Agreement 222-2020

PURPOSE: This Tax and Customs Instruction has the purpose of developing the provisions contained in Decree No. 119-2016 published in the Official Gazette "La Gaceta" of August 25, 2016 and its Errata published in the Official Gazette "La Gaceta" on September 2, 2016, which contains: a) Provisions applicable to the reform of Article 15 subsection e) of the Sales Tax Law; and, b) Provisions applicable to the Exemption of Sales Tax for the Agro-Industrial Sector.

SCOPE OF APPLICATION: The regulations contained in this Instruction are of public order, mandatory compliance and applicable throughout the national territory for all acts, facts and situations regulated in Decree No. 119-2016 and its Errata. TITLE II PROVISIONS APPLICABLE TO ARTICLE 15, SUBSECTION e) OF THE SALES TAX LAW CHAPTER I OF THE DEFINITIONS APPLICABLE TO

, SUBSECTION e) OF THE SALES TAX LAW

DEFINITIONS. For the application of the exemption from payment of Sales Tax established in Article 15 subsection e) of the Sales Tax Law and its reforms, the following terms are defined: 1. FERTILIZER: Material or substance of natural or artificial origin that is applied to the soil to improve its physical-chemical and microbiological conditions to improve nutrient supply to crops and improve their yield. 2. BALANCED FEED: Mixture of ingredients, additives or premixes that is used to be supplied directly to animals for the purpose of adequately meeting nutritional requirements, according to the species and function for which it is intended. 3. LIVE ANIMALS: Any being from the animal kingdom, which are living beings, that are born, grow, feed themselves, breathe, move, have sensory organs, reproduce and die. 4. RODENT CONTROL SUBSTANCES: Toxic substances or mixture of substances or any device used to control rodents. 5. CALCIUM AND MAGNESIUM AMENDMENT (Ca, Mg): They are soil conditioners containing one or both of the elements Calcium and Magnesium, generally in the form of Oxide, Hydroxide or Carbonate intended mainly to maintain or raise pH. 6. MAJOR SPECIES: Larger domestic species (cattle, sheep and equines) of productive, economic and commercial interest. 7. MINOR SPECIES: Smaller domestic species (poultry, pigs, goats, rabbits, fish and bees) of productive, economic and commercial interest. 8. EXEMPTION: All those provisions approved by the National Congress and expressed in the tax or customs regulation with the rank of Law that create the taxes that free in whole or in part from the payment of the tax obligation. 9. FERTILIZERS: It is a product of natural or synthetic origin, which when applied to soil, substrate or foliage, supplies it with one or more nutrient elements available to the plant and can be used as a component of the formulation of another fertilizer. 10. CA, MG, NA, S FERTILIZERS: Fertilizers that contain calcium, magnesium, sodium and sulfur and do not contain nitrogen, phosphorus and potassium in reportable quantities. 11. COMPOUND FERTILIZER (chemical): Consists of a formulation obtained by chemical combination that contains at least two of the primary nutrient elements and is prepared by processes that involve chemical reactions between technical materials. 12. INORGANIC FERTILIZER: Those nutrients declared with inorganic salts obtained by extraction and/or by a physical and/or chemical industrial process. 13. MIXED FERTILIZER (physical mixture): It is a mixture formed by two or more technical materials mixed or granulated together without chemical reactions occurring between said materials including mixtures of dusting powders, granulated products and liquid products. 14. SIMPLE PHOSPHATE FERTILIZERS (P): Fertilizers that contain phosphorus in reportable quantities and may contain other elements, but do not have a reportable content of nitrogen and/or potassium. 15. SIMPLE NITROGEN FERTILIZERS (N): Fertilizers that contain nitrogen in reportable quantities and may contain other elements, but do not have reportable content of phosphorus and/or potassium. 16. SIMPLE POTASSIUM FERTILIZERS (K): Fertilizers that contain potassium in reportable quantities and may contain other elements, but do not have reportable content of nitrogen and/or phosphorus. 17. SIMPLE FERTILIZER OF MACRO AND MICRO NUTRIENTS: It is any product that contains only one of the nutrient elements. 18. CHEMICAL FORMULA: Homogeneous product that results from the chemical reaction that occurs between two or more compounds, involving physical and chemical changes of the initial compounds. 19. FUNGICIDES: Substances used to prevent the growth or eliminate fungi and molds harmful to plants, animals, and humans. 