Colonial offshore economy: tourism, tax incentives, and the circulation of capital

This article uses the concept of the colonial offshore economy to account for offshore finance’s legal–fiscal arrangements in contexts of constrained sovereignty and colonial legality, such as PR. While most Caribbean OFCs remain embedded in colonial or semi-autonomous relationships with Britain and the US (Harrington Reference Harrington2024; Koram Reference Koram2022), the degree and scope of autonomy vary across jurisdictions, and accordingly, their historical and legal trajectories toward becoming OFCs have differed. In this sense, the concept of a colonial offshore economy helps describe the specific legal and political accommodations that have enabled the configuration of PR as an OFC. Central to this configuration has been the development of tax incentives and credits designed to entice individuals and corporations to physically relocate to the archipelago. This model of tax haven and offshore finance development relies on legal–fiscal structures grounded in US territorial law and consolidated through local policies such as Act 60 of 2019 (Atiles Reference Atiles2024), including the expansion of a service sector and the deployment of regulatory waivers and investment privileges that systematically prioritize the relocation of foreign investors and multinational corporations. As the cases of Esencia and Moncayo illustrate, this model replicates key logics of settler colonialism and enclave development, contributing to the marginalization and dispossession of local communities.

To be sure, offshore finance refers to legal and regulatory frameworks designed to attract foreign capital by offering financial and legal services to non resident individuals and corporations (Vlcek Reference Vlcek and Randall2019). These jurisdictions extend beyond tax avoidance, encompassing banking secrecy, flexible trust law, easy incorporation, shell companies, captive insurance and reinsurance, investment vehicles, and corporate registries (Aalbers Reference Aalbers2018; Christensen Reference Christensen2021, Reference Christensen2025; Garcia-Bernardo et al. Reference Garcia-Bernardo, Fichtner, Takes and Heemskerk2017; Kunz Reference Kunz2024; Potts Reference Potts2019; Sharman Reference Sharman2006, Reference Sharman2010; Ylönen and Christensen Reference Ylönen and Christensen2024). Such arrangements are underpinned by legal–fiscal mechanisms, tax incentives, secrecy regimes, and hybrid residency frameworks that enable capital to circulate transnationally while remaining insulated from taxation, disclosure, and public accountability (Palan et al. Reference Palan, Murphy and Chavagneux2010; Harrington Reference Harrington2016, Reference Harrington2024).

Rooted in the Common Law tradition, OFCs are designed to be globally legible through tailored legal frameworks for different offshore sectors and investment vehicles (Pistor Reference Pistor2019). Common Law’s malleability, emphasis on judicial discretion, and widespread recognition across former and current British and US colonies have made it central to the legal constitution of offshore finance (Harrington Reference Harrington2016, Reference Harrington2024; Pistor Reference Pistor2019). The colonial transfer of Common Law, and the resulting dominance of English and US legal systems in private, international economic, and commercial law, have produced transnational legal linkages that facilitate capital mobility and structure the offshore world.

The appeal of OFCs thus lies in their legal adaptability, political stability, and proximity -both geographic and institutional—to former imperial powers and global markets. These jurisdictions function as conduits for wholesale finance, enabling the circulation of currencies, equities, derivatives, and digital assets across borderless platforms (Aalbers Reference Aalbers2018; Christensen Reference Christensen2021). Because such assets often exist primarily as digital records or contractual claims, they can be transferred with ease, allowing profits to be booked in zero- or low-tax jurisdictions such as Bermuda, the British Virgin Islands (BVI), or the Cayman Islands, even when underlying economic activity occurs elsewhere (Palan et al. Reference Palan, Murphy and Chavagneux2010; Garcia-Bernardo et al. Reference Garcia-Bernardo, Fichtner, Takes and Heemskerk2017; Stausholm and Garcia-Bernardo Reference Stausholm and García-Bernardo2024). These arrangements facilitate ownership concealment and the frictionless movement of capital with minimal oversight (Cobham, Jansky, and Mainzer Reference Cobham, Janský and Meinzer2015; Maurer Reference Maurer2008). Together, they constitute an agile and opaque legal structure that not only enables capital flight and tax avoidance but also links offshore finance and tourism through shared spaces of exception designed to attract foreign capital while evading local accountability.

The historical, legal, and political formation of many Caribbean OFCs is deeply embedded in colonial and neocolonial practices. Since the 1960s and 1970s, Britain actively encouraged the development of OFCs in its overseas territories as a strategy of economic development (Harrington Reference Harrington2024; Ogle Reference Ogle2017; Rivera-Quiñones Reference Rivera-Quiñones2025; Shaxson Reference Shaxson2012). Shaped by colonial and neocolonial relationships with European powers and the US, many Caribbean jurisdictions face constrained sovereignty, limited industrial capacity, and enduring legacies of extractive development. In this context, offshore finance has been adopted as a pragmatic strategy of survival and global integration, particularly in the absence of alternative economic models (Koram Reference Koram2022; Ogle Reference Ogle2017, Reference Ogle2020; Palan Reference Palan2003; Shaxson Reference Shaxson2012; Sybblis Reference Sybblis2023, Reference Sybblis2024). As Roberts (Reference Roberts, Corbridge, Martin and Thrift1994) argues, Caribbean states’ integration into offshore networks reflects deeper patterns of dependency and imperial design sustained through legal and financial engineering.

