Global Tax Alert (News from Americas Tax Center) | 28 January 2014
Honduras adopts tax reform
Honduras's Decree No. 278-2013, published in the Official Gazette on 30 December 2013, adopted tax reform, referenced as the Law on public finances, the control of tax exemptions and anti-evasion measures (the Reform). The Reform is effective 1 January 2014.
Fines, surcharges and interest
The Reform repeals a statute enacted in 2002 that made it possible in practice for taxpayers or withholding agents to avoid paying fines, surcharges and interest charged by the tax authorities in their tax audits.
This is a major change that removes the incentive taxpayers had to postpone paying their taxes due until ordered to do so in the context of a tax audit.
Alternate minimum income tax1
The Reform creates an alternate minimum income tax with the inclusion of new Article 22-A to the Income Tax Law. Under Article 22-A, individuals or corporations domiciled in Honduras with gross income for a given tax period equal to or greater than L. 10 million (approx. US$481,761) must pay an income tax computed by applying a rate of 1.5% to gross income. For legal entities (i.e., legal persons, business entities companies), the income tax must be computed by applying the ordinary rate of 25% to net income and by applying the alternate minimum tax rate to gross income. The income tax payable is the higher amount resulting from the calculations.
This minimum income tax rate will be reduced to 0.75% for individuals or legal entities producing or selling the following products or services: cement production and distribution, public utility services provided by state-owned companies, products and medicines for human use (at importation and production levels), oil and derivatives, bakery-related products.
Re-establishment of the temporary Social Contribution Tax
The Reform reinstates the temporary Social Contribution Tax, in place since 2003 and scheduled to cease applying as of tax year 2015. Corporations, with the exception of those included in the Special Import and Tourism Regimes, will have to pay the temporary Social Contribution Tax at a rate of 5% (rate would have been 4% in 2014 without the reform) applied to the excess of the net taxable income above L. 1 million (approx. US$ 48,192) starting in the 2014 tax year and thereafter.
Dividend payments made to Honduran entities are now subject to the 10% dividend tax. They were previously not subject to withholding taxes.
Special contributions for the strengthening of social inclusion
The Reform establishes a tax on the increase in value of real property or capital gains derived therefrom. The rate is 10% and applies on each registration made at the Property Registry in respect of real estate property subject to this tax. The Secretary of Finance will issue regulations on this tax and will determine the form of payment for this tax.
Withholding tax on capital gains
The Reform subjects transfers of real property or rights and securities carried out by nonresidents to an increased 4% (previously 2%) withholding tax over the transfer value to be withheld by the acquiring party.
Special cases of withholding taxes when the payor is the Honduran State
A withholding tax of 10% applies to capital gains arising from the sale of goods, indemnifications received, sales of rights / titles (e.g., real estate2) when the buyer or payor, as the case may be, is the Honduran State.
A withholding tax of 12.5% is imposed on payments made by the Honduran State for easements, rights of way and similar type of payments made to individuals or legal entities.
Elimination of exemptions
The Reform eliminates all customs exemptions on the import of goods.
Tax exemptions that applied to certain local sales are also eliminated.
All exemptions granted to nonprofit organizations of public interest are also eliminated, regardless of the activities performed by such organizations.
Limited exceptions3 to the above are set out in the Decree.
Limitations to exemptions for call centers and outsourcing of business services
Tax exemptions available for call centers and the outsourcing of business services have been limited in scope.
The Reform narrows the exemption available under the Law to Promote Call Centers and the Outsourcing of Business Services for customs duties, charges, surcharges, consular fees, domestic taxes on consumption and other taxes on the import of equipment, tools, spare parts, accessories, office furniture and equipment, and other assets that have a direct nexus with the operation and implementation of the incentivized activity. Prior to the Reform, the exemption also applied in the case of an indirect nexus.
Elimination of income tax exemptions
All income tax exemptions established through decrees and special laws are eliminated with limited exceptions set out in the Decree.
The most relevant exemptions that remain are those granted by the Honduran Constitution, International Conventions or Treaties, Free Trade Zone Law, Industrial Processing Zones, Law for the promotion of the electric power generation with renewable resources and its reforms, among others.
Before the Reform's enactment, some tax exemptions were available to businesses of the fast food and beverages sector under a special law promoting tourism. The Reform eliminates these exemptions, but as of the end of the ongoing exemption period, which is specific to each taxpayer. In other words, the beneficiaries will continue enjoying the exemptions until the end of the exemption period applicable to them.
The ordinary sales tax rate of 12% has been increased to 15%.
The sales tax rate applicable to alcoholic beverages and cigarettes has been increased from 15% to 18%.
The list of tax-exempt goods from the basic food basket is modified, as well as tax-exempt services.
Control over exemptions and anti-evasion measures
A term of up to 12 years is established when the law granting tax exemptions or benefits does not provide a term.
Persons or legal entities that have enjoyed tax exemptions or benefits granted through decrees or special laws may not apply for another special taxation regime at the end of the term for which the state granted those exemptions or benefits.
The Secretary of Finance and the tax authorities will establish regulations under the Reform within 30 calendar days of the Decree's effective date.
Air and maritime transport companies
Air and maritime transport companies incorporated abroad with operations in Honduras shall now be subject to income tax as follows: their net taxable income shall amount to 10% of their total annual Honduran-source gross income, which is subject to a 25% income tax rate.
Tax on the import of petroleum and derivatives
The Reform increases the tax on the import of petroleum and derivatives.
1. This tax was enacted in 2010, but was declared unconstitutional in 2011 by the Supreme Court of Justice for being retroactive and confiscatory.
2. Note that the Property Registry (i.e., in Spanish Instituto de la Propiedad) will not register a real property transfer until the payment of any capital gains tax due on the sales of the underlying property to the Honduran State.
3. E.g., tax-exemptions under the following laws remain available: Temporary Import Regimes, Law Incentivizing Tourism (as amended), Law Creating Free Zones under Decree No. 35 (as amended), Law Promoting the Generation of Electric Power and Renewable Resources contained in Decree 70-2007 (as amended).
For additional information with respect to this Alert, please contact the following:
Ernst & Young S.A. de CV, San Pedro Sula
- • Karem Marquez
+504 557 7921
Ernst & Young, S.A., San José, Costa Rica
- • Alexandre Barbellion
+506 2208 9800
- • Rafael Sayagues
+506 2208 9880
EYG no. CM4132