20. HERBICIDES: Phytosanitary product used to eliminate undesired plants or weeds. 21. AGRICULTURAL TOOLS: Agricultural tools are tools for tillage and processes associated with agriculture, they are utensils used as instruments to help carry out manual activities in seeding and planting, they serve as implements for tasks that involve breaking, digging and opening ditches, tilling the land; cleaning, clearing, pruning, harvesting and collecting; threshing, sifting, selecting, drying and grinding. 22. AGROINDUSTRIAL TOOLS: Manual utensils or instruments used in the economic activity that comprises the production, industrialization and commercialization of agroindustrial products. Includes utensils used for adding value to agricultural products, livestock of major and minor species, forestry and fishing. 23. INSECTICIDES: Insecticides are chemical products or devices used to control or kill disease-carrying insects. They are classified in several ways, either by their chemical composition, toxicological action or their method of penetration. The two main types of insecticides are organic and inorganic; organic ones contain carbon and inorganic ones do not. Insecticides come in a wide range of formulas and are used to kill a variety of pests. 24. RAW MATERIAL: That which is necessary and indispensable for the production and elaboration of the final marketable product, whether as an intermediate good or a final product to the consumer. 25. VEGETATIVE MATERIAL FOR SEXUAL AND ASEXUAL PROPAGATION: Genetic material for the multiplication and reproduction of agricultural crops different from seed. 26. VEGETATIVE MATERIAL FOR PLANTING: Any part of the plant or the same living plant intended to be multiplied, planted and cultivated. 27. PESTICIDES: It is any substance or mixture of substances intended to prevent, destroy or control any pest, including vectors of human or animal diseases, undesired species of plants or animals that cause harm or that interfere in any other way in the production, elaboration, storage, transportation or commercialization of food, agricultural products, timber and timber products or animal feed, or that may be administered to animals to combat insects, arachnids or other pests in or on their bodies. The term includes substances intended to be used as plant growth regulators, defoliants, desiccants, agents to reduce fruit density of the harvest to protect the product against determination during storage or transportation. 28. AGRICULTURAL PRODUCTION: It is the generic denomination of each of the products of agriculture, the human activity that obtains raw materials of plant origin through cultivation. Products from forest exploitation are not strictly considered agricultural products. 29. AGROINDUSTRIAL PRODUCTION AND TRANSFORMATION: It is any process aimed at adding added value to a primary good of plant or animal origin, in order to create a final marketable product. 30. POULTRY PRODUCTION: Process that involves the production of birds or eggs. 31. FISH PRODUCTION: Process that involves the production of any fish species for consumption purposes. 32. PHARMACEUTICAL PRODUCT FOR VETERINARY USE: It is any substance or its mixtures that can be applied or administered to animals, for therapeutic, prophylactic, immunological, diagnostic purposes or to modify physiological and behavioral functions. 33. RATICIDES: Synonymous with Rodent Control Substances or rodenticides. 34. RTN: National Tax Registry. 35. SEED: Any plant structure intended for sexual reproduction or asexual multiplication of a species, such as botanical seed, cuttings, stakes, grafted-rootstocks, buds, bulbs, rhizomes, tubers, in vitro and others. CHAPTER II PROVISIONS APPLICABLE TO NATURAL PERSONS

INDIVIDUAL MERCHANTS: For purposes of applying the provisions contained in this instruction, Individual Merchants should be considered as "Natural Persons," in accordance with what is established in Article 29 of the Sales Tax Law and Article 1 of Decree No. 135-99 published in the Official Gazette La Gaceta dated October 8, 1999.

EXCEPTION REGISTRY OF EXEMPTED PERSONS: Natural persons to enjoy the benefit of exemption MUST NOT REGISTER in the Registry of Exempted Persons administered by the State Secretariat of the Finance Department through the General Directorate of Customs Franchise Control. CHAPTER III PROVISIONS APPLICABLE TO LEGAL ENTITIES

REQUIREMENTS IN IMPORTS: In imports of exempt goods, legal entities must present documentation in accordance with applicable customs legislation or any other document that must be complied with in accordance with Law.