The Caribbean’s emergence as a central node in the global offshore economy, accelerated during postwar restructuring and the neoliberal turn of the 1970s and 1980s (Kuntz Reference Kunz2024; Marshall Reference Marshall2008), can be explained by three interlocking dynamics. First, colonial and neocolonial governance produced jurisdictions with formal autonomy but limited sovereignty, enabling the establishment of OFCs under legal frameworks inherited or imposed by imperial powers (Harrington Reference Harrington2024; Koram Reference Koram2022; Palan Reference Palan2003; Ogle Reference Ogle2017, Reference Ogle2020). Britain developed a dual system of crown dependencies and overseas territories, while the US relied on unincorporated territories such as PR and the US Virgin Islands to implement favorable tax and regulatory regimes (Dick Reference Dick2015; Navarro Reference Navarro2021). Second, as tax regimes in the Global North tightened after World War II, Caribbean tax havens became instrumental in shielding private wealth, increasingly relying on legal branding and reputational strategies rather than geographic isolation alone (Atiles and Whyte Reference Atiles and Whyte2025). Third, the neocolonial restructuring of the 1960s and 1970s positioned Caribbean and other small island territories as laboratories for free-market experimentation, enabling postcolonial elites and transnational actors to route assets through jurisdictions designed for legal evasion and capital preservation (Ogle Reference Ogle2017).

These colonial–legal dynamics intersect with a broader Caribbean pattern in which offshore finance, tourism, and special economic zones (SEZs) have long been promoted as development strategies (Baver and Lynch Reference Baver and Lynch2006; Cabezas Reference Cabezas2008; Nixon Reference Nixon2015; Rivera-Quiñones Reference Rivera-Quiñones2025; Sheller Reference Sheller2003, Reference Sheller2020). Critical scholarship demonstrates that these models often reinforce dependency, deepen inequality, and reproduce North–South asymmetries rather than generating broad-based development (Loperena Reference Loperena2023; Wilson Reference Wilson2008). In the tourism sector specifically, empirical studies show that growth rarely alleviates poverty; instead, it generates low-wage and seasonal employment while driving land speculation, increasing property values, and displacing residents (Gmelch Reference Gmelch2012; Lee, Hampton, and Jeyacheya Reference Lee, Hampton and Jeyacheya2015; Pattullo Reference Pattullo2005; Scheyvens Reference Scheyvens2011).

Representations of the Caribbean as a tropical paradise further obscure the legal regimes that transform land, beaches, and coastal zones into commodities for external consumption (Sheller Reference Sheller2003, Reference Sheller2018; Urry Reference Urry2014). These regimes enclose land and natural resources, restrict public access, and normalize dispossession in the name of development (Kothari and Arnall Reference Kothari and Arnall2017; Loperena Reference Loperena2016, Reference Loperena2023). Law and political economy scholarship highlights how tourism operates as a mechanism of enclosure and exclusion, subsidizing elite consumption, driving land privatization, and constraining public revenue (Büscher and Fletcher Reference Büscher and Fletcher2017). Caribbean beaches, often framed as spaces of leisure and freedom, thus exemplify how legal and economic arrangements produce exclusionary geographies of consumption (Atiles Reference Atiles2025).

At the level of spatial governance, tourism infrastructures increasingly mirror the regulatory and territorial logics of offshore finance. Cruise ships, all-inclusive resorts, and luxury real estate developments frequently operate within SEZs or semi-autonomous zones, insulated from local jurisdictions and more closely connected to transnational circuits of capital than to surrounding communities (Sheller Reference Sheller2020). Tourism megaprojects often function under weakened labor protections, relaxed environmental oversight, and fragmented regulatory authority, reproducing colonial forms of extraterritorial governance. As Urry (Reference Urry2014) observes, tax havens are not only sites of financial secrecy but also spaces of leisure, pleasure, and elite consumption. These zones are designed to maximize foreign consumption while minimizing redistribution, reflecting a broader dynamic in which the Caribbean functions simultaneously as a destination for tourism and a refuge for capital (Palan Reference Palan2003).

Early scholarship treated offshore finance and tourism as distinct or competing sectors (Maurer Reference Maurer1995; Roberts Reference Roberts1995; Hampton and Christensen Reference Hampton and Christensen2007). Roberts (Reference Roberts1995), in her classic study of the Cayman Islands, documents how the territory opened itself to two distinct categories of foreign visitors, tourists and tax haven clients, while Maurer (Reference Maurer1995), in his study of the BVI, identifies tourism and offshore financial services as separate revenue streams. While these foundational works illustrate coexistence, they often treat tourism and offshore finance as parallel or competing sectors rather than as interdependent fields shaped by shared legal, tax, and regulatory dynamics (Hampton and Christensen Reference Hampton and Christensen2007).

