Agreement 799-1969 - Income Tax Law Regulation

This Regulation supplements the application of the norms contained in the Income Tax Law promulgated by Decree Law No. 25, of December 20, 1963 and the reforms introduced to date in this Regulation.

For the purposes of this regulation, the words defined in Article 8 of the Law shall be understood by the meaning that said provision indicates and by:

• a)

  "Law" the Income Tax Law and its Reforms;

• b)

  "Regulation" this present Regulation;

• c)

  "Tax" the Income Tax;

• d)

  "Directorate" the General Tax Directorate;

• e)

  "Director" the General Director of the General Tax Directorate, and;

• f)

  "Employee" the employees or officials of the Directorate.

Taxpayers are classified as commercial enterprises and individual taxpayers. Commercial enterprises are those defined in Article 8, letter h) of the Law, with the exception of retail merchants referred to in the Commercial Code in its Article 446. In cases where a farmer or rancher is also engaged in the purchase and sale of agricultural products, they shall be subject to the obligations of commercial enterprises. Individual taxpayers are natural persons whose taxable income comes mainly from their personal labor such as salaries, wages and pensions; the practice of a profession, art or trade; farmers and ranchers; retail merchants as defined by the Commercial Code in its Article 446 and any other taxpayer not classified as a commercial enterprise.

The Directorate is responsible for all matters concerning the application of the Law and this Regulation.

In their proceedings before the Directorate, the taxpayer may appear personally or through a representative appointed in accordance with the provisions of the Administrative Procedures Code and the Organic Law of the Bar Association of Honduras.

The domicile of the taxpayer shall be determined in accordance with the norms of the Civil Code. The taxpayer must provide their domicile in the returns and in all petitions submitted to the Directorate. Likewise, they shall be obliged to communicate to the Directorate any change of their domicile, the last one communicated being considered as such. TITLE I OF THE SUBJECT MATTER OF THE TAX

The tax applies to all income or rents produced in the territory of the Republic, and to those whose source is found abroad when they correspond to persons domiciled or resident in the country. The tax affects all classes of income or rents in the manner indicated in the second paragraph of Article 1 of the Law, excepting only those that the Law enumerates in its Article 10. Capital gains are also considered as taxable income.

Income is all income that a person receives from capital, personal labor or a combination of both. Gains or losses is the positive or negative result of operations pertaining to the line of business or activity of a taxpayer. Gains or losses is the positive or negative result of operations conducted on property or securities that do not constitute the principal or habitual line of business of a taxpayer, such as real estate, shares, production assets or similar items. The patrimony of a taxpayer is indivisible and shall be considered as such the totality of assets, rights and obligations.

The sources of income are: Capital, labor and the combination of both. With respect to income derived from capital, it shall be considered to be of Honduran source when the assets constituting the capital are located in Honduras. Equally, the gain from the disposal of shares or securities issued by companies organized in accordance with Honduran law is considered of the same source. With respect to income derived from labor, it shall be considered that the source is Honduran when the service is provided or the work is performed in Honduras. However, in cases of services rendered outside the territory of the country, the source of the income shall be considered to be located in the national territory if they are paid from Honduras. When the income derives from the combination of capital and labor, the location of the source shall be determined by the norm established for income derived from capital.

All income from a Honduran source is taxable, whether it corresponds to persons domiciled or resident or to persons who have no domicile or residence in the country. In the case of income corresponding to persons not domiciled or resident in the country, the tax shall be incurred at the time the income is remitted abroad or when it is credited to an account or placed at the disposal of the beneficiary. In these cases the tax applies to the gross income without any deductions and shall be subject to the withholding norms established by the Directorate. TITLE II OF THE SUBJECT OF THE TAX

The subjects of the tax are:

• a)

  Persons domiciled or resident in Honduras who receive income from sources located in the territory of the Republic or outside it.

• b)

  Persons not domiciled or resident who receive income from sources located in Honduras, and;

• c)

  Transient persons for income derived from sources located in the territory of the Republic, whether they are isolated acts or not, that produce taxable income.

The following shall also be considered subjects of this tax:

• a)

  Merchant vessels that navigate under Honduran registry or flag. For these purposes, these vessels shall be considered as persons domiciled or resident;

• b)

  Foreign merchant vessels that receive income from a Honduran source. For these purposes, these vessels are considered as persons not domiciled or resident.

• c)

  Inheritances while they remain undivided. For these purposes, the undivided inheritance shall be considered as a person and shall have the same obligations and rights that would have corresponded to the deceased.

• d)

  Patrimony administered by any person by virtue of an office, trust, or destined for a determined purpose, and;

• e)

  The consolidation of several enterprises in the manner indicated in Article 24 of the Law.

Legal representatives with administration of property shall be responsible for the payment of the tax and other obligations affecting those they represent.

Each of the spouses who has income subject to separate management is a different subject of the tax and both are obliged to pay it separately when applicable. The child of the family who has taxable income derived from their professional or industrial peculium is subject to the tax.

Persons who have remained in the territory of Honduras for more than three months in the civil year corresponding to the tax are considered residents in the country, in addition to cases where residency is determined by other legal provisions. Foreigners domiciled abroad but who have an agent or representative accredited in Honduras shall be considered as residents for the purposes of applying the tax, for income obtained from operations executed within the territory of the republic.

The crew members of merchant vessels sailing under the Honduran flag shall be considered residents and their place of domicile shall be determined in accordance with Article 6 of this Regulation. TITLE III ON EXEMPTIONS CHAPTER 1 ON EXEMPT INCOME

Only the income enumerated in Article 10 of the Law and those exempted in special laws are exempt from the tax.

Income consisting of prizes from the National Lottery of Charity of Honduras is exempt from the tax.

Income derived from the investment of pension funds and other social security plans is exempt from the tax, when the funds are maintained in Honduran institutions, such income increases the same funds, and the plan has been approved by the Direction.

In the event that a corporation issues stock with a premium, both in its initial constitutional act and in subsequent increases of capital, the premium paid by the shareholders does not constitute taxable income, insofar as such premium must form part of the corporate assets as a contribution by the shareholders and in the form of a reserve, from which the corporation may not dispose to be distributed, either directly or indirectly, among the partners by reason of profit, gains or similar concept, because in the event that these characteristics are not observed it shall constitute taxable income for the corporation. This provision does not preclude the aforementioned special reserve from being used for purposes of reconstructing capital, amortizations, or for charitable purposes. The Direction is empowered to supervise and control the destination of the premium. CHAPTER 2 ON EXEMPT PERSONS

Only the persons enumerated in Article 7 of the Law and those expressly declared exempt in special laws are exempt from the tax.

