For investors or companies looking to enter the Honduran market, now might be a good time. Violent crime has been on the decline since 2012, and the new president, Xiomara Castro, has made gains in fighting the deep-seated corruption that is found in every facet of society. Whatever the reason, investors and foreign firms must carefully consider the policies surrounding accounting and taxation in Honduras before deciding to incorporate there.
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Accounting and taxation Honduras: How much tax will companies have to pay?
What follows are the tax rates companies are required to pay, with respect to accounting and taxation in Honduras:
- The corporate tax rate in Honduras is 25 percent of a company’s taxable income, which must be paid annually
- In addition to corporate tax, business entities are subject to a 5 percent surtax on their annual taxable income above $1.13 million HNL ($46,000 USD)
- An alternative tax of 1.5 percent must be paid by business entities on annual gross income equal to or above $11.3 million HNL ($460,000 USD), meaning it’s imperative that you have a sharp accounting and taxation team in Honduras to ensure compliance
- Investment income and capital gains made in Honduras are taxed at 10 percent
- A 10 percent tax is levied on dividends and interest payments on foreign companies when the income was generated in Honduras
- Capital losses can be deducted from capital gains tax, and foreign exchange losses can be deducted as an expense
Free Trade Zones: Do the accounting and taxation regimes in Honduras still apply?
In a word, no. Foreign and local companies in the commercial, manufacturing and tourism sectors can avoid the burden of accounting and taxation in Honduras by taking advantage of one of the country’s 39 Free Trade Zones (FTZs) – 24 of which are privately owned and operated.
Most of the companies found operating in a Honduran FTZ include textile companies, sporting goods makers, electronics assembly firms, auto parts makers, agribusiness and tourism. Access is not limited to these sectors, but any business that wishes to set up operations in a Free Trade Zone must first receive permission from the Honduran Ministry of Economy.
Foreign and local companies conducting business in an FTZ enjoy a host of tax exemptions, including:
- Import tax exemption (which otherwise can be as high as 20 percent)
- A 10-year tax exemption on profits from the sale of goods outside of Honduras
- Companies operating in an FTZ enjoy exemptions on national and municipal income taxes for a period of 10 years
- Exemption on sales (VAT) taxes (which range between 15-18 percent)
- Tourism-related businesses operating in a Honduran Tourism Zone are exempt from paying import taxes, VATs, and income taxes
- The tax-free exchange of currencies
Accounting and taxation in Honduras: 5 key corporate tax regulations
Thinking of setting up shop in Honduras? Here are some key points about the Honduran corporate tax regime to keep in mind:
1. Territorial Income – 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 only on earnings that come from Honduran sources.
2. Resident vs. Non-Resident – Resident and non-resident legal entities (companies) are taxed differently in Honduras. Resident companies are taxed on a progressive income tax schedule ranging between 0 and 25 percent. For non-resident businesses, gross income obtained from a Honduran source is taxed between 10 and 25 percent, depending on the kind of business activity being done.
3. Municipal Taxes – In Honduras, municipal taxes are imposed on companies that conduct business in a municipality. Each municipality provides its own tax calculation formula, including any provision for tax breaks that a municipality might be offering.
4. Withholding Tax – The Revenue Administration Service (which goes by the Spanish acronym SAR) tax authority imposes a withholding tax on non-residents who receive dividends, interest payments, rents, royalties, management fees, etc., from a Honduran company or a foreign business domiciled in the country.
5. Companies with Shareholders – Companies in Honduras that offer shares may be comprised of both resident or non-resident shareholders, quota holders or directors – including a Honduran branch of a foreign business. The company’s domicile does not impact its income tax liability.
When forming a company in Honduras, navigating the laws, rules and requirements of a new jurisdiction can be daunting. That’s why when it comes to accounting and taxation in Honduras, it is best to seek local accountancy and legal professionals to help make the incorporation process as painless as possible.
Biz Latin Hub can help you with accounting and taxation in Honduras
At Biz Latin Hub, we provide integrated market entry and back-office services throughout Latin America and the Caribbean, with offices in Bogota and Cartagena, as well as over a dozen other major cities in the region. We also have trusted partners in many other markets.
Our unrivalled reach means we are ideally placed to support multi-jurisdiction market entries and cross border operations.
As well as knowledge about accounting and taxation in Honduras, our portfolio of services includes hiring & PEO, accounting & taxation, company formation, bank account opening, and corporate legal services.
Contact us today to find out more about how we can assist you in finding top talent or otherwise doing business in Latin America and the Caribbean.