In contrast to this separation, Marshall’s (Reference Marshall1996, Reference Marshall2002, Reference Marshall2008) shows that offshore finance and tourism are historically intertwined within Caribbean political economies.Footnote ⁹ Across his analyses of tax havens, financialization, and the export-services sector, Marshall (Reference Marshall2008) shows that offshore finance in the Caribbean emerged as a continuation of long-standing service-oriented development strategies rooted in merchant capital, colonial trade, and postcolonial statecraft. Marshall (Reference Marshall1996) situates tax havens alongside tourism, shipping registries, and other international services as parallel strategies through which Caribbean states have sought to attract mobile capital under conditions of structural or colonial dependence. Crucially, Marshall (Reference Marshall2008) connects these dynamics to processes of globalization and financialization, arguing that OFCs shape not only regulatory practices but also the spatial and cultural logics of accumulation, including high-end tourism and real estate development. Altogether, Marshall’s (Reference Marshall1996, Reference Marshall2002, Reference Marshall2008) scholarship provides a critical bridge between tourism, offshore finance, and colonial legality, foregrounding how service-led development strategies operate as mechanisms of financialized extraction rather than pathways to autonomous development.

This dual dependence on tourism and offshore finance has cast the Caribbean as a manufactured paradise, an exclusionary space shaped by legal fictions and colonial desires. While these industries are promoted as engines of growth, they rely on regulatory carve-outs, land enclosure, and infrastructural development that displace communities and concentrate value in the hands of foreign investors. The environmental toll of these industries, especially amid rising sea levels, hurricanes, and erosion, raises serious questions about the sustainability of the region’s current economic model. Despite international calls from the UN and the World Tourism Organization for “sustainable tourism” and climate resilience to achieve Sustainable Development Goals, the Caribbean’s tourism model remains focused on short-term economic gains at the expense of long-term environmental and social stability.

It is within this broader regional configuration that PR’s colonial offshore economy must be situated. Although PR shares many features with other Caribbean jurisdictions, its legal and economic transformation has been understudied from sociolegal and political economy perspectives. Much of the existing scholarship has focused on the cultural, historical, and anthropological dimensions of Puerto Rican tourism (Aponte-Parés Reference Aponte-Pares2019; Baver Reference Baver2012; Baver and Lynch Reference Baver and Lynch2006; Curbelo Reference Cubero2008; Merrill Reference Merrill2001), while the legal–fiscal framework enabling its transformation into a site of external consumption has received far less attention.Footnote ¹⁰ As the remainder of the article demonstrates, PR’s colonial offshore economy is not merely a tax formation but a legal and political–economic regime that sustains colonial hierarchies through legal design and fiscal policy, particularly tax incentives and credits, positioning the archipelago as a flexible node within global circuits of capital.

From corporate tax haven to offshore finance: law, crisis, and colonial continuity in PR

PR has long functioned as a corporate tax haven, offering low or zero taxation to US investors and multinational corporations (Dick Reference Dick2015). Due to its colonial status,Footnote ¹¹ bona fide residentsFootnote ¹² of PR are exempt from federal income taxes on income generated on the archipelago. Unlike other offshore jurisdictions, US citizens who relocate to PR retain their US passports and maintain “mainland” ties while receiving tax exemptions from both federal, state, and municipal governments. These features position PR as a distinctive offshore space embedded within US sovereignty rather than external to it.

This fiscal arrangement is rooted in PR’s incorporation into the US empire following the 1898 invasion during the Spanish–American War. Under the Treaty of Paris, PR became a US possession, and later a domain of Congress under the US Constitution’s Territorial Clause. A series of federal organic laws subsequently structured the archipelago’s legal and tax regime, trade relations, and monetary system, embedding fiscal exception into the foundations of US colonial rule.

The Foraker Act of 1900, the first organic law, established PR’s civil government and economic institutions while exempting the territory from federal income taxation. Articles 2–5, 9, and 11–13 addressed tax collection, the market economy, and the monetary system, as well as the application of US maritime and international trade laws. Simultaneously, US monetary policies devalued local currency and real estate, accelerating land dispossession among Puerto Rican hacendados and facilitating large-scale land acquisitions by US sugar corporations (Ayala and Bernabe Reference Ayala and Bernabé2009; Irizarry Reference Irizarry2011). Although the US Congress enacted the 500 Acres Law to limit corporate land concentration, this restriction applied only to corporate -not individual- ownership, allowing consolidation through legal circumvention (Dietz Reference Dietz1986). By the 1930s, US policy had transformed PR’s diversified agricultural economy into a sugar monoculture, deepening dependency on US markets (Dietz Reference Dietz1986).

These economic transformations coincided with the consolidation of a distinctive colonial legal regime through the Insular Cases (1899–1922). In this jurisprudence, PR was designated as “belonging to, but not part of,” the US, producing a durable state of exception in which constitutional protections applied selectively (Jiménez Reference Jiménez2024; Padilla-Babilonia Reference Padilla-Babilonia2024). Significantly, many Insular Cases centered on taxation and tariff collection, underscoring how US colonial legality developed in tandem with the fiscal and commercial interests of US corporations and ruling elites.

