Avoid These Common Compliance Mistakes Under Puerto Rico’s Act 60

Why Compliance Matters

Receiving an Act 60 decree isn’t the end—it’s just the beginning. Ongoing compliance is required every year to maintain your decree and avoid penalties, revocation, or scrutiny from the Puerto Rico Treasury (Hacienda) and the IRS.

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Top 7 Compliance Mistakes to Avoid

1. Failing the Bona Fide Residency Test

Even if you live part-time in Puerto Rico, you must meet all three IRS residency criteria:

• Presence Test: 183+ days physically in PR
• Tax Home Test: Your primary place of business is in PR
• Closer Connection Test: Stronger ties to PR than any other jurisdiction

Tip: Keep flight records, utility bills, and a PR driver’s license as supporting evidence.

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2. Missing the Exempt Annual Report (EAR) Filing

Act 60 decree holders must file the Exempt Annual Report with DDEC by April 15 each year. The current fee is $505, and failure to file can result in fines or the loss of your decree.

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3. Not Making the Required Charitable Donation

Individual Investor decree holders must donate $10,000 annually to nonprofit organizations certified by the Puerto Rico Treasury Department (Hacienda).

Use these official links to find eligible charities:

• Certified Nonprofits Search (Centro para la Comunidad y la Filantropía de PR)
• Puerto Rico Treasury (SURI) Portal

Donating to a non-certified entity or failing to keep receipts can put your decree at risk.

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4. Failing to Purchase Real Estate

Decree holders must purchase a residential property in Puerto Rico within 2 years of the decree’s issuance date. Leasing alone does not satisfy this requirement.

5. Improper Income Sourcing

Many U.S. citizens assume all income earned while living in Puerto Rico is tax-free. That’s not true.

• Puerto Rico–sourced income may be tax-exempt under Act 60
• U.S.–sourced income (e.g., dividends, interest, business income) is still subject to federal tax

⚠️ Misreporting income can lead to IRS audits or worse.

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6. Operating a Business Without Required Permits

If you run an export services company under Act 60, you need:

• A valid municipal business permit (Patente Municipal)
• A physical or virtual office address in PR
• Proper bookkeeping and record-keeping

✅ Tip: Consider municipalities like Dorado, which offer up to 75% exemption on the municipal volume of business tax.

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7. Neglecting Your Corporate Compliance

For Act 60 businesses, you must:

• File PR corporate income tax returns annually
• Pay the $150 annual report fee to the Department of State
• File Volume of Business Declaration with your local municipality
• Keep PR-based accounting and audit records

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What Happens If You Don’t Comply?

• Fines from DDEC or Hacienda
• Revocation of your decree
• Retroactive taxation
• IRS scrutiny (especially on capital gains and income sourcing)

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How to Stay Compliant Year-Round

• Hire a CPA experienced with Act 60 and Puerto Rico tax law
• Maintain digital records of residency, business activity, and donations
• Schedule quarterly reviews with your advisor
• Use a compliance checklist (we provide one to all Imperium clients)
• Consider a virtual office in Dorado to meet physical presence requirements and save on municipal taxes

🔒 Stay Protected with the Right Team

At Imperium Management Group, we offer year-round compliance support for Act 60 decree holders—ensuring that your capital gains remain tax-free and your business continues to enjoy 4% tax rates.

👉 Schedule a compliance review to avoid penalties and protect your decree.

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