Puerto Rico: An Overview

Puerto Rico is undergoing significant transformations that continue to shape its legal, fiscal, and socioeconomic landscapes.

The Financial Oversight and Management Board (FOMB) continues overseeing the government’s finances pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) passed by the US Congress in 2016, after the government’s default in 2014. PROMESA was enacted to provide Puerto Rico with a mechanism to achieve fiscal responsibility and regain access to capital markets. To achieve this end, it established the FOMB with authority to (i) oversee the debt restructuring of Puerto Rico government entities, (ii) certify fiscal plans outlining measures to streamline government structure, enhance the delivery of essential services, and ease doing business in Puerto Rico, and (ii) certify the government’s budgets’ compliance with the fiscal plans.

The FOMB has overseen debt restructurings involving the Commonwealth’s debt and important state-owned public corporations. The Commonwealth Plan of Adjustment alone resulted in an approximate 80% reduction in the central government’s debt. Currently, the sole remaining government entity undergoing a debt restructuring process is the Puerto Rico Electric Power Authority (PREPA). The FOMB continues to litigate and mediate PREPA’s legacy debt as the government endeavours to fulfil PROMESA’s “Sunset” requirements of four consecutive balanced budgets and renewed market access.

Simultaneously, Puerto Rico continues a multiyear economic recovery and reconstruction effort driven by over USD60 billion in US federal funds allocated after the 2017 hurricanes through programmes such as the Stafford Act and the Community Development Block Grant – Disaster Recovery (CDBG DR). These funds now play an expanded role in 2026, not only supporting the rebuilding of critical infrastructure but also aligning with the government’s broader energy transformation and permitting reform agendas. More than USD10 billion is being invested to rebuild the electric grid, integrated with ongoing renewable energy projects, battery storage, and major grid modernisation initiatives aimed at improving reliability and resilience. Additionally, CDBG-DR funds have been used to advance private infrastructure projects, including hotels, tourism-related and housing development projects and the expansion of health infrastructure and medical school facilities, among others.

The system’s fragmented statutory and regulatory framework has long produced duplicative reviews and inconsistent standards, hampering projects in energy, housing, and manufacturing. To address this, a comprehensive Permits Code is being developed to consolidate permitting laws into a single statute. Additionally, administrative actions implemented last year, such as AI assisted documentation validation, elimination of certain inspection fees, and expanded authority for the Office of Permits Management, have already cut average response times, with further reductions expected as digital integration advances. These reforms should materially reduce project delays and improve the business climate.

Complementing these regulatory modernisation efforts, the government has emphasised the strategic use of public-private partnerships (P3s) as a mechanism for infrastructure development and service delivery. Over the last six years, Puerto Rico has advanced several P3 projects in the transportation and energy sectors. The administration views P3s as tools to attract private capital, transfer operational risk, and accelerate project execution without overburdening the government’s fiscal capacity, particularly as permitting reforms reduce approval timelines and enhance regulatory predictability for private investors.

Energy transformation remains a defining challenge. Governance uncertainty around the LUMA Energy transmission and distribution agreement and PREPA’s ongoing debt-restructuring proceedings shape the sector. Despite these challenges, Puerto Rico has achieved meaningful progress in deploying new assets: utility-scale solar projects with over 100 MW of capacity have reached commercial operation, and projects awarded under earlier competitive procurement tranches are expected to add 450–600 MW of new utility scale solar generation. In parallel, an unprecedented 800–900 MW of battery storage is scheduled to come online in 2026, including 430 MW installed by Genera PR (the private operator of PREPA’s generation legacy assets) at existing generation sites. These investments are projected to significantly enhance grid stability and may reduce outage events by up to 90% under normal conditions.

Looking ahead, the government is preparing for one of the largest generation procurements in Puerto Rico’s history – up to 3,000 MW of new dispatchable generation, primarily fuelled by LNG, to support renewable integration and replace ageing infrastructure. This initiative requires extensive permitting, environmental review, and regulatory approvals, making permitting reform a critical enabler of energy policy goals.

In the broader economic development context, Puerto Rico’s government continues to implement the tax framework established under Act 52 2022 for multinational manufacturers, which replaced the long standing Act 154 2010 excise tax regime. Act 52 created an alternate income based tax system that allows multinational manufacturing groups to transition to a 10.5% income tax rate on industrial development income and royalties, replacing the former 4% excise tax structure. As of 2026, most eligible corporate groups had completed their transition to the new regime.

The viability of this transition depended on federal recognition. Guidance from the US Department of the Treasury and the Internal Revenue Service issued in 2023 confirmed that the new 10.5% income tax qualifies as a creditable foreign tax, avoiding double taxation and maintaining Puerto Rico’s competitive advantage. Act 52 also introduced structural reforms, including new entity classifications, revised sourcing rules, and compliance obligations aligned with federal standards. These policies preserve the island’s position for global manufacturers and ensure ongoing investment. Sustaining and expanding high value manufacturing – particularly biopharmaceuticals, medical devices, and industrial technology – remains a central objective of the government’s economic development strategy. As part of government’s efforts, important manufacturing expansions were announced during 2025, including Lilly’s USD1.2 billion investment in a Puerto Rico facility to boost oral medicine manufacturing capacity in the United States and Amgen’s USD650 million expansion of its existing biologics manufacturing facility in Puerto Rico.

Tax and other incentives granted under the Puerto Rico Incentives Code and other local statutes have continued to attract other local and foreign investments and have boosted M&A deals across various industries. Also, the formation of private equity funds under Puerto Rico law has proliferated, stimulating the local market.

On the labour and employment side, Puerto Rico employers are operating within a highly regulated environment shaped by shifting federal enforcement priorities, expansive local anti-discrimination protections, and persistent immigration challenges. At the same time, employers must also contend with upward wage pressures and the increasing use of AI in workforce restructuring and planning.

Concerning litigation, the growth in commercial disputes in recent years has been driven primarily by insurance coverage litigation and complex contract disputes. Insurance claims expanded sharply following the 2017 hurricanes, generating sustained litigation over property damage, business interruption, and coverage defences. In parallel, construction disputes have seen increased activity, reflecting the cost, delay, and performance issues typically seen in large-scale public and private projects. Financial distress and restructuring have also fuelled commercial litigation, alongside a steady baseline of contract enforcement and corporate disputes.

Puerto Rico is on a path of profound transformation. In 2026, the convergence of permitting reform, energy sector modernisation, manufacturing sector resurgence, and federal funded reconstruction, positions the island to achieve long term structural improvements. Successful implementation of these reforms – especially the adoption of a unified Permits Code, resolution of energy governance uncertainties, and completion of major infrastructure investments – will shape Puerto Rico’s fiscal and economic trajectory and create new opportunities for investment and growth. The combination of regulatory modernisation, tax incentives, and innovative financing mechanisms provides a comprehensive framework to attract private capital and accelerate Puerto Rico’s economic development.