Honduras top court declares self-governing ZEDE zones unconstitutional

The Honduran Supreme Court declared on Friday that the legal basis for special economic zones, also known as ZEDEs (Zones of Economic Development Exempted from Local Laws and Taxes), which attracted foreign investors because of the promise of low taxation and regulations was unconstitutional.

Some ZEDEs are operating in Honduras following the concession of 50 years. These include so-called Start-up Cities that have significant autonomy.

A conservative government approved the law allowing these zones about a decade back, praising their ability to create jobs and boost investment. But leftist president Xiomara Cuba has called for them to be abolished.

Castro said on X Friday that "justice for the Honduran People" means not selling our territory in pieces or privatizing our sovereignty.

The court ruled by a majority that the law defining the conditions for the creation of Zones for Employment and Economic Development (ZEDEs), as well as the related constitutional reforms violated articles "written in stones" of the Constitution.

The decision prohibits the establishment of new ZEDEs. Melvin Duarte said that the ruling also implied that existing ZEDEs would be declared illegal.

He added that the court would need to publish a "explanatory addition" to explain how it will deal with ZEDEs currently operating in Honduras. Their ultimate fate is still unclear.

Prospera is the most famous ZEDE and it's located on Roatan, an island off the Honduran coastline. It warned, ahead of the court's decision, that a ruling declaring these zones unconstitutional could "create a climat of insecurity and uncertainly for investors and employees", and would undermine the ties between Honduras & the United States.

Prospera reports that ZEDEs are attracting a lot of interest from U.S. investors. It also states that "dozens" U.S. legislators expressed concerns before the ruling.

Prospera stated that the decision could lead to "visa cancellation, suspension of assistance and even disruption of the flow of remittances." (Reporting and editing by David Alire Garcia; Gustavo Palencia)

(source: Reuters)