Reform of the Law on Public Finance Management, Control of Tax Exemptions and Anti-Evasion Measures

To reform Article 22-A of the Law on Income Tax, contained in Decree No. 278-2013 dated December 21, 2013 and published in the Official Gazette "La Gaceta" on December 30, 2013, containing the LAW ON PUBLIC FINANCE MANAGEMENT, CONTROL OF EXEMPTIONS AND ANTI-EVASION MEASURES and its reforms and interpretations, which shall be read as follows:

• 1)

  Natural persons or legal entities that have obtained gross income equal to or less than THREE HUNDRED MILLION LEMPIRAS (L 300,000,000.00) in the 2017 fiscal period are not subject to the application of Article 22-A of the Income Tax Law, so the calculation of the Income Tax and its payments on account corresponding to the 2018 fiscal period and subsequent periods shall be performed in accordance with what is established in Article 22 of the Income Tax Law. The rate is zero point seventy-five percent (0.75%) in the case of income obtained by natural persons or legal entities that produce or commercialize the following products and services:

  • a)

    Production, distribution or commercialization of Cement;

  • b)

    Public services provided by state enterprises;

  • c)

    Pharmaceutical products and medications for human use, at the producer, importer or commercializer level;

  • d)

    The bakery sector or industry;

  • e)

    Production, distribution or commercialization of steel-derived products for construction, this does not include the sale of scrap or mining industry activity; and, f) Production, commercialization or export of coffee.

• 2)

  The calculation of the Income Tax and its payments on account corresponding to the 2019 fiscal period shall be performed in accordance with the following rules: a) Natural persons or legal entities that have obtained gross income in the range of THREE HUNDRED MILLION LEMPIRAS (L 300,000,000.00) and SIX HUNDRED MILLION LEMPIRAS (L 600,000,000.00) in the 2018 fiscal period must pay zero point seventy-five percent (0.75%) of gross income, when the application of the rates indicated in subsections a) or b) of Article 22 of the Income Tax Law results in less than zero point seventy-five percent (0.75%) of gross income declared. The rate shall be reduced to zero point five percent (0.5%) for the following sectors: Production, distribution or commercialization of cement, steel and its derivatives for construction, this does not include the sale of scrap or mining industry activity; public services provided by state enterprises; medications and pharmaceutical products for human use, at the producer, importer or commercializer level; and the bakery sector or industry, production, distribution or commercialization of steel-derived products for construction, this does not include the sale of scrap or mining industry activity; production, commercialization or export of coffee; and, b) Natural persons or legal entities that have obtained gross income greater than SIX HUNDRED MILLION LEMPIRAS (L 600,000,000.00) in the 2018 fiscal period must pay one percent (1.0%) of such income when the application of the rates indicated in subsection a) or b) of Article 22 of the Income Tax Law results in less than one percent (1.0%) of gross income declared. The rate shall be reduced to zero point five percent (0.5%) for the following sectors: Production, distribution or commercialization of cement, steel and its derivatives for construction, this does not include the sale of scrap or mining industry activity; public services provided by state enterprises; medications and pharmaceutical products for human use, at the producer, importer or commercializer level; and the bakery sector or industry, production, distribution or commercialization of steel-derived products for construction, this does not include the sale of scrap or mining industry activity; and production, commercialization or export of coffee.

• 3)

  The calculation of the Income Tax and its payments on account corresponding to the 2020 fiscal period and subsequent periods shall be performed in accordance with the following rules: a) Natural persons or legal entities that have obtained gross income equal to or less than ONE BILLION LEMPIRAS (L 1,000,000,000.00) in the preceding fiscal period shall not be subject to the application of Article 22-A of the Income Tax Law, so the calculation of the Income Tax and its payments on account for the corresponding fiscal period shall be performed in accordance with what is established in Article 22 of the Income Tax Law; and, b) Natural persons or legal entities that have obtained gross income greater than ONE BILLION LEMPIRAS (L 1,000,000,000.00) in the preceding fiscal period must pay one percent (1.0%) of such income when the application of the rates indicated in subsections a) or b) of Article 22 of the Income Tax Law results in less than one percent (1.0%) of gross income declared. The rate shall be reduced to zero point five percent (0.5%) for the following sectors: Production, distribution or commercialization of cement, steel and its derivatives for construction, this does not include the sale of scrap or mining industry activity; public services provided by state enterprises; medications and pharmaceutical products for human use, at the producer, importer or commercializer level; and the bakery sector or industry, production, distribution or commercialization of steel-derived products for construction, this does not include the sale of scrap or mining industry activity; and production, commercialization or export of coffee.

