or investments, understanding Puerto Rico’s tax rules can be an important part of the decision.
So, what exactly are the potential tax advantages when moving to or living in Puerto Rico?
Personal Income
Puerto Rico has its own income-tax system, and certain qualifying businesses and individuals can receive preferential treatment under Puerto Rico’s tax incentive programs. In particular, qualifying businesses operating under Puerto Rico’s Act 60 incentives may receive a preferential tax rate, while the Individual Resident Investor provisions can provide favorable treatment for certain investment income.
For entrepreneurs, the potential tax savings can be significant, but eligibility depends on the individual’s circumstances, the type and source of income, and the particular tax incentive program involved.
Dividend Income
Dividend income can be another significant consideration for someone thinking about moving to Puerto Rico.
Under Puerto Rico’s Individual Resident Investor program, qualifying individuals can receive favorable Puerto Rico tax treatment on qualifying dividend and interest income.
However, the rules changed in 2026.
Under Act 38-2026, qualifying Individual Resident Investor applications submitted on or before December 31, 2026 can retain a 0% Puerto Rico tax rate on qualifying dividends and interest through December 31, 2035, subject to the requirements of the program.
For qualifying applications submitted after December 31, 2026, the preferential Puerto Rico tax rate on qualifying dividends and interest generally becomes 4%, with the program extended through 2055. However, there is not a blanket 4% income-tax rate simply because someone moves to the island.
For someone receiving substantial investment income, distributions from a business or other dividends as part of a retirement strategy, that difference can be significant.
Capital Gains
Capital gains are another reason Puerto Rico can be attractive to investors.
Under the Individual Resident Investor provisions of Act 60, qualifying capital gains attributable to appreciation that occurs after an individual becomes a bona fide resident of Puerto Rico can receive highly favorable Puerto Rico tax treatment.
The rules are not, however, as simple as saying that someone who moves to Puerto Rico pays no tax on every capital gain.
The timing of the appreciation matters. There is an important distinction between appreciation that occurred before becoming a Puerto Rico resident and appreciation that occurs after establishing bona fide residency.
For qualifying applications submitted by December 31, 2026, qualifying post-residency capital gains can remain exempt from Puerto Rico income tax through December 31, 2035. For qualifying applications submitted after that date, the preferential rate on qualifying post-residency capital gains generally becomes 4% through 2055.
If you are considering moving to Puerto Rico and have investments or shares in a business that have appreciated significantly, it is important to establish the value and tax basis of those assets before the move and obtain professional tax advice about how future gains will be treated.
What Changed in 2026?
If you are researching a move to Puerto Rico now, there is an important date to know: December 31, 2026.
Puerto Rico enacted Act 38-2026, which changed the Individual Resident Investor provisions of Act 60 and extended the program through 2055.
For qualifying applications submitted by December 31, 2026, the existing 0% treatment for qualifying dividends, interest and post-residency capital gains remains available through 2035.
For qualifying applications submitted after December 31, 2026, those categories generally receive a preferential 4% Puerto Rico tax rate instead.
The rules are complicated, and eligibility requirements apply. Anyone considering a move to Puerto Rico primarily for tax purposes should consult a qualified Puerto Rico tax professional before making a decision.
Things to Note When Deciding to Move to Puerto Rico
If a person chooses to move to Puerto Rico for the potential tax advantages, they must establish “bona fide residency” rather than simply spending some time on the island. So what does that mean?
The IRS generally looks at three factors when determining whether someone is a bona fide resident of Puerto Rico:
- The presence test
- The tax-home test
- The closer-connection test
Being physically present in Puerto Rico for at least 183 days during the tax year is one way to satisfy the presence test, but it is not the only possible way to meet that test.
You also need to establish that your tax home is in Puerto Rico and that you do not maintain a closer connection to the United States or another foreign country.
That does not mean you have to eliminate every connection to the mainland. Americans who move to Puerto Rico can continue to own property, maintain financial accounts and have other relationships with the mainland. However, those connections can be relevant when determining whether Puerto Rico is genuinely your tax home and where you have your closer connection.
Bona fide residents of Puerto Rico generally pay Puerto Rico tax on their worldwide income and may generally exclude Puerto Rico-source income from their U.S. federal income tax return under Section 933 of the Internal Revenue Code. U.S.-source income can still be subject to U.S. federal taxation, so the source of your income matters.
The rules surrounding Puerto Rico residency and taxation are complicated, particularly for people with businesses, investments or significant mainland connections.
Tax laws in the U.S. and Puerto Rico change regularly. Consult your tax professional for advice before making a decision to move to Puerto Rico. This blog is not intended to replace expert tax advice.
What About the Pros and Cons of Living in Puerto Rico?
Taxes are only one reason Americans consider moving to Puerto Rico.
The island offers warm weather, beaches, golf, outdoor recreation, a distinctive culture and relatively easy travel to the mainland. For retirees, entrepreneurs, families and others looking for a different lifestyle without leaving the United States, Puerto Rico can be an appealing option.
At the same time, anyone considering a move should research the cost of living, housing, healthcare, schools, transportation, hurricane preparedness and other practical considerations before deciding whether Puerto Rico is the right place to call home.
And then there is the move itself.
Moving to Puerto Rico From the Mainland U.S.
Moving to Puerto Rico isn’t quite the same as making a typical interstate move.
Your household goods will generally travel by ocean freight, and the move requires additional planning and coordination compared with a move between two states. Depending on where you are moving from and where you are moving to, your shipment may involve transportation to a mainland port, ocean transportation to Puerto Rico and final delivery to your new home.
That’s why working with a moving company experienced in Puerto Rico can make a difference.
Not Just a Moving Company — We’re a Valuable Resource
Like moving anywhere, heading to Puerto Rico requires some planning. Our experts can answer your questions about moving to and living in Puerto Rico and help you understand what to expect from the moving process.
Rely on our years of experience moving families like yours. From planning your move to adjusting to life in or outside of the islands, we’re here to listen and help so that when the big day comes, your move will go smoothly and you’ll feel right at home.
Fill out our Quick Quote form or send us an email us at quote@compassmoving.com.
Note: Tax laws in the U.S. and abroad change regularly. Consult your tax professional for advice before making a decision to move to Puerto Rico. This blog is not intended to replace expert tax advice.