REQUIREMENTS IN LOCAL PURCHASES: In local purchases of exempt goods, legal entities must present their National Tax Registry (RTN).

TAX RECEIPT: Transfers of exempt goods carried out locally must be documented with an "invoice," in accordance with what is established in the Regulation of the Billing Regime, Other Tax Documents and Tax Registry of Printing Presses and its reforms. CHAPTER IV OF THE APPLICATION OF THE BENEFIT OF EXEMPTION

RAW MATERIAL: The exemption from payment of Sales Tax in local purchases or imports of raw material for agricultural production, agroindustrial production, major and minor species, poultry and fish, balanced feeds and balanced feeds in their final presentation, excepting those intended for pets shall be carried out in accordance with the following:

TOOLS: The exemption from the payment of Sales Tax on local purchases or imports of tools for agricultural production and agroindustrial production in larger and smaller species, poultry and fish, shall be applied in accordance with the following:

PHARMACEUTICAL PRODUCTS FOR VETERINARY USE: The exemption from the payment of Sales Tax on local purchases or imports of pharmaceutical products for veterinary use, shall be applied in accordance with the following: CHAPTER V FINAL PROVISIONS

PRECISION CODE: The Customs Administration is instructed to create the necessary precision codes in the Automated System of Customs Revenue of Honduras (SARAH) for the application of what is established in this Directive.

ENJOYMENT OF EXEMPTION: To enjoy the benefit of an exemption, it shall not be subject to authorizing administrative procedures.

HIGHLY PERSONAL CHARACTER: Exemptions and exonerations are highly personal and only cover the taxes expressly indicated in the Law.

CONNECTED OBLIGATIONS: Tax or customs exemption does not exempt the taxpayer from the duties of submitting declarations, withholding taxes where applicable, declaring their domicile and other matters provided for in the Tax Code. TITLE III PROVISIONS APPLICABLE TO THE EXONERATIONS OF ARTICLE 2 OF DECREE No. 119-2016 CHAPTER I OF THE DEFINITIONS APPLICABLE TO

OF DECREE No. 119-2016

DEFINITIONS: For the application of the exoneration from the payment of Sales Tax on goods in the import or local purchase established in Article 2 of Decree No. 119-2016 published in the Official Gazette La Gaceta on August 25, 2016, the following terms are defined: 1. ACCESSORIES: Those elements that form a complementary part of the operating system of a machine allowing it to develop its determined function, which must be compatible through an electronic, mechanical or manual connection. 2. CERTIFICATE OF REGISTRATION OF EXONERATED PERSONS: Document with annual renewal that certifies being registered in the Registry of Exonerated Persons administered by the General Directorate of Control of Customs Franchises of the State Department in the Ministry of Finance. 3. PACKAGING AND CONTAINERS: Container of a product, designed and produced to protect and/or preserve it adequately during its transport, storage and delivery to the consumer or client. 4. EQUIPMENT AND IMPLEMENTS: The collection of utensils, instruments and special apparatus that accompany the machinery in order to shred, open, fumigate, spray, place, distribute, inject, pack, pulp, shell, debone, grind, chop, irrigate and other actions typical of agricultural and agroindustrial production. 5. IRRIGATION EQUIPMENT AND MATERIALS: Set of structures that make it possible for a determined area to be cultivated with the application of water necessary for the plants. 6. EXONERATION: Total or partial waiver of the payment of the tax or customs obligation approved by the National Congress, whose individual processing corresponds to the Executive Power, through the State Department in the Ministry of Finance (SEFIN). 7. MACHINERY: That which has operational autonomy through a combustion engine and/or electrical energy, as well as manual or animal traction having a set of movable and fixed pieces or elements allowing to harness, regulate, direct and transform the energy it uses to perform work for specific purposes. 8. INDUSTRIAL CLEANING MATERIAL: Chemical compounds that are characterized basically by their pH, also called hydrogen potential, used in the cleaning of machinery, equipment and its implements, accessories, in an industry. 9. SPARE PARTS: They are pieces or replacement parts that are used to replace the originals in machines, accessories and/or equipment and implements of primary production and agroindustrial processing, which due to their daily use have suffered deterioration or breakdown. 10. IRRIGATION SYSTEM FOR AGRICULTURE: Set of structures that allows cultivation consisting of a series of components, which will depend on whether it is surface irrigation (mainly in its flood irrigation variant), by aspersion, or by drip. CHAPTER II PROVISIONS APPLICABLE TO NATURAL PERSONS (INCLUDING INDIVIDUAL MERCHANTS)