A charitable institution is understood to be one whose essential objective is the regular performance of works of charity or public benefit, directed to the community in general without exclusion or limitation of determined persons. In order to enjoy the tax exemption, charitable institutions must accredit that they have been officially recognized by the competent national agency. Organizations organized with scientific, political, religious, cultural or sports purposes that do not pursue profit objectives must request the Direction to declare them exempt from the tax. The Direction may require all antecedents that it deems necessary to verify that the purpose that makes the exemption appropriate is fulfilled. Likewise, employers' or professional associations and legally constituted labor unions are exempt from the tax. The exemption resolutions issued by the Direction may be suspended or annulled by it if it verifies that the elements that determined their granting have ceased to exist.

Members of the Diplomatic or Consular Corps are understood to be only those persons accredited as such before the Government of the Republic. National or foreign employees who provide services in such representations are not considered among them. Members of the Diplomatic or Consular Corps shall be exempt from the tax on income received from the country of origin only in cases where equal treatment is reciprocally granted to Honduran representatives accredited in the same capacity before the respective foreign governments. In this case, it is presumed that reciprocity exists unless the Ministry of Foreign Relations communicates to the Direction that this is not the case. This exemption shall not include income subject to taxation received from acts performed in Honduran territory. CHAPTER IV ON DETERMINATION OF THE TAX BASE CHAPTER 1 ON THE TAX BASE

Taxable income is constituted by the difference between gross income less the sums that the law allows to be deducted, except as provided in Article 10.

The rules on determination of gross income apply to all taxpayers in the same manner. To determine gross income, the total income received or accrued by the taxpayer during a taxable period must be computed, regardless of the form or source of such income.

It is understood that any increase in assets experienced by the taxpayer during a taxable period forms part of gross income, including capital gains, excluding only the income that the law indicates. The income of minors shall be added to that of their legal representative who enjoys it in accordance with the rules of the Civil Code, with the exception of income derived from the professional or industrial capital of the minor, which remains subject to general rules.

In order to exclude from the computation of gross income the receipts mentioned in Article 10 of the Law, their amount and origin must be substantiated to the satisfaction of the Direction. The Direction may require any information or antecedent in relation to the aforementioned income.

In cases in which the income of a taxpayer is paid in kind, the market value of the goods at the time of delivery shall be computed for the purposes of determining income.

The value of improvements made by the tenant and left for the benefit of the owner of the property at the end of the contract forms part of the gross income of the lessor, unless he proves otherwise that he has not benefited from the improvements.

If the taxpayer occupies another's house without paying any rent, he must compute as income what he would ordinarily have to pay per year if the rent were his responsibility. CHAPTER 3 ON CAPITAL GAINS

Capital gains consist of benefits, income, profits or any other increase in assets derived from the disposition or transfer of real property; mining concessions; rights; quotas or shares in corporations, assets of the fixed assets of an enterprise; water rights; intellectual or industrial property; commercial goodwill and any other that meets the characteristics referred to in Article 8.

Capital gains obtained from games of chance, raffles, lotteries, contests or other similar income also constitute capital gains, except those indicated in Article 18.

Operations or transactions susceptible to producing capital gains or losses, executed during a taxable period, must be considered in their total aggregate. If the aggregate of operations results in gains or income, it shall form part of the taxable gross income of the taxpayer, but if the aggregate of operations results in a loss, it may not under any circumstance be deducted from the gross income of the taxpayer that comes from income or profits from its ordinary operations. Excepted from this provision are operations or transactions of purchase and sale of securities acquired and sold in a constant and permanent manner by natural or legal persons, resident or domiciled in the country who are duly authorized to exercise this class of activities; only in this case shall the gain or loss form part of or be deducted respectively from the total gross income of the taxpayer as any result of normal and ordinary operation. In observance of the foregoing paragraph, the General Directorate shall establish in each case the periods it deems appropriate for the holding of securities. [Amended by Agreement No. 640 of December 2, 1974]

The profit or gain from the transfer of movable or immovable property shall be determined by deducting the adjusted value of the property from the value of transfer. By adjusted value of the property shall be understood its cost or acquisition value plus the value of improvements incorporated thereto, less depreciation allowed by the Directorate, when applicable. When the cost of improvements is not proven by the taxpayer, the Directorate shall proceed to estimate them through evaluation of measures. With respect to property acquired prior to the year 1950, the taxpayer may request from the Directorate the appraisal of the value of the property as of January 1, 1950 and that value shall be considered as cost for the purposes indicated above. In the case of property recorded in the accounting of a taxpayer, the value that appears in the books shall be used to determine the adjusted value of such property. Property acquired by inheritance, bequest and donation shall have for these purposes as adjusted value of the property the cost of the deceased plus the amount of inheritance taxes paid for the property and without prejudice to applying the rules referred to in paragraph 2 of this Article.

In cases where a certain property has no individual cost, either because it forms part of another property or for any cause, the Directorate shall proceed to estimate it considering the total value of the property and the magnitude and characteristics of the part that is transferred.

Capital gain shall be considered realized on the date of transfer of the property that originates it and shall be computed in the taxable period in which the act occurs. When capital gain comes from the transfer of property whose price is received in installments in different fiscal years, the gain shall be understood to be realized in the period indicated by the foregoing paragraph; but taxpayers may request to be allowed to pay the portion of the tax corresponding to such gain in annual installments in the same proportion as the installments of the price payment.

In judicial sales by public auction, when there is a gain, it shall be considered obtained at the moment the sale is approved by the Judge and shall be attributed to the taxable period in which the respective deed became final. In the contribution in kind of property to a corporation at a price higher than the adjusted value of the property, the profit obtained shall be computed on the date of contribution.

In the transfer of property, the value of transfer that shall be taken into account for the purposes of the Law shall be that which the parties have stated in the respective instrument. If it is proven that the value stated in the respective instrument is different from the real value of transfer, the Directorate shall determine such value for the purposes of applying the tax.

In the sale or exchange of the family home, with the purpose of purchasing, obtaining or constructing another family home, if the purchase, exchange or commencement of construction work takes place within a period of six months, counted from the date of the transaction, it shall not be considered that there was any gain, when the amount of the sale or exchange does not exceed fifty thousand lempiras (L.50,000.00) and the sale price or net remainder is destined exclusively and entirely to the purposes indicated above. If there are capital gains and the investment in the new family home is less than the value of the sale of the previous one, the difference shall be affected in the corresponding portion. This benefit shall be granted only to the taxpayer who is the owner of one sole house and who inhabits it with his family. In the case where the sale price exceeds Lps.50,000.00, the portion exceeding that amount shall not enjoy the benefits established in this article.