The Jones Act of 1917 partially replaced the Foraker Act and extended US citizenship to Puerto Ricans while preserving federal control over immigration, currency, tariffs, treaties, defense, and commerce. Crucially, Section 3 exempted Puerto Rican bonds from federal, state, and municipal taxation across the US, rendering them exceptionally attractive to US investors and further integrating colonial governance with financial markets. Additional legislation, including the Merchant Marine Act of 1920Footnote ¹³ and the Revenue Act of 1921, deepened PR’s economic subordination. The Revenue Act of 1921 (Section 262) further exempted US citizens and corporations from taxation if at least 80 percent of their income was derived from US possessions and 50 percent from active business operations. Section 931 of the Internal Revenue Code reinforced this arrangement by exempting bona fide residents of US possessions from federal taxation on overseas income until repatriation.

The Great Depression marked another turning point in PR’s colonial political economy. New Deal policies extended to PR through relief programs, agricultural restructuring, and development planning, including the PR Emergency Relief Administration in 1933, PR Reconstruction in 1935, and a series of 1940 tax incentives laws that aimed to promote development through industrialization, commonly referred to as “industrialization by invitation.” Formalized under Operation Bootstrap, this strategy legislated extensive tax exemptions and incentives for US-owned factories established in PR, targeting industries attracted by low wages, tax incentives, and the legal security of US territorial status (Baver Reference Baver1993). Dick (Reference Dick2015) notes that Operation Bootstrap granted US corporations at least ten years of exemption from Puerto Rican income and property taxes, along with relief from most excise taxes, municipal taxes, and license fees. When combined with Section 262 of the US Tax Code, these incentives amounted to a near-total tax holiday. Operation Bootstrap also included additional economic subsidies for corporations investing in the archipelago, explicitly identified tourism as a prospective revenue source, and directed the archipelago’s development company to expand tourist facilities.

The PR Industrial Incentives Act of 1947 exempted relocating firms from municipal, property, income, and state taxes for extended periods (Rivera-Quiñones Reference Rivera-Quiñones2025). In the same year, PR also established the first US-linked foreign trade zone, primarily serving the pharmaceutical and oil industries. Simultaneously, in the 1940s and 1950s, the PR Industrial Development Company actively subsidized infrastructure for incoming capital, including the publicly financed Caribe Hilton Hotel, built to accommodate US business elites (Capó forthcoming; Rivera-Quiñones Reference Rivera-Quiñones2025). These policies stimulated manufacturing growth but constrained the development of local industry, reinforcing reliance on external capital and fiscal privilege rather than productive capacity.

Public Law 600 of 1950, the third organic law, enabled Puerto Ricans to draft their own constitution and establish the Commonwealth of PR in 1952. While the new government institutionalized limited internal democracy, it did not alter US control over trade, monetary policy, international relations, immigration, or tariffs. In this context, the newly created Government of PR actively leveraged its colonial status to implement tax policies aimed at attracting US capital, facilitating corporate tax avoidance, and opening avenues for local elite wealth accumulation. As a result, these economic policies increasingly shifted from facilitating production to privileging tax exemptions and incentives for US corporations, marking a transition from extractive agricultural industries to financialized modes of wealth extraction.Footnote ¹⁴ In many ways, rather than extracting revenue through taxation, as in classical settler colonial regimes (Bhambra Reference Bhambra2022; Willmott Reference Willmott2025), US colonial policy in PR operated by constructing incentive structures that enabled corporations to extract value while minimizing fiscal contribution. Tax incentives and exemptions, rather than taxation, became the primary technology of colonial rule.

Parallel to these financial dynamics, the PR government has long played a central role in marketing the archipelago as a tropical paradise. As Aponte-Parés (Reference Aponte-Pares2019) and Merrill (Reference Merrill2001) note, since the end of the Cold War, tourism has been positioned as a cornerstone of economic policy, framed through narratives of exoticism, escape, and leisure. Historian Rafael Capó García (forthcoming) shows how tourism promotion campaigns such as the 1953 documentary Fiesta Island and the New Deal–funded campaign Discover Puerto Rico, U.S.A., Where the Americas Meet mobilized tropicality, promises of adventure and leisure, and the expansion of commercial aviation to market the archipelago as a “vacation paradise 12 months of the year,” notably emphasizing the absence of “customs barriers” and the use of the US dollar as standard currency. Crucially, these imaginaries did not merely promote tourism; they complemented and normalized legal regimes that facilitated capital inflows, real estate speculation, and enclave-style development.