REGISTRATION: For the benefit of exoneration, natural persons must register in the "Unique Registry of Natural Persons for the Agricultural Sector" administered by the State Department in the Ministry of Agriculture and Livestock (SAG). The State Department in the Ministry of Agriculture and Livestock (SAG) shall provide proof of registration, assigning an identification number, which the taxpayer shall use to make their local purchases and imports, certifying to be a beneficiary of the exoneration.

REQUIREMENTS IN IMPORTS: Natural persons benefiting from the exoneration in imports must present the following:

• a)

  Documentation in accordance with applicable customs legislation;

• b)

  The identification number of the registry issued by the State Department in the Ministry of Agriculture and Livestock (SAG).

REQUIREMENTS IN LOCAL PURCHASES: Natural persons benefiting from the exemption in local purchases must submit the following:

• a)

  Identification number of the registry issued by the State Department in the Office of Agriculture and Livestock (SAG);

• b)

  National Tax Registry (RTN). CHAPTER III PROVISIONS APPLICABLE FOR LEGAL ENTITIES

REGISTRY: For the benefit and enjoyment of the exemption, legal entities that directly intervene in the final commercializable agroindustrial product must register in the Registry of Exempted Persons administered by the State Department in the Office of Finance (SEFIN) through the General Directorate of Control of Customs Franchises (DGCFA) in accordance with what is established in Article 58, numeral 2 of the Tax Code.

LOCAL PURCHASES: Legal entities benefiting from the exemption in local purchases must submit the following:

• a)

  Certificate of the current Registry of Exempted Persons;

• b)

  National Tax Registry (RTN).

IMPORTS: Legal entities benefiting from the exemption in imports must submit the following:

• a)

  Documentation in accordance with applicable customs legislation;

• b)

  Certificate of the Registry of Exempted Persons;

• c)

  Exempt Purchase Order, which is issued after obtaining the Exemption Resolution.

INITIATION OF PROCEDURE: For the initiation of the exemption procedure, legal entities must comply with the following requirements: 1. Complete the form of the Administrative Platform for Exemption Modules of Honduras (PAMEH) approved by the State Department in the Office of Finance for the request for exemption from the payment of Sales Tax without need or requirement to provide digital requirements, documents or supports, being sufficient to indicate that they are registered in the Registry of Exempted Persons; without prejudice to the other requirements established in current laws. 2. Legal entities that are not registered in the Registry of Exempted Persons must carry out the registration and provide the respective documents and digital supports. 3. In the event that the request is submitted by the interested party or direct beneficiary of the exemption, said person must grant legal power to a law professional duly registered and in good standing with the respective Professional Association, who will represent them in the exemption process. 4. Present the physical and digital support of the detailed description of the goods and their tariff classification to the General Directorate of Control of Customs Franchises. 5. Present the certificate of tax solvency for tax obligations subject to the exemption from payment of requested taxes, prior to the issuance of the Exemption Resolution. 6. Present the payment receipt of Two Hundred Exact Lempiras (L 200.00) as payment for the issuance of the Exemption Resolution. 7. Present the payment receipt of Two Hundred exact Lempiras (L 200.00) as payment for the issuance of the Certification of the Exemption Resolution.

PRE-CERTIFICATION: The State Department in the Office of Agriculture and Livestock (SAG), at the request of the interested party, shall certify the goods that directly intervene in the final commercializable agroindustrial product, including those used in the agroindustrial production of major and minor species in accordance with the economic capacity of the taxpayer.