Revaluations of property that constitute only an accounting transaction shall not be considered capital gains. In case of transfer of the property, to determine its cost value, the amount of the revaluation shall be deducted from the book value. However, it shall be considered that capital gain has existed when the taxpayer disposes of the revaluation value as in cases of canceling liabilities charged against it, issuing and distributing shares charged against the revaluation or in other similar cases.

For the determination of the taxable income of a mercantile enterprise, there shall be deducted from the gross income the ordinary and necessary expenses that have been paid or incurred in the production of income, which are duly recorded and proven.

Ordinary expenses are those in which according to custom the taxpayer must commonly incur. Necessary expenses are those that directly affect income and that bear a due proportion with the amount thereof. The character of ordinary and necessary shall be reasonably appreciated by the Directorate.

Ordinary and necessary expenses incurred during the contributive period shall be recorded establishing the obligation.

The enumeration contained in Article 11 of the Law has only an enunciative merit and consequently does not exclude any other expense that meets the requirements mentioned in the preceding Section.

Damage is any detriment, loss or destruction suffered by property from which income is derived, by causes beyond the will of the taxpayer, such as fire, theft, flood or any other similar cause, and that does not correspond to normal wear and tear of such property. The value of the property shall be considered that which appears in the accounting and if depreciation has been allowed to it, it shall be deducted. In the case of the existence of insurance on the property, the deduction shall be accepted if the indemnity is less than the value of the property and only for the difference not covered by insurance. In any case, the deduction for this concept shall only be accepted provided that the taxpayer proves having exercised the corresponding actions to recover from the damage and only on the portion not indemnified or recovered.

Repairs and maintenance expenses for machinery and equipment, and other assets that produce income, are deductible, regardless of the cause necessitating the repair. The repair of an asset shall be considered a deductible expense insofar as it restores the asset to its normal condition of use; but if it, in any form, adds value to the asset, it shall be understood that such added value is an improvement and as such an investment.

Interest shall be accepted as an expense provided that the taxpayer documents to the satisfaction of the Directorate the origin of the debt, that it was incurred to produce income, and the amount of interest paid.

For tax purposes, depreciation is the allocation of the value of tangible fixed assets, excluding land, by applying in periodic amounts of its cost, charged to results, based on the estimated useful life period, commencing from the date of acquisition. The Directorate shall determine the depreciation percentages taking into account the type of assets and their normal use. For these purposes, it shall prepare depreciation tables that it must keep updated, for which it shall review and modify them whenever it deems necessary. It may also consult exception standards in cases of obsolescence. Depreciation shall be granted only with respect to assets of the taxpayer intended to produce income or to maintain the assets that are the source thereof, that appear in the taxpayer's accounting records and at the value at which they are recorded, without accepting revaluations for these purposes, except in cases where revaluations have been computed as capital gains and taxed with the tax. If the taxpayer does not claim a deduction for this item in a commercial year, the taxpayer does not acquire the right to accumulate it and make the deduction in subsequent years.

Taxpayers who, for any justified cause proven to the satisfaction of the Directorate, believe that any asset in their portfolio has a useful life period shorter than that considered by the Directorate, may request a higher depreciation percentage.

District, municipal, or fiscal taxes and contributions are deductible, except the income tax, incurred in the activities that produce income. In no case shall fines paid by the taxpayer due to infractions or violations that the taxpayer may have incurred be accepted as expenses, nor shall taxes that by legal disposition the taxpayer must surcharge or include in the sale price be accepted.

Contributions intended to form an autonomous social security fund shall be accepted as an expense, provided that the following requirements are met:

• a)

  That the fund be formed with contributions in cash or readily realizable securities. In no case shall a simple reserve in the accounting books for this purpose be acceptable;

• b)

  That the fund be deposited in a Honduran institution;

• c)

  That the administration of the fund be entrusted to a Honduran fiduciary institution and that it be independent of the administration of the taxpayer's business;

• d)

  That the fund be intended to satisfy any of the benefits inherent to social insurance;

• e)

  That the income that the fund may produce shall accrue to the fund itself; and f) That the plan has been approved by the Directorate. In any case, only contributions made after the date of approval of the plan may be deducted.

Organization expenses of an enterprise are deductible but only up to an amount not exceeding 10% of the initial capital of the enterprise. The total deduction shall not be accepted in the year the expenses are incurred but shall be amortized over a period of five years in equal installments. Patents, copyrights, concessions, trademarks, and goodwill shall be amortized in equal annual installments up to their cost or acquisition value over a period equal to the duration of the related right, except for commercial goodwill which may be amortized over five years.

Travel expenses in a reasonable amount are deductible when they are necessary and directly attributable to the business. These expenses shall only include passage, lodging, and meals. SECTION THREE NON-DEDUCTIBLE EXPENSES

Investments are not deductible expenses. Investment is understood to mean any expense incurred on assets that signifies an increase in the patrimony of the taxpayer, whether through the incorporation of new assets or by increase in the value of assets that constitute the business portfolio.

In no case shall gifts, gratifications, commissions, profit-sharing, or other forms of remuneration granted to the persons indicated in Article 12, letter d) of the Law, or to their spouses, be accepted as deductible expenses from gross income, except for the amounts referred to in the following paragraph: Salaries paid to those same persons shall only be accepted if it is proven to the satisfaction of the Directorate that they correspond to work actually performed, necessary for the purposes of the enterprise, and that they are proportional to the quality of the work and importance of the business, and other conditions specified in the Law.

The deduction of interest on capital invested or loaned by the taxpayers, their spouses, relatives, partners, or shareholders is not permitted. This limitation shall not apply in the case that interest is paid to an institution authorized to conduct credit operations. Relatives shall be understood in this case to mean all ascendants and descendants and collateral relatives up to the fourth degree of consanguinity and second degree of affinity.

The Directorate shall reasonably appreciate those cases in which, in its judgment, the losses suffered by a taxpayer correspond to investments of luxury, personal recreation, or other similar purposes. Investments of luxury or recreation are understood to be those made primarily with the purpose of obtaining personal satisfaction that is not measured in money, notwithstanding which, material benefits may be obtained. Consequently, the products of such investments that do not cover their cost shall not be considered as taxable income. In case of covering the cost of production, lucrative investments shall be subject to payment of the tax. SECTION FOUR SPECIAL DEDUCTIONS

Industrial enterprises classified as basic in accordance with the Honduran Industrial Development Law and agricultural and livestock enterprises shall have the right to request the special deductions covered in this section. The fact of being a basic industrial enterprise and of meeting its requirements must be proven by means of the respective classification agreement. These deductions shall not be granted to those enterprises to which a state concession was granted prior to the date of entry into force of the Honduran Industrial Development Law.