The collapse of the industrialization-by-invitation model in the wake of the 1973 oil crisis precipitated a renewed policy transformation, re-centering corporate tax haven strategies as a core instrument of economic governance. Section 936 of the US Internal Revenue Code (1976) sought to encourage US corporations to establish operations in PR by allowing the tax-free repatriation of profits (Feliciano Reference Feliciano2018). These incentives targeted banking, financial services, pharmaceuticals, electronics, and other capital-intensive sectors (Baver Reference Baver1993; Caraballo-Cueto and Lara Reference Caraballo-Cueto and Lara2017). While Section 936 temporarily stimulated manufacturing and finance, it entrenched PR’s dependency on externally controlled capital flows and fiscal incentives. Simultaneously, in the late 1980s, the local government sought to incentivize the development of finance, insurance, and real estate sectors in the archipelago (Pantojas Reference Pantojas1990). When Section 936 was phased out in 2005, partly due to US concerns about tax base erosion and the advent of NAFTA, PR was left without a viable economic development alternative (Ayala and Bernabe Reference Ayala and Bernabé2009). In response, the PR government turned to municipal bond markets, tax exemptions, and infrastructure megaprojects to stimulate the economy, further increasing public debt (Caraballo-Cueto and Lara Reference Caraballo-Cueto and Lara2017).

By 2004, there were approximately forty tax incentive laws on the books; by 2008, that number had increased to sixty, and by 2020, it had surpassed 90 (Quiñones and Seda Reference Quiñones and Seda2020). These exemptions, largely unrevised, significantly reduced government revenue, deepened fiscal instability, and reinforced tax avoidance. Multinational corporations, especially in the tech sector, took advantage of these incentives. In 2014, Microsoft disclosed in its SEC filings that it had $92.9 billion in offshore profits, much of which was held in PR, Ireland, and Singapore (Zucman Reference Zucman2014). The firm estimated that repatriating these funds would trigger a $29.6 billion tax bill, implying it paid no more than 3.1 percent in foreign taxes (Zucman Reference Zucman2014).

As the 2000s progressed, economic stagnation and mounting debt worsened. Since 2006, austerity measures, widespread privatization, and the accumulation of unsustainable public debt culminated in PR’s $72 billion bankruptcy declaration in 2016. In response, the US Congress enacted the four organic laws, known as the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). This law established a Financial Oversight and Management Board (FOMB) tasked with overseeing the archipelago’s finances, renegotiating its public debt, and returning PR to municipal bond markets. Rather than investing in economic development or progressive taxation, the FOMB prioritized structural adjustment and austerity, deepening existing economic inequalities (Lopez-Santana Reference López-Santana2022, Reference López-Santana2026).Footnote ¹⁵

Compounded by Hurricanes María (2017) and Fiona (2022), earthquakes in 2020, and the COVID-19 pandemic (2020-2023), these conditions accelerated depopulation, housing insecurity, and speculative investment in land and real estate. Tax incentives, lax regulation, and aggressive tourism promotion facilitated corporate land grabs (Villanueva, Cobián, and Rodríguez Reference Villanueva, Cobián and Rodríguez2018), the expansion of short-term rentals, and public–private partnerships that further integrated PR into global circuits of mobile capital. As shown below, luxury tourism megaprojects such as Moncayo in Fajardo and Esencia in Cabo Rojo are particularly illustrative of these dynamics of displacement and financial speculation enabled by tax haven policies. Altogether, this historic-legal overview demonstrates that PR’s current transformation from a corporate tax haven into an OFC is not a rupture but the latest phase of a long colonial legal trajectory. Across this history, tax incentives and credits have functioned as a central technology of governance, enabling capital mobility, organizing value extraction, while foreclosing alternative economic development paths.

Tax incentives and credits and the constitution of a colonial offshore economy

Building on the preceding historic-legal overview, this section examines the contemporary legal-fiscal framework through which PR’s corporate tax haven has been operationalized and expanded into an OFC. While the archipelago began moving toward offshore finance as early as 1989 with the enactment of the International Banking Center Regulatory Act (Act 52 of 1989) which sought to incentivized the establishment of international banks in the territory, this transition intensified during the financial and economic crisis (2006–present), as the Puerto Rican government expanded its tax incentives targeting the international financial services and tourism sectors. These efforts followed a familiar Caribbean model of offshore diversification, in which sectors such as offshore banking, captive insurance, private equity, and other complex financial services are encouraged to relocate to the territory (Marshall Reference Marshall2002, Reference Marshall2008). Alongside these state-led initiatives, local elites and private actors cultivated a supporting service economy, comprising real estate firms, accounting offices, law firms, insurance companies, banking services, and tourism (Clancy Reference Clancy1998), designed to intermediate and capitalize on the archipelago’s expanding tax incentive regime (Valentín Reference Valentín2021).

In 2012, three pivotal laws, Act 20 (Export Services Act), Act 22 (Individual Investors Act), and Act 273 (International Financial Center Act), were enacted by the local government, facilitating the operation of the OFC in PR. Act 273 established the regulatory and financial framework necessary for international banks and financial entities to operate in PR. Since its enactment, at least fifty International Financial Entities (IFEs)Footnote ¹⁶ have been established in PR, benefiting from tax breaks, lax regulations, and other state-granted incentives.Footnote ¹⁷ Act 20 extends tax incentives to corporations and individuals exporting services from PR.Footnote ¹⁸ This framework has incentivized economic activities, such as financial consulting, “back office services,” investment banking, private credit, wealth management, and hedge fund executives, to relocate to PR. Wealth management firms have flourished under Act 20, emerging as one of PR’s most significant financial sectors in recent years.

