United States vs Puerto Rico taxes (2026): Act 60 and bona fide residence

United States vs Puerto Rico tax rates at a glance

Tax	🇺🇸 United States	🇵🇷 Puerto Rico
Income tax	Personal income tax: 10% - 37% Social Security: 6.2% Medicare: 1.45% Additional Medicare: 0.9% State income tax: Varies	Regular individual income tax: 0% - 33% 2025 relief computation: 0% - 29% Preferential income: 4% / 10% / 15% / 20% Alternative basic tax: May apply Social Security and Medicare: Federal rules
Corporate tax	C corporation tax: 21% CAMT: 15% Pass-through entities: Different State tax: Varies	Normal corporate tax: 18.5% Combined marginal rate: Up to 37.5% Act 60 qualifying activities: Often 4% Alternative or optional regimes: Case by case
Capital gains tax	Long-term capital gains: 0% - 20% Short-term capital gains: 10% - 37% Qualified dividends: 0% - 20% NIIT: 3.8%	Net long-term capital gain: 20% Short-term capital gain: Ordinary rates Act 60 post-residency appreciation: 0% locally Act 60 qualifying pre-residency appreciation: 5%
Dividend tax	Qualified dividends: 0% - 20% Ordinary dividends: 10% - 37% NIIT: 3.8% State tax: Varies	Eligible dividend distributions: 15% generally Other dividend categories: 10% / 20% Act 60 resident individual investor: 0% locally Foreign dividends: Case by case
Wealth tax	Net wealth tax: 0% Property tax: Varies Estate tax: Up to 40% Gift tax: Up to 40%	Broad net wealth tax: 0% Annual net worth tax: 0% Real property tax: Varies by municipality Business personal property tax: Varies by municipality
Inheritance / estate tax	Federal inheritance tax: 0% Federal estate tax: Up to 40% Federal gift tax: Up to 40% Basic exclusion: $15,000,000	Puerto Rico estate-transfer tax: 10% Fixed estate deduction: $1 million Puerto Rico gift tax: 10% Annual gift exemption: $10,000 per recipient
VAT / GST / sales tax	Sales tax: Varies by state	Eligible dividends: 15% generally IVU sales and use tax: 11.5%
Legal status	50-state federal system plus state tax	U.S. territory with a separate local code; not a foreign country for all federal purposes
Bona fide residence	State residence plus federal worldwide tax	Presence, tax home and closer connection; Section 933 is not automatic

Who wins on each tax

Personal income taxTie

Puerto Rico's statutory individual table is 0% to 33%; U.S. federal ordinary rates are 10% to 37% plus possible state tax. Act 60 and Section 933 can change either side.

Corporate taxUnited States

U.S. C corporations pay 21% federally plus possible state tax; Puerto Rico's ordinary corporate system can reach 37.5%, while Act 60 4% is an incentive result only.

Capital gains taxTie

Puerto Rico's general long-term rate is 20%; U.S. long-term federal rates are 0% to 20%. Act 60 post-residency appreciation can be locally exempt when conditions are met.

Sales tax / IVUUnited States

The mainland U.S. has no federal VAT and varying state sales tax; Puerto Rico IVU is 11.5% (10.5% plus 1% municipal).

Federal overlayPuerto Rico

A qualifying bona fide resident can exclude Puerto Rico-source income under Section 933; that exclusion is unavailable if bona fide residence fails.

The verdict

Puerto Rico has its own code and Hacienda, but it is a U.S. territory. It is not a foreign country for every federal tax purpose. Bona fide residents generally report worldwide income to Puerto Rico and can exclude Puerto Rico-source income from U.S. federal income tax under Section 933. Fail presence, tax-home or closer-connection tests and that exclusion does not apply.

Act 60 is decree-based and activity-specific. It can produce a 4% export-services rate or a capital-gains exemption for a qualifying resident individual investor. It is not the default 0% to 33% individual table or the ordinary corporate system that can reach 37.5%. A move to San Juan does not automatically convert U.S.-source income, U.S. business profits or pre-move gains into Puerto Rico-source tax-free cash.

Choose Puerto Rico only with a real tax home, a closer connection, qualifying source income and, if relevant, an approved decree. Choose a U.S. state when you need the 21% federal C-corporation system without territorial source tests. U.S. citizens who fail bona fide residence can still have a full federal problem.

How to read this comparison

Puerto Rico is the relocation that looks international and is not. It is a separate local tax system inside the U.S. framework. Hacienda collects Puerto Rico tax. The IRS still cares about source, bona fide residence, payroll tax, some credits and transfer tax. Treating San Juan like Lisbon is the error.

The ordinary Puerto Rico individual table is 0% to 33%. Long-term capital gains are generally 20%. Eligible dividends are generally 15%. Ordinary corporations combine an 18.5% normal tax with a surtax that can bring the top marginal rate to 37.5%. IVU sales and use tax is 11.5%. There is no broad net wealth tax. Those are the default numbers, and they are not obviously cheaper than 10% to 37% federal ordinary tax plus a low-tax state.

The federal overlay is the actual product. A bona fide resident of Puerto Rico generally excludes Puerto Rico-source income from U.S. federal income tax under Section 933. The IRS tests physical presence, tax home and closer connection. Renting an apartment while your family, business headquarters and closer connection remain in Florida is how people fail. In the year of arrival or departure the tests are even easier to miss. U.S.-source income does not become Puerto Rico-source because you changed your mailing address. U.S. government compensation has special rules. FICA payroll taxes can still apply.

Act 60 sits on top of that, not instead of it. Export services, manufacturing, tourism, finance and resident individual investors can obtain decree-based rates, including a 4% business rate or a local exemption on post-residency capital appreciation recognized before 1 January 2036, with a possible 5% rate on certain pre-residency appreciation after ten years. Those results require eligibility, an application or decree, and continuing compliance. They do not convert a U.S. stock portfolio into Puerto Rico-source property on day one. Keep acquisition dates and valuations.

Estate and gift analysis can still involve federal rules because Puerto Rico is not a foreign country for all transfer-tax purposes. Municipal property tax, municipal business-license tax and alternative basic tax can apply even when an income-tax incentive is in force.

If you cannot move your tax home, closer connection and source of income, Puerto Rico is an expensive mainland-plus-Hacienda outcome. If you can, model Section 933, Act 60 conditions and the local 0% to 33% / 20% / 11.5% stack against the 50-state alternative. The territory is adjacent to the U.S. system. It is not outside it.

Which one fits you

🇺🇸 Choose United States if you're a…

Businesses that want 21% federal C-corporation tax without Act 60 conditions
People who cannot move their tax home and closer connection to Puerto Rico
Income that will remain U.S.-source after the move

🇵🇷 Choose Puerto Rico if you're a…

U.S. citizens who can satisfy bona fide residence tests
Export-service founders with an approved Act 60 decree
Resident individual investors who meet Act 60 timing rules

Frequently asked questions

Is Puerto Rico a foreign country for U.S. tax?

No. Puerto Rico is a U.S. territory with its own tax system. Section 933 can exclude Puerto Rico-source income for a bona fide resident, but Puerto Rico is not foreign for all federal purposes and the foreign earned income exclusion is the wrong tool.

Does moving to Puerto Rico stop federal income tax?

Only Puerto Rico-source income of a bona fide resident is generally excluded under Section 933. U.S.-source income, U.S. government pay and a failed residence test can still produce a federal return.

Is Act 60 automatic if I rent an apartment?

No. Act 60 needs eligibility, usually a decree, reporting and ongoing compliance. Bona fide residence still requires presence, tax home and closer connection, especially in the year of arrival.