Taxpayers wishing to avail themselves of the franchises granted by Article 18 of the Law shall request it in writing from the Directorate; the response issued by the Directorate must be retained by the taxpayer to prove the taxpayer's right to the deduction.

If a taxpayer requests and is granted the application of an accelerated depreciation system, it is understood that for this taxpayer the general depreciation deduction contemplated in letter d) of Article 11 of the Law does not apply.

If a taxpayer requests on a single occasion the special deduction of twenty percent (20%) of the acquisition cost referred to in number 2 of Article 18 of the Law, and it is granted to him, he does not lose by this fact his right to the ordinary deduction for depreciation.

The same companies referred to in Article 58 of this Regulation may request recognition of capital losses but only those related to the assets that the Law designates in its Article 20. Capital losses produced in one fiscal year may be applied against the income of the three following consecutive years. This means that the total loss may be deducted from the income of the following year but if that is not sufficient, the balance may be deducted in the subsequent year; however, the balance remaining in the third year following the year in which the loss occurred cannot be carried over to the next year.

Companies that benefit from the preferential treatment protocol for Honduras under the Central American Convention on Tax Incentives shall accredit their right with the respective agreement that grants such benefits.

Income derived from exports and imports shall be determined in the manner indicated in Article 3 of the Law. The consular service shall communicate quarterly to the Directorate through the Ministry of Foreign Affairs the wholesale purchase or sale price, as applicable, of export or import products, at a determined place and date. For the purposes of the preceding paragraph, the Directorate shall request in writing from the Ministry of Foreign Affairs the information, specifying the list of products for which it requires permanent information and the places from which the background information is needed. Once the aforementioned request is formulated, the Ministry of Foreign Affairs shall take the necessary measures to obtain this information with the greatest accuracy possible.

In the case of companies constituted abroad dedicated to transportation or communications with respect to which it is not possible to establish the amount of their profits, it is presumed that they amount to a minimum of ten percent (10%) of the total amount of their sales made in the country. The representatives of these companies shall be considered to be their agents or agencies constituted in the country.

Companies dedicated to the construction of long-term works shall be subject to the following rules for the declaration and payment of the tax. 1. Companies that maintain a consolidated accounting of their works shall declare and pay the tax in accordance with the profit or gain that results from each taxable period in accordance with general rules. 2. Companies that separately determine in their accounting the cost and profit of each work shall proceed in accordance with the following provisions: a) The profit shall be distributed among the taxable periods that cover its execution in proportion to the value of the portion of the work completed in each period. b) The taxpayer shall declare in each period the portion of profit that corresponds to it. For these purposes, he shall indicate in his declaration the total budgeted cost for the work and the amount of the estimated profit, and shall include as profit of the period the proportional portion of said profit applied to the value of the work performed in the period, in relation to the total budgeted cost, and c) At the completion of the work, the actual profit shall be declared and distributed in the manner indicated in numeral a) of this Article, determining the adjustments that are appropriate in the calculation of the tax.

Only individual taxpayers and natural persons owning a business or commercial enterprise, domiciled or resident in the country, have the right to the deductions established in Article 13 of the Law.

In the case of undivided estates, deductions shall be granted where appropriate for persons whom the deceased was obligated to support and educate, such as the spouse, minor children, and ascendants and descendants who by their physical or mental conditions cannot support themselves. If the estate by its nature must be administered by one of the heirs, a deduction shall be granted for a reasonable salary that is proportionate to the amount of the net taxable income.

The taxpayers referred to in Article 67 have the right to the full deductions of numbers 1 through 5 of Article 13 of the Law, provided that the declared period corresponds to one year. In cases where a person must submit an income declaration for a period of less than one year, the deductions shall be made in the proportional part that corresponds.

The reductions referred to in subsections a, b, and c of numeral 1 of Article 13 of the Law shall be granted with respect to those dependents who lack income or who, if they have income, it must be combined with that of their representative or guardian. In other cases where dependents have their own income, the deduction shall be granted only up to the difference between the amount of the deduction minus the amount of the dependent's income. The reductions indicated in this article shall be granted for the period in which the dependents had such status, counting for these purposes any period of less than one month as a full month.

In the event that the income of a taxpayer derives from the exercise of a profession, art, or trade, the exploitation of a workshop, exclusively from real property, or from any other business of an individual nature, he may deduct the ordinary and necessary expenses to produce the income. These taxpayers shall maintain a book of income and expenses and properly support their entries. In this case, the rules of Chapter 4 of this Title shall be applied to the extent they are appropriate. In the case of farmers or ranchers, in order to be able to make the deductions indicated in number 7 of Article 13 of the Law, they must accredit the deductions claimed in the manner indicated above.

Premiums for endowment or life insurance paid to Honduran insurance institutions shall be deductible from income in accordance with the provisions of Article 13 number 8 of the Law and shall also have the right to the tax credit established in Article 19 letter a) of the same, in cases where it is appropriate according to the requirements indicated in the Law.

The tax rate for taxpayers domiciled or resident in the country is the one established in Article 22 of the Law and shall be applied by income brackets at the percentage indicated in each case, and the total tax shall be the sum of the amounts that result in each bracket.

For the purposes of applying the percentages indicated in Article 5 of the Law, within the concept of income from real property shall be understood to include all income derived from a property such as rent, capital gains produced in its sale, or any other.

For the same purposes mentioned in the preceding Article, the percentage indicated in number 3 of Article 5 shall be applied with respect to salaries, wages, and any other compensation for personal services such as fees, commissions, participations, gratuities, and any other form of remuneration for such services, whether they are rendered within or outside the territory of Honduras. In the case that services are rendered outside Honduras, the tax shall be applied regardless of the amount paid or the period thereof, and in the case that they are rendered within the territory, the tax shall be applied whether they are rendered for a period greater than sixty (60) days or if the sum paid is equal to or exceeds Five Thousand Lempiras (L.5,000.00).

Likewise, to apply the percentage of Article 5 of the Law, for dividends and participations in industrial, commercial, agricultural, and livestock profits, shall be understood any class of income derived from activities that pursue profit purposes, whether the total benefit or profit of the activity or a part of it determined proportionally to the total or in another manner, such as for example the rental or sale of a personal property. TITLE VI OF CREDITS AGAINST THE TAX

Only taxpayers domiciled or resident in the country have the right to the credits referred to in Article 19 of the Law.

Credits against the tax shall only be granted up to the amount of the tax obligation.