Act 22 has been instrumental in PR’s efforts to become an OFC by offering generous tax exemptions to individual investors who relocate to the archipelago.Footnote ¹⁹ Since 2012, over 5,000 individual investor decrees have been granted under Act 22. Proponents argue that these investors stimulate the local economy, primarily through real estate investments, and create employment opportunities. However, research indicates that Act 22 recipients generate minimal employment and have a limited positive impact on the broader economy (Berríos Reference Berríos2022; Valentín, Cintrón, and Olmo Reference Valentín, Cintrón and Olmo2021). Instead, the arrival of Act 22 beneficiaries has triggered a wave of territorial struggles, particularly over luxury development, tourist megaprojects, and the privatization of beaches (Atiles Reference Atiles2025). Furthermore, PDA (2025) documents that Act 22 beneficiaries have accessed additional tax incentives under Act 20 and Act 60 of 2019, simultaneously accumulating multiple tax exemptions, hoarding real estate properties, and driving speculative dynamics in the real estate market. Additionally, PDA (2025) demonstrates that Act 22 beneficiaries are directly involved in luxury real estate projects, including the Esencia megaproject.

In addition to these local policies, US federal tax initiatives have accelerated PR’s transformation into an OFC. Following the 2017 Tax Cuts and Jobs Act, PR designated 100 percent of its low-income census tracts as Qualified Opportunity Zones, effectively rendering 98 percent of the archipelago an Opportunity Zone (OZ) for capital gains reinvestment. Under this regime, investors can defer taxes on capital gains earned elsewhere by reinvesting them in OZ projects, with profits exempt from taxation if held for at least fifteen years.Footnote ²⁰ In PR, these incentives have been further enhanced through local exemptions, including extended tax exemptions from municipal, property, and personal taxes. Investigative reporting documents how OZ capital has flowed disproportionately into luxury real estate, tourism-oriented developments, and enclave-style commercial projects rather than into affordable housing or community infrastructure (PDA 2025).Footnote ²¹ In practice, OZ incentives intersect with Act 20 and Act 22 benefits, allowing investors to stack tax and regulatory exemptions across federal, state, and local jurisdictions.

In 2019, Acts 20, 22, 273, and dozens of other sector-specific tax incentive statutes were consolidated into the PR Incentives Code (Act 60), establishing a unified legal and administrative framework governing the application, evaluation, approval, and oversight of tax and financial incentives by the Puerto Rican government. Since January 1, 2020, all new incentive applications have been processed under Act 60, which introduced a “Return on Investment” methodology as a formal metric for evaluating proposed projects and determining eligibility for benefits.Footnote ²² Act 60 is structured into eleven chapters that establish incentive regimes for specific sectors, including individual investors, export services, IBEs and IFEs, international insurance, private equity,Footnote ²³ cryptocurrency and digital assets, research and development, energy, manufacturing, OZs and SEZs, and the visitor economy. Since its enactment, the scope and cost of Act 60 incentives have continued to expand; according to the Department of Economic Development and Commerce (DEDC), the fiscal cost of these policies has reached approximately $21 billion, exceeding the Puerto Rican government’s annual operating budget (Valentín Reference Valentín2023).

In addition to reduced tax rates, Act 60 authorizes a broad range of tax credits to incentivize targeted economic activities, including tourism and real estate. Under Act 60, tax credits are defined as instruments of value that may be applied against income tax liabilities and transferred or sold in secondary markets. Act 60 explicitly provides that tax credits may be traded “as if they were a bond or a stock,” with market values typically ranging from 80 to 95 cents on the dollar, and used to repay debt or offset project costs. These credits operate as subsidies granted to holders of tax exemption decrees, aimed at promoting investment, employment creation, innovation, and the development of designated industries such as tourism and manufacturing (Mues, Hernández, and Luis Reference Mues and Luis2023). Governed by conditions established in Act 60 and the PR Internal Revenue Code of 2011, tax credits operate as a dollar-for-dollar reduction in tax liability, making them more advantageous than deductions, which merely reduce taxable income (Mues, Hernández, and Luis Reference Mues and Luis2023). While initially issued to decree holders, credits may also be acquired by other taxpayers in secondary markets, often at a discount. By purchasing credits at a price below face value, taxpayers can reduce their tax obligations while retaining the price differential as a financial gain, which is not subject to taxation, thereby reinforcing the role of tax credits as financial instruments within PR’s incentive regime.

Building on this framework, Act 52 of 2022 refined the legal and administrative mechanisms through which tax credits circulate, are monetized, and are integrated into investment strategies. Enacted as a set of amendments to the PR Internal Revenue Code of 2011, Act 52 of 2022 reorganized the legal framework governing corporate entity classification,Footnote ²⁴ tax credit administration, and the secondary market transactions (Mues, Hernández, and Luis Reference Mues and Luis2023). In doing so, it strengthened the conditions under which tax credits operate as transferable financial assets embedded within broader investment and development schemes.

