Legislature passes updated version of investor incentive law

By THE STAR STAFF

The Puerto Rico Legislature has approved House Bill 505, a major update to the island’s Resident Investor Incentive Program, setting new rules for tax benefits and extending the program’s lifespan.

Under the revised law, individuals applying after Dec. 31, 2026, will face a 4% income tax rate on interest, dividends and capital gains -- up from the current 0% -- but will gain access to a significantly extended sunset date of 2055, up from 2035.

Existing beneficiaries with approved tax decrees will keep their 0% rate unchanged. Those who apply before Jan. 1, 2027, can choose between the old 0% framework or the new 4% rate with the longer extension. To close loopholes, the law now requires primary residences to be purchased directly by the investor, their spouse, or a trust -- banning indirect purchases through entities like LLCs.

The bill, which heads to Gov. Jenniffer González Colón’s desk for signature and then to the Financial Oversight and Management Board for review, is projected to boost Puerto Rico’s General Fund by $27.8-$60.6 million in fiscal year 2027, rising to an estimated $270.7 million by 2037.

The Resident Investor Incentive Program was originally introduced in Puerto Rico under Act No. 22-2012 and later incorporated in 2019 within the Puerto Rico Incentives Code. Under the program, eligible individuals who relocated their primary residence to Puerto Rico would enjoy a 0% income tax rate on interest and dividend income and for capital gains accrued and realized after becoming a Puerto Rico resident. Both Act No. 22-2012 and Act No. 60-2019 included a sunset for the Resident Investor Incentive Program in 2035.