Taxpayers who have the right to the credits established in Article 19 of the Law must invoke them in their return and attach the documents that accredit their right, under penalty of not being considered thereafter. TITLE VII OF THE RETURN, VERIFICATION AND PAYMENT CHAPTER 1. OF THE RETURN

Taxpayers subject to the tax are obligated to submit a sworn declaration of the amount of their income, in the form and conditions established by the Law and this Regulation.

Every taxpayer must submit a single return for the totality of their income

The return must be submitted in the period between January 1st and March 31st of each year, and until the next business day following March 31st if that date is not a business day. Enterprises whose fiscal year is different from the calendar year must submit their return within three months following the end of their fiscal year. In the case that a taxpayer terminates their activity, they must submit their return within three months following the date of cessation. In the case of a partnership that agrees to its liquidation, it must declare and pay the tax within ninety days following the date agreed upon for dissolution. If a taxpayer wishes to be absent from the country for an indeterminate period, they must submit their return before leaving the country and pay the corresponding tax. Any person not domiciled or resident in the country who has received income subject to the tax must submit their corresponding return and pay the tax before leaving the country if it has not been withheld. In case of failure to do so, the Tax Authority shall proceed on its own motion to determine the tax with the information available. The Tax Authority may request the competent authority to refrain from authorizing the departure from the country of any person owing taxes.

The income tax return must be submitted within a period of one year.

The annual period is understood to correspond to the calendar year, but if an enterprise has a fiscal year for a different year, it must declare in accordance with its fiscal year. An enterprise is understood to have a fiscal year for a different year when such fiscal year is determined by factors beyond the taxpayer's control, as occurs with certain agricultural operations and other cases qualified by the Tax Authority. In any case, taxpayers who have a fiscal year different from the calendar year must previously request authorization from the Tax Authority to submit their returns on a date different from the general declaration period established in the Law.

Returns must be submitted at the offices of the Tax Authority in Tegucigalpa, or sent by certified mail. Returns that are deposited in the post offices within the period established in Article 81 shall be understood to have been submitted within the deadline. In case of doubt, it shall be the responsibility of the taxpayer to prove the date on which they deposited the return at the post offices. Whenever possible, the Tax Authority may authorize that returns be submitted at other offices of the same Tax Authority.

The Tax Authority shall determine the form and requirements with which taxpayers must formulate their return, and shall prepare and make available to taxpayers, in a timely manner, the corresponding forms. The fact that the taxpayer has not provided themselves with forms does not relieve them of the obligation to submit their return, which may be submitted on ordinary paper, with all the requirements contained in the form. The submission of an incomplete return authorizes the Tax Authority to treat it as not submitted. For these purposes, a return is understood to be incomplete if it does not contain the essential data for the determination of the tax or if the signature has been omitted. Taxpayers shall be obligated to attach to their return the information specified by the Law, the Regulation, and any other information required by the Tax Authority.

Every taxpayer, when making their return, must determine their own calculation of the tax to be paid. CHAPTER 2. OF THE PRELIMINARY REVIEW OF RETURNS AND CALCULATION OF THE TAX

Once the returns are received, a preliminary review shall be conducted in the manner determined by the Tax Authority. The preliminary review has as its main purpose to determine the accuracy of the arithmetic operations, application of the rate schedule, and compliance with the essential formalities of the return. In no case does the preliminary review exclude the examination that will subsequently be made of the returns.

If, as a result of the preliminary review of the return, arithmetic errors or errors in the application of the rate schedule are determined, the Tax Authority shall proceed to correct them without further formalities and shall collect the corresponding tax. If it is not possible to conduct the preliminary review within the period between the date of the return and the deadline for payment, in any case the Tax Authority shall order the collection of the tax determined by the taxpayer themselves, and if they have not determined it, that which results from the information provided in their return.

To calculate the tax corresponding to a period of less than twelve months, the following method shall be used: the income that would have been obtained in the year shall be determined in proportion to that obtained in the period in question; from this amount the deductions corresponding to the year shall be subtracted; to the annual income thus determined, the corresponding rate schedule shall be applied to establish the annual tax, and then by the same proportional system the tax to be determined shall be fixed. Annualization shall be applied only in cases of returns corresponding to periods of less than one year, if an individual taxpayer receiving monthly remuneration definitively leaves the country and in the case in which a commercial enterprise has changed its declaration period authorized by the Tax Authority, but only with respect to the net taxable income. CHAPTER 3. OF PAYMENT

Once the preliminary review of the returns has been completed, a statement of the tax to be paid shall be prepared in the manner determined by the Tax Authority. A copy of the statement shall be sent to the taxpayer as a notice of payment. The fact of not receiving the notice shall not free the taxpayer from the obligation to pay within the legal term.

Payment of the tax shall be made at the Central Bank of Honduras or at the Tax Office designated by the Tax Authority. In any case, the Tax Authority may authorize payment at another office if the taxpayer requests it.

The Income Tax determined according to the calculation of the taxpayer himself or by the Directorate shall be paid in the year in which the corresponding tax return must be filed, no later than March 31 or the following business day if March 31 is not a business day. Commercial enterprises whose fiscal year is different from the calendar year shall pay the tax within three months following the expiration of the deadline for filing their tax return. Taxpayers who cease their activities shall pay the tax within the same period that Article 81 establishes for their tax return. Persons who are absent from the country shall pay the corresponding tax before leaving the country.

Upon expiration of the payment deadline, the tax shall accrue interest at the maximum bank rate established by the Central Bank of Honduras for a period of up to three months. The monthly interest shall be calculated and for these purposes any fraction of a month shall be considered as a complete month.

Collection offices shall receive payment of any tax settlement that the taxpayer wishes to cancel. In the event that the taxpayer wishes to cancel a specific tax assessment and there are other previous payments pending, the Collection office shall receive the payment but shall note in the same payment receipt the existence of pending obligations and their amount. In any case, the Payment Certificate shall not be delivered to the taxpayer who is not current in the payment of the total taxes owed. The payment receipt does not substitute for the Payment Certificate and shall have no validity whatsoever for performing the acts expressed in Article 49 of the Law.

Commercial enterprises that wish to do so may pay or make advance payments of any amount on account of their tax, in the form and conditions determined by the Directorate. TITLE VIII EXAMINATION OF TAX RETURNS, AUDIT AND ADJUSTMENT OF TAX CHAPTER 1. EXAMINATION OF TAX RETURNS

The Directorate may order the examination of tax returns filed by taxpayers. For these purposes, the Directorate shall authorize its employees to conduct them in each case. Employees duly authorized by the Directorate shall conduct all proceedings and investigations that are necessary and useful for conducting the examination. All proceedings having the purpose of verifying the accuracy of the information provided by the taxpayer in his tax return are considered necessary and useful.