Act 52 further institutionalized the governance of tax credits by creating a centralized Tax Credits Manager system within the PR Treasury Department.Footnote ²⁵ This digital platform registers, tracks, transfers, assigns, and sunsets tax credits, formally distinguishing between credits issued before and after its implementation.Footnote ²⁶ By standardizing the lifecycle of tax credits and embedding their transfer within an electronic administrative infrastructure, Act 52 normalizes their treatment as circulating financial assets rather than one-time fiscal offsets. In this way, the reforms introduced by Act 52 deepen the financialization of PR’s tax incentive regime and lay the legal groundwork for the convergence of offshore finance and tourism development examined in the following section. By expanding the use, transfer, and monetization of tax credits, Act 52 enables tourism tax credits issued under Act 60 to function as liquid, tradeable assets, allowing developers and investors to extract value independently of long-term tourism outcomes.

The production of PR’s OFC relies heavily on tax incentives and the transfer of public resources to private actors. Tropes of paradise, tropicality, and endless summers have been central to this reconfiguration, positioning tourism and luxury real estate as vehicles for offshore diversification. As Puerto Rican officials market the archipelago as a tropical tax haven, tourism and offshore finance have become increasingly entangled through shared legal frameworks, financial flows, and elite networks. This convergence underscores the central role of tax incentives and credits in repositioning PR as a node within the global offshore economy.

Tourism as offshore diversification: The legal and tax incentives structures of the PR’s visitor economy

Central to PR’s development as a tourist destination are two key institutions: the PR Tourism Company (PRTC), established in 1970 to regulate and promote the tourism industry, and Discover Puerto Rico (Discover), created in 2017. Structured as a nonprofit entity, Discover engages in marketing, sales, and promotional activities to attract tourism investment and tourists to the archipelago. While Discover claims to align its efforts with PR’s broader economic goals, including recovering from socioenvironmental disasters and a prolonged economic crisis, it has also played a critical role in entrenching PR’s status as a hub for speculative and extractive ventures.

Tourism-related tax incentives have been central to this transformation and are divided into direct and indirect categories. Direct incentives include tax credits for tourism-related projects, preferential income tax rates, and exemptions or benefits during the operational phases of projects, often including special provisions for the first year of operation. Indirect incentives, meanwhile, encompass subsidies for cruise ships and airlines, marketing support provided by PRTC and Discover, and general tax exemptions in designated tourist areas. Rather than merely supporting tourism development, the PRTC and Discover have facilitated the creation of a legal framework that underpins a highly speculative tax incentive sector.

This legal framework promotes passive real estate investment, tax avoidance, and predatory land grabbing, all of which disproportionately benefit foreign investors at the expense of local communities. Legislation such as Acts 74 of 2010, 17 of 2017, and 60 of 2019 has facilitated and incentivized tourism expansion through tax incentives, labor law reforms, and public-private partnership agreements.

Chapter V of Act 60 focuses on incentivizing tourism development by reducing construction and operational costs for tourism projects. Administered by the DDEC, Act 60 collaborates with entities like the PR Economic Development Bank to assess loan applications for tourism projects. Projects that qualify for these incentives are processed through the DDEC Secretary, who evaluates the proposal’s potential economic impact using the Return on Investment (ROI) formula. Eligible businesses include hotels, condo-hotels, guesthouses, vacation clubs, marinas, theme parks, sustainable tourism projects, medical tourism, agro-tourism, nautical tourism, and eSports activities. Chapter V provides:

1. 1. Up to 90 percent exemption on income taxes for most projects and 100 percent for projects in Vieques and Culebra during their first five years.

2. 2. Up to 75 percent exemption on property taxes, with full exemptions for the first five years in Vieques and Culebra.

3. 3. An exemption of 75 percent on municipal construction taxes.

4. 4. Up to 100 percent exemption for materials and articles related to tourism activities.

5. 5. An exemption of 50 percent on other municipal taxes, including license fees.

6. 6. Based on project milestones, 10 percent of the total project costs, or 40 percent of the eligible investment, are issued in tranches.

7. 7. Up to 11 percent reduction in electricity costs for eligible tourism businesses.

In addition to these tax incentives, as noted above, Act 60 authorizes a range of tax credits designed to incentivize tourism and luxury real estate development.Footnote ²⁷ Tourism tax credits function less as conventional development incentives than as state-backed financial instruments, akin to stocks or bonds, that provide liquidity and immediate returns to investors. Once granted, these credits can circulate independently of a project’s long-term performance, allowing developers and financial intermediaries to extract value upfront while shifting fiscal risk onto the public sector.