OPINION: In accordance with what is established in Article 28 of the Law of Efficiency in Revenue and Public Spending and its amendments and Article 87 of the Tax Code, once natural persons, legal entities or their legally authorized representatives have provided complete and accurate information within the legal deadlines, the General Directorate of Control of Customs Franchises (DGCFA) must request the issuance of an Opinion from the State Department in the Office of Agriculture and Livestock. In the event that the taxpayer or their legally authorized representatives present a pre-certification of the goods or services, it shall serve as an opinion to the State Department in the Office of Agriculture and Livestock (SAG). The opinion must be issued within a maximum period of ten (10) business days counted from the date of receipt of the request for opinion from the General Directorate of Control of Customs Franchises (DGCFA). In the event of non-presentation of the opinion once the ten (10) business days described above have elapsed, the General Directorate of Control of Customs Franchises (DGCFA) must proceed and substantiate the tax procedure until completion, requesting from the State Department in the Office of Agriculture and Livestock (SAG), the immediate delivery of the documentation presented for the issuance of the requested opinion, without prejudice to the responsibility incurred by the official guilty of the omission.

PERIODICITY OF REQUESTS: The request for an Exemption Resolution must be made annually, providing all documents and digital supports that have been modified in relation to those initially presented and provided in the Registry of Exempted Persons administered by the General Directorate of Control of Customs Franchises (DGCFA) of the State Department in the Office of Finance (SEFIN).

ISSUANCE OF THE RESOLUTION: The State Department in the Office of Finance must issue the corresponding resolution within a maximum period of up to five (5) business days counted from the receipt of the Opinion issued by the State Department in the Office of Agriculture and Livestock (SAG). Once the resolution is notified, the beneficiary shall present to the State Department in the Office of Finance, the Exempt Purchase Orders (OCE) that support their imports, attaching the proforma invoice to it. CHAPTER IV PROVISIONS APPLICABLE TO THE EXEMPTION THAT DIRECTLY INTERVENE IN THE FINAL COMMERCIALIZABLE AGROINDUSTRIAL PRODUCT PRODUCED BY NATURAL PERSONS

MACHINERY, EQUIPMENT AND THEIR IMPLEMENTS: Natural persons are exempted from the payment of Sales Tax in the import or local purchase stage of the goods detailed below:

PACKAGING MATERIALS AND CONTAINERS. Natural persons are exempted from the payment of Sales Tax at the stage of importation or local purchase of the goods detailed below:

EXEMPTION OF OTHER GOODS. Goods that are not described in the lists expressed in this chapter, and that in accordance with what is established in Article 2 of Decree No. 119-2016 corresponds to an exemption, said benefit shall be recognized in accordance with the pre-certifications of goods issued by the Secretary of Agriculture and Livestock (SAG) for the agro-industrial sector. CHAPTER V DOCUMENTATION IN TRANSACTIONS AND MEANS OF CONTROL

FISCAL RECEIPT: The sale of goods to persons exempted in accordance with Article 2 of Decree No. 119-2016 must be documented with an "invoice" in accordance with what is established in the Billing Regulation, Other Fiscal Documents and Fiscal Registration of Printing Houses and its amendments, without the collection of Sales Tax because it is a sale exempt from the payment of said Tax.

PROHIBITION: Goods merchants in the national market may only sell without the collection of Sales Tax to persons legally exempted in accordance with Article 2 of Decree No. 119-2016, a condition that they will verify with the Identification Number issued by the Secretary of Agriculture and Livestock (SAG) in the case of natural persons and the Certificate of Registration of Exempted Persons in the case of legal entities.

REPORT: Importers and goods merchants in the national market who sell without the collection of Sales Tax to persons legally exempted in accordance with Article 2 of Decree No. 119-2016, within the first ten (10) days after the end of each quarter, must submit to the General Directorate for Control of Customs Franchises (DGCFA) a dependency of the State Department of Finance an report detailing the following:

• 1)

  Number of the Central American Single Declaration (DUCA) or equivalent customs document;

• 2)

  Number of the Exempted Purchase Order (OCE);

• 3)

  Quantity and description of the Exempted Goods; and, 4. National Tax Registry (R.T.N.) and name or business name of the purchaser and in the case of a natural person the identification number of the Registry of Natural Persons administered by the Secretary of Agriculture and Livestock (SAG) must be included.