The Directorate shall issue all technical rules and instructions that it deems appropriate and necessary for the employee to conduct his work.

In the exercise of his duties, the Directorate employee shall be bound by the rules and instructions issued by the Directorate for this purpose and may request from the taxpayer reliable proof of each and every one of the antecedents provided in his tax return. In the case of commercial enterprises required to maintain accounting records, they shall be required to provide proof of each accounting entry. Employees may also conduct verification of inventories or merchandise stocks or goods existing in the business. Every taxpayer shall be obliged to declare at the request of the reviewing employee whether he maintains a warehouse of merchandise in any location other than his business. Each tax year shall be settled independently of the one preceding it and the one following it, in such a manner that the results of one do not affect those of the other.

Upon completion of the review, the employee shall render a detailed report thereof. If as a result of his review the employee makes an adjustment of the assessment, he shall state the reasons on which all corrections to be made to the taxpayer's tax return are based and shall indicate the tax that should be collected or refunded. Likewise, the employee shall record in his report whether the taxpayer has incurred any of the facts referred to in Article 127.

In the event that a tax refund is appropriate, it shall be processed on its own motion and the case processing shall be concluded, unless the taxpayer has a collectible debt for tax purposes, in which case a set-off shall be applied.

The adjustment made in the manner indicated in the preceding Articles shall be brought to the knowledge of the taxpayer and for this purpose the employee who conducted the review shall deliver a complete copy of it and its grounds, and shall notify him in the manner provided in the Code of Civil Procedure, Book I, Title V, Chapter III or by certified letter addressed to his address if necessary.

The adjustment of the tax shall be deemed completed on the date it is brought to the knowledge of the taxpayer and consequently that date shall be the date of the adjustment for all legal purposes. If the adjustment has been sent to the taxpayer by certified letter, the date thereof shall be the date of receipt of the letter and it shall be presumed that he has received it on the fifth day counted from the date on which it was deposited in the Post Office, unless the taxpayer proves that he received it later.

The fact that the tax return of a taxpayer has been examined and an adjustment made does not limit the authority of the Directorate to order a new examination of the tax return within the periods indicated in Article 54 of the Law. CHAPTER 2. CHALLENGE OF THE ADJUSTMENT

The taxpayer may challenge the adjustment within 30 days following the date it was brought to his knowledge. The challenge shall be substantiated and shall refer to each of the items contained in the adjustment. The Directorate may request from the taxpayer the clarifications and antecedents it deems appropriate as well as the technical reports it considers necessary. The Directorate shall know and resolve the taxpayer's challenge. In this Resolution, it shall order the issuance of the tax assessment if applicable and shall notify the taxpayer in the manner established in the Administrative Procedures Code.

If within the period indicated in the preceding article the taxpayer presents his written conformity to the adjustment, the Directorate shall, without further proceedings, order that a tax assessment be issued in the manner provided in Article 89 and following, which shall be notified to the taxpayer. Upon expiration of the 30-day period referred to in the preceding article, if the taxpayer has not presented his approval of the adjustment nor challenged it, the Directorate shall issue a resolution confirming the adjustment. The Directorate's resolution shall be notified to the taxpayer in the manner established by the Administrative Procedures Code.

The taxpayer shall have a period of three months, counted from the date of the assessment, to pay the difference resulting from the examination of his tax return. Every assessment issued by the Directorate in accordance with the provisions of Article 89 shall be sent or notified to the taxpayer within five days counted from the date of its issuance. CHAPTER 3. ADMINISTRATIVE ASSESSMENT

In cases where it is not possible to establish the taxable net income of a taxpayer, because he has not filed his return or for the other reasons indicated by Law, the Directorate shall proceed ex officio to estimate the amount of such income.

The assessment of a taxpayer's income is the approximate calculation thereof made by the Directorate in cases provided for by Law. To effect the assessment, the Directorate may base it on certain facts or on any indication that in its judgment signifies a revealing index of income, whether those mentioned in the final part of Article 31 of the Law or any other.

The Directorate may assess the income of taxpayers for purposes of the tax in the following cases: 1st. When the taxpayer has not filed a return being obligated to do so. 2nd. Although a return has been filed, if any of the following circumstances exist:

• a)

  That the taxpayer does not keep the accounting books required by Law or those that the Directorate may have required in a particular case, in accordance with what this Regulation provides in Article 115.

• b)

  That the accounting has been kept in an irregular or defective manner. Accounting is understood to be irregular or defective if the requirements set forth in Articles 115 and 116 are not complied with or if it suffers from any other defect.

• c)

  If supporting documents for the operations carried out are not presented or the requested information is not provided.

• d)

  If the taxpayer has maintained a warehouse of merchandise outside the premises of his business without making it known if he has been required to do so, and e) If the books are not current. In this case the Directorate may grant a period to the taxpayer to regularize his situation, if in its judgment there has been cause that justifies the delay.

Once the income is assessed, the Directorate shall proceed to calculate the tax. The subsequent procedure shall be the same as indicated in Chapters 1st and 2nd of this title. All, without prejudice to the fines and sanctions that may be applied as appropriate. In the case that the tax is determined by assessment, the tax shall be paid within 10 days, counted from the date of liquidation, without prejudice to interest and surcharges for late payment being applied from the date on which the tax should have been paid. TITLE IX OF THE REMEDIES

From the date of its issuance and until within a period of five years, the Directorate may modify at the request of the taxpayer the resolutions it has issued, provided that they have been issued on the basis of a sufficiently proven factual error. Within the same period it may correct ex officio any arithmetic or calculation error that may have been made in issuing the resolution. This remedy shall not be admissible in cases where those indicated in the following Article have been exercised.

Against the resolution that resolves the taxpayer's challenge or that confirms the unappealed adjustment, the Remedies of Reconsideration and Subsidiarily that of Appeal proceed in the form established by the Code of Administrative Procedures.

The Remedy of Reconsideration must be presented before the Directorate. The Directorate shall hear the Remedy of Reconsideration and it shall be processed in accordance with the rules indicated in the Code of Administrative Procedures.

If the Directorate grants the Remedy of Reconsideration, it must issue a resolution and in it must order the tax liquidation to be prepared in the form that corresponds. This Resolution shall be notified to the taxpayer. If the Directorate rejects the Remedy in whole or in part, it must issue a resolution to that effect and in it must grant the Remedy of Appeal if it is appropriate. In the same resolution it must order the tax to be liquidated definitively if no Remedy of Appeal has been filed, and in case one has been filed, it must order a provisional liquidation of the tax, in which the points that have not been disputed by the taxpayer and those that have been granted by the Directorate shall be allowed. The corresponding liquidation shall be communicated to the taxpayer so that it be paid within the period established by Article 105 or Article 109, as appropriate.

