What Was Act 22? Puerto Rico’s Individual Investors Program

In the early 2010s, Puerto Rico faced a decade-long recession, population decline, and shrinking investment base. To attract new residents and private capital, the legislature introduced Act 22 – The Individual Investors Act, complementing Act 20 – Export Services.

Its goal was simple: encourage individuals to establish bona fide residency in Puerto Rico, thereby stimulating local spending, real estate investment, and participation in the broader economic ecosystem.

The law offered incentives not for business activity but for personal relocation — positioning Puerto Rico as a U.S. jurisdiction with significant tax advantages under the territorial rules of IRS Publication 570.

Core Benefits Under Act 22

An individual who became a bona fide resident of Puerto Rico under Section 937 of the U.S. Internal Revenue Code and received an Act 22 decree enjoyed:

100% exemption on all Puerto Rico–sourced interest and dividends.
100% exemption on all capital gains realized after establishing residency.
Preferential treatment for certain short-term gains, interest income, and investment distributions.

These benefits applied only to income sourced within Puerto Rico, and required physical presence and residency compliance each tax year.

The Bona Fide Residency Test

To qualify, individuals had to satisfy the physical presence, tax home, and closer-connection tests defined in the Internal Revenue Code and the IRS’s residency guidance.

Typical requirements included:

Spending at least 183 days per year in Puerto Rico.
Maintaining a primary residence and “tax home” on the island.
Demonstrating stronger personal and economic ties to Puerto Rico than to any other jurisdiction.

Violating residency conditions could lead to revocation of benefits or IRS scrutiny.

Application & Decree Process

Applicants submitted their petitions to Puerto Rico’s Department of Economic Development and Commerce (DDEC) for a tax exemption decree, which acted as a contract between the government and the individual.

Each decree typically lasted 15 years, renewable upon meeting all compliance obligations. Annual filings, charitable contributions, and local tax payments were mandatory.

For legal and structuring guidance, many investors relied on professional advisors such as MZLS — Tax Incentives & Decrees, whose team advises on residency planning, decree renewals, and audit compliance.

Integration into Act 60

When Puerto Rico adopted the Act 60 Incentives Code in 2019, Act 22 became Chapter 2 – Individual Resident Investor Incentive.

The consolidation unified administration, added reporting requirements, and increased oversight to prevent abuse while maintaining core benefits for legitimate residents.

All new applicants must now apply through the DDEC Incentives Portal, but existing Act 22 decrees remain valid until expiration.

Public Perception & Oversight

Act 22 attracted both enthusiasm and controversy. Supporters credit it with reviving Puerto Rico’s real estate market and bringing capital to the island. Critics argue that benefits were unevenly distributed or misused by individuals who failed to integrate economically or socially.

Under Act 60, compliance standards have been strengthened, with DDEC and the Treasury Department now conducting closer monitoring of decree holders.

Continuing Importance

Despite consolidation under Act 60, the principles of Act 22 remain vital to Puerto Rico’s competitiveness. The residency-based tax structure continues to attract entrepreneurs, fund managers, and investors seeking to establish a long-term presence on the island.

For updated legal context and compliance insights, see MZLS’s analysis of Act 60 Resident Investor requirements.

Key Takeaways

Act 22 (2012) granted 100% exemption on Puerto Rico–sourced interest, dividends, and capital gains for bona fide residents.
It became Chapter 2 of Act 60, Puerto Rico’s unified Incentives Code, with added compliance obligations.
The program helped attract new residents and investors, supporting real estate and professional services growth.
Legacy decrees remain valid, but all new applicants apply under the Act 60 system.