The State Department of Finance through the General Directorate of Tax Policy in coordination with the Honduran Customs Administration must review and update this Instruction in accordance with the current applicable Legal Framework and the adoption of the amendments of the Harmonized System and its adaptation in the Central American Tariff System.

The obligation to update the registry of exempted persons must be annual and done through the written or electronic means available to the State Department of Finance.

Exemptions and exonerations are personal in nature and only comprise the taxes expressly indicated in the Law.

Any legal entity cannot enjoy more than one tax benefit covered by a Special Law that contains provisions of a tax nature.

The State Department of Finance (SEFIN) shall verify and confirm that the tax obligors benefited with exonerations comply with the commitments and objectives stipulated in the project that was submitted to the competent authority at the time. Non-compliance with the commitments results in the cancellation of the benefits granted, except in cases of fortuitous event or force majeure duly proven.

Tax or customs exemption or exoneration does not exempt the taxpayer obligor from the duties of submitting declarations, withholding taxes where applicable, declaring their domicile and other requirements contained in the Tax Code, unless another special law expressly provides otherwise. TITLE IV FINAL PROVISIONS

REPEALS. The technical, tax and customs instructions related to the application of Decree No. 119-2016 and its errata contained in Agreement No. 440-2016 published in the Official Gazette La Gaceta on October 11, 2016, Agreement No. 469-A-2016 published in the Official Gazette La Gaceta on November 2, 2016, Agreement No. 490-2016 published in the Official Gazette La Gaceta on November 21, 2016, Agreement 700-2017 published in the Official Gazette La Gaceta on January 4, 2018, 01-2017 published in the Official Gazette La Gaceta on January 18, 2017, Agreement No. 28-2017 published in the Official Gazette La Gaceta on February 6, 2017, Agreement No. 257-A-2019 published in the Official Gazette La Gaceta on April 27, 2019, are hereby repealed.

EFFECTIVE DATE. This Agreement shall enter into force on the date of its publication in the Official Gazette "La Gaceta". BE IT COMMUNICATED AND PUBLISHED, ROCIO IZABEL TABORA MORALES Secretary of State in the Ministry of Finance MARTHA SUYAPA GUILLEN CARRASCO General Secretary Ministry of Finance AGREEMENT No. 231-2020 Tegucigalpa, M.D.C., April 1, 2020 THE SECRETARY OF STATE IN THE MINISTRY OF FINANCE, CONSIDERING: That Article No. 247 of the Constitution of the Republic establishes that Secretaries of State are collaborators of the President of the Republic in the orientation, coordination, direction and supervision of the organs and entities of the national public administration, in their area of competence. CONSIDERING: That the Constitution of the Republic in Article No. 351 establishes that the tax system shall be governed by the principles of legality, proportionality, generality and equity, in accordance with the economic capacity of the taxpayer. CONSIDERING: That Article 65 of the Tax Code establishes that taxpayer obligors must issue fiscal documents for the activities they carry out and issue them in a manner that allows identification of who issues them and, where applicable, receives them, and the operation in question in accordance with what is established for this purpose in the laws or tax and customs regulations. CONSIDERING: That Article 57 of the Law for the Strengthening of Income, Social Equity and Rationalization of Public Spending as amended by Article 211 Section 3 of Legislative Decree 170-2016, containing the Tax Code, establishes that the Secretary of State in the Ministry of Finance (SEFIN) is empowered to issue the necessary regulations to regulate the issuance, types of fiscal documents and their requirements, the regulation of electronic invoicing, the natural or legal persons that must register, the obligations and prohibitions of these, infractions and administrative sanctions. CONSIDERING: That in accordance with section 15 of Article 29 of the Law of Public Administration and its amendments, the Secretary of State in the Ministry of Finance is responsible for, among other things, everything concerning the formulation, coordination, execution and evaluation of policies related to Public Finance. CONSIDERING: That in accordance with Article 60 of the Regulation of Organization, Functioning and Competence