The Appeal Remedy shall be heard by the Secretariat of Economy and Finance. Once the Remedy is resolved by the Secretariat of Economy and Finance or terminated for any other reason, the file shall be returned to the Directorate. Upon receipt of the file in the Directorate, the tax liquidation shall be issued in definitive form, taking into account the provisional liquidation referred to in the preceding Article. In case there is a difference to be paid by the taxpayer, he shall be notified of the liquidation, which must be paid within the period established by Article 105. In the case of an excess in favor of the taxpayer, ex officio refund shall proceed, without prejudice to what is provided in the final paragraph of Article 99. TITLE X OF THE MEANS OF CONTROL CHAPTER 1 OF ACCOUNTING FIRST SECTION OF ACCOUNTING FOR COMMERCIAL ENTERPRISES

Commercial enterprises shall keep current the accounting books established by the Commercial Code. Importers shall keep a book of merchandise costs. Furthermore, the Directorate may fundamentally require that a specific taxpayer or group of taxpayers keep the auxiliary books that are necessary in accordance with the nature of their business.

Accounting shall be kept by the double-entry system and the books shall be written in Spanish language. In special cases the Directorate may authorize the use of mechanized accounting or another system that in its judgment sufficiently guarantees the interest of the Treasury. SECOND SECTION OF OTHER TAXPAYERS REQUIRED TO KEEP ACCOUNTING

Farmers and ranchers, professionals, persons who practice a trade or profession, and those who operate a workshop shall keep at least a book of entries and exits in which they shall note at the end of each period the corresponding balance.

The Directorate may require the taxpayers referred to in the preceding article to keep accounting in the terms indicated in the preceding Section, if the importance and magnitude of their operations so justifies. CHAPTER 2 OF THE AUXILIARY MEANS OF CONTROL

The Directorate shall keep a general registry of taxpayers in the form and conditions that it establishes.

To collect periodic sums of less than 417 lempiras monthly from the State, District, Municipalities, Autonomous or Semi-Autonomous Organisms, it shall not be necessary to exhibit the certificate referred to in Article 49 of the Law. In cases where a tax challenge is pending resolution, the Directorate may issue a provisional payment certificate, prior to deposit of the amount of the disputed tax in the Central Bank or corresponding Collecting Office.

In cases where the Directorate deems it necessary, it may communicate to the Offices referred to in letter a) of Article 49 of the Law the taxpayers in default of taxes, with indication of the amount of the debt. The paying office that receives this communication shall make the withholding that corresponds in accordance with what Article 50 of the Law provides. In these cases, the offices that effect withholdings in accordance with what this article provides, shall remit within the third day to the Central Bank or to the corresponding Collecting Office, the sums withheld with indication of the name and address of the taxpayer.

The public or private offices and in general any taxpayer shall be obligated to provide to the Directorate the general or particular information that it requests, whether on an occasional or permanent basis. In cases where the Directorate requests some type of permanent information, it shall indicate the form and term in which it must be provided and if possible shall provide an adequate form to do so. The fact of not providing a form does not free the obligation to provide the required information.

The infractions and sanctions that the Law establishes with respect to employees are without prejudice to those that in general may be incurred in their capacity as such, provided for and sanctioned in accordance with the Civil Service Law, Internal Regulations of the Directorate or other laws.

In cases where it is proven that the infraction of what is provided in Article 39 of the Law has brought benefit to the employee, the penalty of dismissal shall be applied, without prejudice to the criminal liability that may apply. This sanction shall be applied in the form established by the Civil Service Law and the Internal Regulations of the Directorate.

The taxpayer who without justified cause refuses to exhibit, in his office, the accounting books, the corresponding documentation or refuses to provide the information requested to verify his declaration, shall be required in writing indicating the antecedents requested and granting him a period of 3 days to provide them. After the period indicated in the preceding paragraph has elapsed, the fine indicated in Article 43 of the Law shall begin to accrue from the day the period for compliance expires and shall be L.10.00 for the first day, L.15.00 for the second, L.20.00 for the third, and so on successively until the ninth day and thereafter which shall be L.50.00 daily and which shall be applied until the day the required antecedents are presented. The Directorate may reduce or nullify the fine whenever it is proven to its satisfaction that there has been a reasonable cause for not presenting the antecedents.

The fine for delay in submitting the declaration established by Article 41 of the Law shall be applied on the amount of the tax caused without deduction of the credits indicated in article 19 of the Law, but deducting the withholdings effected. In no case may the fine be compensated with the excess of credits over the amount of the tax caused, but the fine shall be compensated with the excess withholding if there is any. The Directorate may waive the application of this fine whenever it is proven to its satisfaction that the non-compliance has been due to force majeure or act of God; but in such case express notice must be made of the facts constituting the impediment.

The Law sanctions the attempt to evade the tax, and for this reason the sanction must be applied even if the period for payment of the tax has expired, if the execution of any of the facts indicated in Article 42 of the Law is proven. The enumeration of facts constituting evasion is merely enunciative and the taxpayer incurs in it when executing any other act analogous to those mentioned, if from them results the determination of a tax inferior to that which corresponds.

For the purposes of applying Article 42 of the Law, it is understood that there is evident contradiction between the books and documents and the data of the declarations, if the antecedents recorded in the declarations do not coincide with those found noted in the books and whenever from the data recorded in the declaration results a tax inferior to that which would have corresponded had the antecedents been noted in accordance with those contained in the books. Likewise, it shall be considered that this infraction has been incurred if the data noted in the books do not correspond to those registered in the documents that justify the accounting transaction. The lack of substantiation of the entries registered in the accounting shall be sufficient grounds to presume the intent to evade the tax, if from it follows a diminution of the income subject to the tax.

It is understood that there is manifest nonconformity between the legal and regulatory provisions and the application that the taxpayer makes of them, if such application does not accord with the content of the Law and its Regulation and whenever from them the determination of an income inferior to the correct one or a tax inferior to that which corresponds results, such as when deductions are made of those which the Law expressly prohibits or are applied in an arbitrary manner. The infraction shall be presumed if the taxpayer during the same fiscal year or in other previous years has applied the same provisions incorrectly or if the Directorate has previously objected to the improper application of the same.

It is understood that declarations contain false data when the data mentioned in them do not correspond to reality, such as when invoked as cause for deduction a dependent that does not exist or that the taxpayer does not have in his charge, that declare as selling price of a good a sum inferior to that effectively agreed or in any other analogous case.

