If taxes feel like a slow leak draining your wealth year after year, Act 22 Puerto Rico might sound like a plug you didn’t know existed. For investors, traders, and high-net-worth individuals, Act 22 has become one of the most talked-about tax incentives in the world. But what is it really, and why has it attracted so much attention?

Let’s break it all down in plain English—no fluff, no legal fog, just the facts you actually need.

What Is Act 22?

Act 22, officially known as the Individual Investors Act, is a Puerto Rico tax incentive designed to attract wealthy individuals to the island. Its core promise is simple but powerful: 0% tax on certain types of passive income, including capital gains, dividends, and interest, for qualifying residents.

Yes, zero. As in none.

Why Puerto Rico Created Act 22

Puerto Rico wanted to stimulate its economy by bringing in capital, talent, and long-term residents. Instead of chasing businesses alone, the government targeted individuals who invest, spend, and contribute locally. Act 22 became the magnet.

The History and Evolution of Act 22
Act 22 Before Act 60

Originally enacted in 2012, Act 22 stood alone as a separate law. It gained traction slowly at first, mostly among hedge fund managers and private investors.

How Act 22 Became Part of Act 60

In 2019, Puerto Rico consolidated multiple incentives into Act 60, also known as the Puerto Rico Incentives Code. Act 22 didn’t disappear—it was absorbed. Today, people still say “Act 22,” but legally, it falls under Act 60.

Think of Act 22 as a chapter in a bigger book.

Who Qualifies for Act 22 Puerto Rico
Bona Fide Residency Explained

You can’t just visit Puerto Rico once a year and call it a day. To qualify, you must become a bona fide resident.

Presence Test

You must spend at least 183 days per year in Puerto Rico.

Tax Home Test

Your main place of business or employment must be in Puerto Rico.

Closer Connection Test

Your strongest personal and economic ties must be to Puerto Rico, not the mainland US.

Miss one, and the whole thing falls apart.

Eligible Individuals

US citizens

US permanent residents

Individuals who were not Puerto Rico residents before the incentive decree

Who Does Not Qualify

Existing Puerto Rico residents

Individuals unwilling to relocate

Those seeking retroactive tax benefits

Act 22 Tax Benefits Explained

Here’s where eyes widen.

0% Capital Gains Tax

Qualifying capital gains accrued after becoming a Puerto Rico resident are taxed at 0%.

0% Tax on Dividends

Dividend income from qualifying investments? Also zero.

0% Tax on Interest Income

Interest income earned while a bona fide resident is fully exempt from Puerto Rico income tax.

It’s like switching from a leaky bucket to a sealed vault.

Types of Capital Gains Covered Under Act 22
Short-Term Capital Gains

Normally taxed heavily in the US. Under Act 22? Zero, if properly structured.

Long-Term Capital Gains

The crown jewel. Stocks, businesses, real estate investments—massive savings here.

Crypto and Digital Assets

Yes, cryptocurrency qualifies, provided the gains accrue after you become a resident.

Timing matters more than most people realize.

Act 22 Puerto Rico and Cryptocurrency Investors
Why Crypto Investors Move to Puerto Rico

Crypto traders often face brutal tax bills. Act 22 offers a clean slate for future gains, making Puerto Rico a hotspot for blockchain investors.

Common Crypto Tax Mistakes to Avoid

Selling crypto before establishing residency

Poor record-keeping

Assuming all gains qualify automatically

Crypto rewards precision, not assumptions.

Residency Requirements and Lifestyle Changes
Moving to Puerto Rico

This isn’t a paper move. You’re actually relocating—sun, beaches, hurricanes and all.

Buying or Renting Property

While not mandatory, owning a home strengthens your residency claim.

Daily Life and Cost of Living

Puerto Rico offers a lower cost of living than many US cities, plus culture, food, and weather that feel like a permanent vacation—if you embrace it.

Application Process for Act 22
Step-by-Step Application Guide

Establish Puerto Rico residency

Gather financial and personal documents

Submit online application

Pay government fees

Receive tax decree

Required Documentation

Proof of residency

Financial disclosures

Background information

Approval Timeline

Typically 2–6 months, depending on accuracy and completeness.

Annual Compliance and Ongoing Obligations
Annual Filing Requirements

You must file annual reports confirming compliance.

Mandatory Donations

Approved individuals must make annual charitable donations to Puerto Rico nonprofits.

Maintaining Compliance

Fail to comply, and the decree can be revoked—retroactively.

Act 22 vs Mainland US Taxation
Capital Gains Comparison

US long-term capital gains can reach 20%+ federally, plus state taxes. Act 22? Zero.

Federal vs Puerto Rico Tax Rules

Puerto Rico-source income for residents is generally excluded from US federal income tax.

That’s the magic.

Common Myths About Act 22 Puerto Rico
“It’s a Tax Loophole”

It’s not. It’s codified law.

“You Don’t Need to Move”

Wrong. Residency is non-negotiable.

Risks and Considerations Before Applying
IRS Scrutiny

The IRS pays close attention. Sloppy compliance is risky.

Lifestyle Commitment

Puerto Rico becomes home—not a tax shelter pit stop.

Exit Strategy Planning

Leaving Puerto Rico can trigger future tax consequences.

Plan before you leap.

Combining Act 22 with Act 60 Export Services
High-Net-Worth Individuals

Many investors combine personal tax exemptions with business incentives.

Entrepreneurs and Remote Business Owners

This combo can dramatically reduce both corporate and personal taxes.

It’s like stacking shields in a video game.

Is Act 22 Puerto Rico Worth It?
Who Benefits the Most

Investors with large unrealized gains

Crypto traders

Fund managers

High-net-worth individuals

Real-World Scenarios

For some, Act 22 saves millions. For others, the lifestyle shift isn’t worth it. The math—and the mindset—must align.

Conclusion

Act 22 Puerto Rico isn’t a shortcut or a gimmick. It’s a powerful, legally grounded incentive for individuals willing to truly relocate and commit to Puerto Rico. When done right, it can preserve wealth, simplify tax planning, and open the door to a new way of life. But success depends on precision, planning, and compliance. Done casually, it can backfire. Done correctly, it can change everything.

Frequently Asked Questions (FAQs)
1. Is Act 22 still available in 2026?

Yes. Act 22 benefits continue under Act 60, subject to compliance.

2. Do I still pay US federal taxes under Act 22?

Generally, Puerto Rico-source income is excluded, but personal situations vary.

3. Can crypto gains before moving qualify?

No. Only gains accrued after becoming a bona fide resident qualify.

4. Is buying property mandatory?

No, but it strongly supports residency claims.

5. Can Act 22 benefits be revoked?

Yes, if you fail to meet residency or compliance requirements.