As part of my research for this article, I requested information from the PR Treasury Department regarding the Tax Credits Manager system, tourism-related tax credits, and activity within the secondary market for those credits. According to the information provided, a total of $417,244,271 in tax credits has been granted to tourist investment projects since January 1, 2023. As of January 20, 2026, the date on which the data was shared, a significant portion of these credits had already circulated through the secondary market. Specifically, $368,349,250 had been sold or transferred (of this total amount, $68,542,085 were transferred and $3,924,897 remained as pending transactions). Of the total tax credits granted, only $115,777,928 had been claimed on tax returns. After accounting for these sales and claims, the remaining available balance stood at $297,541,446. That is, almost $300 million in tax credits are still circulating in the secondary market.

Importantly, between 2023 and January 2026 alone, the Treasury Department reported 599 sales transactions. Of these, 280 occurred between legal entities (although no disaggregated data is available regarding the specific type of entity, such as LLCs or other corporate forms). Another 314 transactions involved transactions between legal entities and individuals, while only five transactions were conducted exclusively between individuals, where both buyer and seller were natural persons. These transactions, and the scale of the secondary market, reveal the financialized dynamics at play within the tourism tax credit system. Rather than relying on hotel occupancy rates, employment generation, or sustained tourism demand to drive profitability, this tax credit structure enables returns to be realized through the exchange and strategic deployment of the credits themselves.

This mechanism helps explain the persistent gap between the scale of public investment in tourism incentives and their limited developmental outcomes. Between 2000 and 2022, the Puerto Rican government allocated more than $2 billion in tourism-related tax incentives, of which at least $844 million had been used by May 2023. During this period, just over 3,000 hotel rooms were added or rehabilitated, translating into an average public subsidy of approximately $273,000 per room. As of 2024, the archipelago had 153 lodging establishments with roughly 14,487 rooms, alongside 34 additional hotel projects projected to add 1,604 rooms over the next two years. While room-tax revenues increased from an average of $70 million before 2018 to $142.5 millionFootnote ²⁸ by the end of 2024, this expansion has done little to improve broader local economic conditions.

Government evaluations reinforce this interpretation. A DDEC (2024) analysis of tourism incentive programs based on 2022Footnote ²⁹ data found that 175 entities received $333 million in tax benefits, yielding an average ROI of only 3.2 percent. Between 2020 and 2024, the Puerto Rican government granted 56 tourism-related decrees totaling over $500 million, nearly half of them issued in 2024 alone, coinciding with an election cycle. The intensification of tourism tax incentives for lodging developments raises critical concerns about sustainability and long-term socioeconomic impact. For instance, the reported ROI on these incentives remained effectively neutral, with every dollar invested generating approximately $1.03 in return (DDEC 2024). In hotel-specific projects, $136 million in public expenditures produced just $140 million in returns (DDEC 2024), underscoring the limited developmental impact of these policies. Despite record tourist arrivals and increased room-tax collections, the visitor economy continued to generate low wages, with hotel workers earning an average of $29,276 annually and food service workers just $16,172, well below the archipelago’s average salary of $32,942. This creates a paradox in which the state allocates substantial tax benefits to service sectors that fail to generate meaningful or durable economic development.

From a development perspective, these figures suggest policy failure. From a financialization perspective, however, they reveal how tourism incentives operate as a speculative credit market in which decree holders engage in tax avoidance. In this configuration, the value of the incentive lies not primarily in its capacity to generate long-term productive activity, but in its exchangeability and its ability to be converted into liquid capital when needed. The hotel or tourism project thus increasingly functions as a vehicle for accessing and monetizing tax incentives and credits, rather than as the central site of value creation.Footnote ³⁰ Put simply, tourism tax incentives and credits granted under Act 60 have become another mechanism through which the Puerto Rican government enables corporations and wealthy individuals to engage in tax avoidance and related forms of offshore finance, contributing to the diversification of the archipelago’s colonial offshore economy.

Furthermore, these processes of OFC diversification are materially inscribed onto space. The commodification of Puerto Rican land and culture through tourism tax credits and incentives has intensified, producing gentrification, displacement, and the restructuring of coastal spaces as part of a broader colonial dynamic of offshore finance (Atiles Reference Atiles2025). Tourism-driven commodification often reconfigures space in ways that privilege external capital while marginalizing local communities (Clancy Reference Clancy1998; Sheller Reference Sheller2003), a dynamic increasingly visible in the luxury megadevelopment of Moncayo and Esencia.

Tax incentives and luxury megaprojects: Moncayo and Esencia

This section presents two case studies of tourist megaprojects facilitated by PR’s tax incentive policies, aimed at enhancing the operation of its OFC. Moncayo and Esencia were featured in Mansion Global as two of the Caribbean’s five most exciting luxury projects.Footnote ³¹ These megaprojects embody the concept of carve-outs (Slobodian Reference Slobodian2023), in which spaces of exception are established through regulatory frameworks that prioritize private interests. This phenomenon is evident in the state’s facilitation of luxury megaprojects that effectively function as settler colonies, through tax incentives and regulatory waivers. The construction of luxury resorts and other tourism infrastructure intended to serve the same sectors that benefit from the OFC often destroys ecologically sensitive areas, leaving local communities to shoulder the environmental costs. The prioritization of tourism and offshore finance over ecological sustainability reflects the colonial-capitalist logic underpinning PR’s colonial offshore economy.