It shall be understood that a declaration is incomplete if it does not record the totality of the taxpayer's income subject to the tax, even in the case where he has filed two or more declarations. Likewise, any declaration shall be qualified as incomplete in which has been omitted to note income from property, activities or operations that in fact determine a tax less than that which he is obligated to pay. It shall be presumed that the taxpayer has incurred in the infraction indicated in Article 42 of the Law, if the existence of merchandise not registered in his inventory is proven.

In cases where by reason of a review any of the facts mentioned in Article 42 of the Law is established, the employee shall set it forth in the adjustment of the tax assessed in accordance with what Article 98 provides. When making adjustments to the taxpayer's declaration in the form provided in article 98 of this Regulation, the facts constituting the infraction and the amount of the tax that derives from them shall be indicated. The taxpayer shall have the period indicated in Article 103 counted from the date of his knowledge to give written response regarding the facts indicated, together with his challenge of the adjustment or only referring to these facts. If the taxpayer does not respond within the indicated period or if his response is not fully satisfactory, the Directorate in the resolution in which it pronounces on the challenge of the adjustment or confirms it by not having been challenged, as provided in Articles 103 and 104, shall order the fine indicated in Article 42 of the law to be applied, which shall be collected together with the corresponding tax. The fine shall be applied in the same resolution in which the Directorate pronounces on the tax, therefore the same remedies established in Article 32 of the Law may be exercised in the form indicated in this Regulation.

The taxpayer who corrects his declaration with the object of including omitted income, before the Directorate has initiated its examination, shall be exempted from the fine established in article 42 of the Law, with respect to the income declared.

Notaries and employees who infringe what is provided in Article 49 of the Law shall be sanctioned with a fine of L.100.00 for the first infraction, which shall be L.500.00 for the second and L.100.00 for the third or subsequent infractions. In any case, the Directorate may waive or nullify the sanction whenever it is proven to its satisfaction that there has been just cause for error. In the case of the third or subsequent infraction, it may not be nullified nor reduced by more than 50%.

Source Withholding is a collection method established to facilitate compliance with the tax obligation and therefore substitutes both the obligation to declare and to pay the tax of the taxpayer, obligations that remain the responsibility of the withholding agent in the form determined by the Directorate. The taxpayer shall provide to the withholding agent all the antecedents that the Directorate determines are necessary to effect the withholding and shall be responsible for their accuracy. The withholding agent shall effect the withholding, pay the tax and provide the antecedents that the Directorate determines. The fact that withholding is effected releases the taxpayer from the obligation to pay it up to the amount of the sum withheld. The Directorate may apply this collection method in all cases where it is possible and whenever in its judgment it facilitates the collection of taxes.

The Directorate shall determine the cases in which the withholding at source method shall be applied and the form and conditions in which the withholding and payment of the tax shall be made. TITLE XIII OF THE PERIOD OF LIABILITY OF TAXPAYERS

The liability of taxpayers shall be extinguished ordinarily within a period of five years and extraordinarily within a period of ten years counted from the date of presentation of the return or from the date the deadline for presenting it expired if they failed to do so.

The taxpayer shall be obligated to preserve all antecedents and supporting documents of their return for a period of ten years counted from the date they presented it. In the case of not having presented their return when obligated to do so, the Directorate may require them to substantiate their activities and shall be subject to the sanctions and other procedures set forth in the Law and Regulation, provided that the Directorate acts within the period of ten years counted from the date the deadline for presenting their return expired.

It shall be presumed that there has been concealment of income with the intention to evade the tax if the return has not been presented when obligated to do so or if any of the facts referred to in Articles 31 and 42 of the Law and Articles 108 and 132 of this Regulation have been proven, becoming subject to the sanction provided in the Article of the Law. In the case that the taxpayer proves they had no intention to evade the payment of the tax, they shall only incur the fine for failure to file established in Article 41 of the Law.

The tax adjustments that the Directorate makes within the period of five years referred to in Article 137 must be paid by the taxpayer in the periods and in the form set forth in this Regulation. The tax adjustments that the Directorate formulates after the expiration of the period of five years referred to in Article 137 must be paid by the taxpayer in the periods and in the form set forth in this Regulation. The tax adjustments that the Directorate formulates after the expiration of the period of five years and before the expiration of the period of 10 years referred to in Article 137, must be paid by the taxpayer only if the concurrence of some of the requirements set forth in the Regulation has been proven; in the contrary case there shall be no grounds to demand payment of the tax, but if the taxpayer pays they shall not be able to request reimbursement of what was paid. TRANSITORY PROVISIONS

This Regulation shall be effective from January 1st, 1970 and repeals the preceding regulation contained in Agreement No. 787, of June 25, 1995.

While the Directorate does not issue a new special Regulation on withholding at source, the currently effective one shall govern. LET IT BE KNOWN. O. LOPEZ ARELLANO, Secretary of State in the Departments of Economy and Finance. MANUEL ACOSTA BONILLA. Published in the Gazette No. 19,972, 19,973, 19,974, of January 13, 14, and 15, 1970, respectively. AGREEMENT NUMBER 640. THE HEAD OF STATE, in application of Article 57 of Decree No. 25 of December 20, 1963 and Article 85 of the Code of Administrative Procedures, AGREES:

To reform Article 33 of the Regulation of Decree-Law No. 25 of December 20, 1963, which establishes the Law on Income Tax, and which shall read as follows:

Operations or transactions susceptible to producing capital gains or losses, executed during a taxable period, must be considered in their complete totality. If the totality of the operations results in gains or income, it forms part of the taxable gross income of the taxpayer, but if the totality of the operations results in a loss, this may not in any concept be deducted from the gross income of the taxpayer that comes from income or profits of their ordinary operations. Excepted from this provision are operations or transactions of purchase and sale of securities acquired and sold in a constant and permanent manner by natural or legal persons, resident or domiciled in the country that are duly authorized to engage in this class of activities; only in this case, the gain or loss shall form part of or be deducted respectively from the total gross income of the taxpayer as any result of normal and ordinary operation. In observance of the preceding paragraph, the General Directorate shall establish in each case the periods it considers appropriate for the holding of securities.

This reform shall be effective from this date and must be published in the Official Journal "La Gaceta". Given in the City of Tegucigalpa, Central District, on the twenty-fourth day of the month of December of nineteen hundred sixty-four. LET IT BE KNOWN. O. LOPEZ ORELLANO. THE SECRETARY OF STATE IN THE DEPARTMENTS OF FINANCE AND PUBLIC CREDIT. MANUEL ACOSTA BONILLA.