Honduras imposes corporate and personal income tax on its residents (including Honduran subsidiaries of foreign entities) in respect of income earned in Honduras. Non-residents who carry on business in Honduras or who are employed in Honduras are also subject to Honduran income tax.

Honduras is governed by the Principle of Territorial Income, which means that entities and individuals are only liable to pay taxes for earnings within the country and earnings of Honduran source.

All of the municipalities of Honduras impose municipal taxes on corporations and individuals residing or carrying on business within the municipality. Each municipality provides a particular formula for the calculation of its tax, including the provision of specific tax incentives.

Honduras imposes withholding on non-residents (10% or 25%) who receive dividends, certain interest payments, rents, royalties or management fees, among others. Honduras has no double-taxation treaty network.

In addition to income tax, the Honduran government imposes a sales tax of 15% or 18%. Furthermore, capital gains tax (10%) and land transfer tax (1.5% of the total value of the land or the market value of the real property) are also applicable in Honduras.

In this chapter 

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary
• Corporate income tax
• Cross-border payments
• Payroll taxes
• Indirect taxes

Legal system

Honduras operates under a civil law system. The Honduran government is a constitutional democracy with a presidential system. The government is divided into three branches or powers, legislative, executive and judicial. All three of them have the authority to bring forth an initiative of law. Laws are created and approved by the National Congress. Additionally, municipal authorities also pass certain regulations applicable within the municipal limits.

Taxation authorities

The Honduran Constitution establishes that the only entity empowered to collect taxes is the National Congress. This function is delegated to the Honduran Revenue Administration Service (Servicio de Administración de Rentas - SAR), a decentralized agency that possesses functional and administrative independence. It is responsible for controlling and verifying the administrative collection and audit of taxes. Additionally, municipalities have the authority to approve their own local taxation plans.

Business vehicles

Non-residents need to establish a Honduran business vehicle to carry on business in Honduras (with or without a Honduran permanent establishment). Honduran business vehicles are corporations or incorporated branches of foreign entities, which receive the same treatment as local entities.

Corporations

Corporations can be easily incorporated, generally within a week or two, at which point, they are ready to operate. Corporations incorporated under Honduran law may be comprised of resident or non-resident shareholders, quota holders, or directors. Incorporated branches of foreign entities require a resident legal representative. The domicile of incorporation does not impact the corporation’s income tax liability.

The establishment of a corporation does not require that capital is actually received by the corporation, nor does it require the issuance of shares. However, in order to issue shares, a nominal amount of capital must be received by the corporation.

Financing a corporate subsidiary

Equity financing

Contributions for shares

Where an equity investment is made into a Honduran corporation in exchange for shares, the amount of the investment is added to the corporation’s “capital” account.

Contributions without taking additional shares

Where an equity contribution is made by a shareholder to a local company without the issuance of additional shares, the amount is added to the contributed surplus account of the corporation and not stated capital. However, the contributed surplus can be transferred to stated capital without incurring negative tax consequences.

Debt financing

General

Interest on debt obligations is considered an expense and therefore deductible in computing business income.

Withholding tax implications

Honduran corporations are permitted to borrow funds from related or third parties without tax implications. Furthermore, there are no Honduran tax implications on the repayment of the principal amount of such debt. Interest payments and participating interest made by a Honduran resident corporation to a non-resident with which it deals at arm’s length are subject to a 10% withholding tax.

Thin capitalization

In Honduras, thin capitalization rules in relation to raising and maintenance of capital are not employed.

Stamp tax

Honduras does not impose a stamp tax in respect of debt or equity financing.

Corporate income tax

Income tax rate

The income tax is an annual levy impacting earnings derived from return on equity, labor, or a blend of both. Income encompasses various sources such as profits, wages, interests, dividends, royalties, and any form of monetary or non-monetary gain affecting the recipient's assets. Corporate income tax on active business income is 25%.

Corporate income tax exemptions are applicable for certain qualified newly established small corporations, under the Law for the Support of the Micro and Small Enterprise (Ley de Apoyo a La Micro y Pequeña Empresa – Decreto 145-2018).

Capital gains

Honduran resident corporations (including Honduran branches of foreign corporations) are exempt from including capital gains/increases in their taxable income.

Computation of taxable income

Taxable base

A taxpayer is subject to tax on its profits from carrying on its business. Profit is considered to be its revenue less its deductible expenditures.

Deductions

A taxpayer is generally permitted to deduct its current expenses in computing business income.  Capital expenses may be gradually deducted in computing business income.

Income tax reporting

Honduran resident corporations are required to file an annual corporate income tax return. Corporate tax returns are due on April 30, for the last fiscal year. Late filing and late payment penalties apply. The tax may be partly paid in advance in 3 equal installments, due on June 30, September 30 and December 31. The last payment is made with the filing of tax returns due on April 30 of the next fiscal year. Late filing and late payment penalties apply.

