Nearshore Americas

A ‘Private’ Development Hub in Honduras Leans on a Revolutionary Model

Tropical getaways for tech professionals eager to escape their own concrete jungles have been big news over the pandemic. But Próspera, a new ‘prosperity hub’ off the coast of Honduras, is taking that simple idea to the next level. 

Situated on the island of Roatán, some 30 miles from the Honduran mainland, Próspera has become Honduras’ first privately owned charter city.

Próspera will certainly look the part. Luxury residences designed from a “technologically-curious, ecologically-minded” perspective by renowned architectural firm Zaha Hadid Architects, will set the vibe in the territory, and place Próspera among the most interesting new plays in the region’s Nearshore matrix.

Still a year or more away from completion, Próspera is proving to be a unique – and unusual – Nearshore offering.

Recruiting From Roatán

Próspera operates as a Zone for Employment and Economic Developement (ZEDE), which was made possible by the passing of the ZEDE Law in 2013. 

“The change opened up the opportunity for companies like Próspera to come into the country. We have ownership of civil law while remaining under Honduran criminal law. We have an entirely new regulatory framework based on world-leading best practices that reflects Common Law in the US,” Daniel Frazee, Manager at Próspera Employment Solutions, a subsidiary of Próspera. “Próspera is the promoter and organiser of the jurisdiction but we work in coordination with the Committee for the Adoption of Best Practices (CAMP) of the Honduran government to pass regulations. CAMP helps to put the legal framework in place,” he added.

The territory’s 3,500-page legal code has been formed with the intention of providing a simplified route to base a business on the island, offering tax incentives for Honduran and foreign companies to base their businesses within Próspera’s territorial domain.

The territory has only four taxes – a 1% corporate tax, a 5% income tax, 2.5% sales tax and 1% land value tax – while companies are able to choose to work under one of multiple international legal frameworks. 

“If you’re a US company, you can run it as a US company out of the jurisdiction or choose to operate under the framework of one of 35 OECD countries. You could also choose to work under Próspera’s Common Law, or even propose a hybrid between multiple frameworks,” Frazee explained.

This will all enabled by Próspera’s virtual residency, enabling individuals to become residents of the territory without living there. They will still receive the territory’s benefits. “We are a territorial jurisdiction. It’s all about where you earn your income, so people must work within the jurisdiction to have those laws applied to them.”

Building a Talent Network

The tax incentives are there to draw companies in, but part of Próspera’s package and play to the Nearshore is its talent recruitment service. Frazee, who heads the recruitment arm, explains how the company will become a Nearshore provider of personnel: “We’re approaching this as an employer of records service, where we hire employees and ‘lease’ those employees to a client. We did this because people will have to move from the mainland to our jurisdiction and to do that is too difficult with a contractor agreement. Another part was that those individuals would feel like they’re being integrated into the team. Any job that can be dome remotely from the US can be done remotely from here,” he said. 

But Frazee believes that what will set Próspera Employment Solutions apart is the quality of the talent that the territory will attract. “We’re delivering that value through the talent network we’re driving. We’re really pushing to become the source to go for hiring in Honduras. We want to follow through with very high quality talent,” he said.

Another factor that Frazee expects to draw in clients will be Próspera’s simplified labor regulations that meet the requirements of Honduran law. “In Próspera it’s very easy to hire and be hired and our hiring process gets rid of a lot of issues that had good intentions when they were created but make hiring complicated in parts of Latin America. These include the various severances packages, social security and health benefits. These are instead summed up into a Labor Benefit Fund that is a 10%, quarterly payment to the employee. It’s meant to act like a like a retirement account, a 401K. The idea is to simplifying the process and make it easier for companies to hire while still providing protections for the employee,” Frazee said.

Other legal requirements mean that companies operating out of Próspera must employee 90% Hondurans, though for specialized positions there is an exception process that can be followed. 

In the future, once more residences are built, digital nomads will make up a greater portion of the population, Próspera believes.

As the company is the government of the territory, it will collect taxes from those that work within the zone. This, says Frazee, provides mutual incentives both to government and workers.

“We are trying to push the idea of Government-as-a-Service. We do well when our people do well because we are effectively the government and collect the taxes. This incentives us to provide great services so that we continue to make it as easy and virtuous as possible for more people to open businesses here,” he said.

Trouble in Paradise

Próspera is eager to point out that its status as a ZEDE does not mean that it is able simply to set whatever laws it deems most beneficial to itself or the companies operating there.

“Our platform is not intended to be for the rich and wealthy but a platform for prosperity for all, including middle and low income individuals. We want to make sure everyone can capture this prosperity,” said Frazee.

Among the ways that the company is promoting the zone’s equity is with the implementation of above minimum wage for employees who will arrive to work on the site’s retail, food and leisure sites. 

“Minimum wage is 25% above the Honduran minimum wage, which varies by industry. By law, our minimum wage is 25% greater,” said Frazee, though in a Financial Times piece with Erick Brimen, the chief executive of NeWay Capital and Próspera Honduras, pay was said to be 10% above minimum wage. 

Despite the promise of jobs, the project does not appear to be supported by all on the island. A report by NACLA said that the locals of Crawfish Rock – the area of Roatán that Próspera will be located – were not in favor of the project and that CAMP “is subject to little oversight and fills its own vacancies.” The most recent available information on the committee says that “its members include nine U.S. citizens and only four Hondurans”, NACLA reported. 

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Meanwhile, in March this year, the Technical University of Munich reportedly withdrew its partnership with Próspera stating: “on principal, TUM International GmbH withdraws from projects if there are indicators of human rights violations, as in this case.”

Honduras itself remains one of the most violent countries on the planet though homicides had dropped as recently as 2019. Corruption remains a constant problem, and President Juan Orlando Hernandez becoming a target for US investigations earlier this year. In March, his brother Juan Antonio, was sentenced to life imprisonment for drug trafficking.

Naturally, questions over processes within the Honduran government linger.

Frazee is adamant that the project will bring benefits to everyone in the local region. “It isn’t our intention to be a center for wealthy people to come and get tax benefits,” he said.

Peter Appleby

Peter is the Managing Editor of Nearshore Americas. Hailing from Liverpool, UK, he is now based in Mexico City. He has several years’ experience covering the business and energy markets in Mexico and the greater Latin American region. If you’d like to share any tips or story ideas, please reach out to him here.

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