Cross-border payments

Transfer pricing

Honduras’s transfer pricing regime reaches any operation performed between Honduran resident entities with related non-resident entities. Local regulation permits the SAR to impose a transfer pricing adjustment in respect of a transaction that is made in conditions contrary to transfer pricing regulations. Also, Honduran taxpayers are required to maintain contemporaneous documentation in respect of transactions subject to the transfer pricing rules.

Additionally, the Honduran tax authority allows taxpayers the request of an Advance Price Agreement (APA) to establish the values for the commercial or financial transactions performed with related parties prior the implementation of such transactions and for a specific time. Honduran taxpayers are also required to maintain contemporaneous documentation in respect of transactions subject to the transfer pricing rules.

Withholding tax on passive income

Payments made by a resident of Honduras to a non-resident in respect of certain types of interest payments, rents, royalties, dividends, management or administration fees, among others are subject to withholding tax at rates of 10% or 25%.

Withholding tax on services fees

Where any resident makes a payment to a non-resident of Honduras in respect of services performed in Honduras or abroad, the payer must withhold 10% or 25% of the gross payment on account of income tax.

Multilateral Instrument

Honduras is not a signatory of the MLI. Honduras has no double-taxation treaty network.

International tax reform

Honduras has committed to the two-pillar plan for international corporate tax reform that supports the OECD Inclusive Framework’s “Tax Challenges Arising from Digitalisation” project.

To this date, there have been no significant changes to the fiscal laws in place before this commitment, nor has any new legislation been introduced in this regard. However, the current administration has the intention to introduce a new “Law for Tax Justice” which should include regulation that addresses this commitment.

Payroll taxes

Honduran Institute for Social Security (Instituto Hondureño de Seguridad Social - IHSS)

All employees receiving salaries from a corporation are required to contribute to the Social Security system, with the contribution amount determined by their total compensation.

For the benefit, which is administered by the IHSS, the contribution rate will be 3.5% for the employer, 2.5% for the employee and 0.5% for the state.

Honduran Pension Plan or Private Contribution Regime. (Régimen de Aportaciones Privadas - RAP)

The contributing employer must withhold 1.5% of the ordinary monthly salary of each employee, which must be paid into the RAP, together with the employer's contribution of 1.5%, to complete a total of 3% that will be recorded as savings in favor of the employee. Special formulas apply for this calculation.

National Institute for Professional Education (Instituto de Formación Profesional - INFOP)

Corporations or legal entities are liable to contribute 1% of the total amount of salaries and accrued wages to INFOP.

Indirect taxes

Sales tax

Sales tax is a value-added tax imposed on the final domestic consumption of most goods and services supplied by entities in Honduras. The tax is applicable to all sales within the territory of the republic. It is applied in a non-cumulative manner at the importation stage and at each stage of sale of the goods and services as established by law.

The current sales tax rate is 15% or 18%, however this tax is not imposed on all supplies or services. Exempt products and services include exported goods and services, prescription drugs, medical devices, basic groceries, health care services, educational services and most financial services.

Land transfer tax

A transfer tax is payable on any acquisition of real property. The transfer tax is payable regardless of whether the acquisition is in respect of a legal or a beneficial interest in real property. The rate of land transfer tax is 1.5% of the total value of the transaction or the market value of the real property.

Municipal Taxes

Although in most municipalities, a real estate ownership tax and an industry, commerce, and services tax applies, each municipality provides a different formula for the calculation of these taxes. To initiate operations, every company must establish a legal relationship with the state, which also requires a connection with the local municipality. This involves obtaining necessary permits, such as operational permits for each branch and signage permits, and fulfilling tax obligations as stipulated by municipal law. These taxes include real estate taxes, industry and commerce taxes, and service taxes, as well as fees for municipal services including, public lighting and waste management. These tax rates vary from municipality to municipality due to their autonomy. Noteworthy taxes include:

Industry, commerce, and service tax

Taxpayers will be taxed according to their volume of production, income or annual sales, according to the following table:

Property tax

The payment of property taxes is a municipal obligation that individuals and legal entities must comply with according to municipal law, created and protected by the municipal corporation, which determines that "the property tax is levied on the value of the property located within the limits of the municipal district..." and is due on August 31 of each year.

The property tax is levied annually on the value of the real estate property or patrimony that is registered as of May 31 in the offices of the municipal cadaster corresponding to each municipal corporation. In addition, the value of the properties or real estate assets contained in the affidavits issued by each municipal office may be accepted and their corresponding appraisal may be requested at a later date. Please note that the affidavits are submitted at the time of filing the registration of the property with the municipality and includes the property's value. In order to determine the value to be paid for the real estate tax, the provisions of Article 76 of the Law are taken as a reference, which state the following:

"The property tax shall be paid annually, applying a rate of up to HNL3.50 per thousand, in the case of urban property and up to HNL2.50 per thousand, in the case of rural real estate." Likewise, the amount to be paid shall be calculated based on the cadastral value and, in its absence, on the value declared by the taxpayer.