• 4)

  The following shall not be subject to the application of the provisions contained in Article 22-A of the Income Tax Law:

  • a)

    Natural persons that obtain income from salaries and wages;

  • b)

    Printed Press;

  • c)

    Enterprises during the first two (2) years of their establishment or in preoperative period, that is, until they begin their first sales transaction;

  • d)

    Natural persons or legal entities that incur losses due to acts of God or force majeure, derived from natural disasters, catastrophes, wars, states of exception, duly proven before the Tax Administration, for up to two (2) fiscal periods from when they occur. Such loss must be certified by an audit firm duly registered with the respective professional association, remaining subject to subsequent auditing;

  • e)

    Natural persons or legal entities that obtain income from the production, sale and distribution of petroleum and its derivatives; and, f) Those that obtain annual gross income equal to or less than the amount established in numerals 1) and 3) subsection a) of this Article when applicable. Natural and legal persons described in this numeral must pay taxes in accordance with what is established in Article 22 of the Income Tax Law and its reforms.

• 5)

  The tax resulting from the application of the previous numerals shall be the basis for determining the quotas of payments on account as applicable.

• 6)

  Enterprises with income equal to or greater than ONE HUNDRED MILLION LEMPIRAS (L 100,000,000.00) that declare operating losses in two (2) alternate or consecutive periods are subject to what is established in Decree No. 96-2012, dated June 20, 2012 published in the Official Gazette "La Gaceta" on July 20, 2012.

• 7)

  Additionally to what is established in numeral 4 of this Article, natural persons or legal entities that have obtained a favorable Resolution from the Ministry of Finance, as a result of a tax inspection that proves that such persons have recorded all their taxable income and have not incorporated expenses that are not deductible in accordance with what is established in the Income Tax Law shall not be subject to the application of Article 22-A of the Income Tax Law. The request for the application of Article 22 of the Income Tax Law must be made before the Ministry of Finance, under the following conditions:

  • a)

    Submit the request no later than April 30 of each year or the last day when the submission of its Income Tax return is due;

  • b)

    Have paid its three (3) payments on account of the preceding fiscal period; and, c) Present a Tax Audit report for the preceding fiscal period, conducted by an External Audit Firm duly registered with the National Banking and Insurance Commission (CNBS) with category A or B, different from the one that audits its Financial Statements, that proves that it has recorded all its taxable income and has not incorporated expenses that are not deductible in accordance with what is established in the Income Tax Law. The Ministry of Finance must issue the Resolution within a maximum period of sixty (60) business days counted from the date of submission of the request. Such Resolution shall be of mandatory application and execution for the Tax Administration. In all cases, the Ministry of Finance shall be assisted by auditors of the Tax Administration in the number that such Ministry requires. Against the resolution issued by the Ministry of Finance, the remedies of reconsideration or extraordinary review shall apply, as applicable, which must be filed and processed in accordance with the rules established in the Tax Code. The resolution that resolves the Reconsideration Remedy exhausts the administrative remedy. In the case of the existence of a tax credit, due to the application of Article 22-A of the Income Tax Law and its reforms, the taxpayer may request the application of such credit to the payment of any tax administered by the Tax Administration or its assignment in accordance with what is established in Article 142 of the Tax Code.

• 8)

  The actions performed by the Ministry of Finance under this Article shall be without prejudice to the verifications and inspections conducted by the Tax Administration or the Customs Administration as applicable.

• 9)

  The Ministry of Finance within a period not exceeding twenty (20) business days from the entry into force of this Decree must issue the respective technical tax instruction for the application of the provisions of this Article. The Ministry of Finance is authorized to reduce from the General Budget of Income and Expenditures of the Republic for the 2018 Fiscal Period by at least an amount equivalent to the decrease in income derived from the application of the provisions contained in the preceding Article using as reference FIVE HUNDRED FIFTY MILLION LEMPIRAS (L 550,000,000.00), in the budget lines that such Ministry deems appropriate, except those corresponding to education, health, security and infrastructure programs and projects. Likewise, all State institutions are authorized to conduct a review of their administrative structures in order to improve the efficiency and effectiveness of Public Administration, within a period not exceeding sixty (60) business days counted from the date of publication of this Decree.

The printing, distribution and sale of customs forms and seals or stamps throughout the Republic, except for the Central American Customs Form (FAUCA), shall be conducted as follows:

• 1)

  The sale price for customs forms and seals or stamps throughout the Republic shall be the following: a) Single Customs Declaration or equivalent customs document, per set (original and six (6) copies): ONE HUNDRED SEVENTY LEMPIRAS EXACTLY (L 170.00); Such value must be distributed as follows: EIGHTY LEMPIRAS EXACTLY (L 80.00) for the General Treasury of the Republic. FIFTY-FIVE LEMPIRAS EXACTLY (L 55.00) for direct support to the National Investment Council (CNI); and, THIRTY-FIVE LEMPIRAS EXACTLY (L 35.00) as a commission for administration to the Honduran Private Enterprise Council (COHEP). b) Form DGA-01-90-A Single Customs Declaration for Free Trade Zones (Free Zones and Industrial Processing Zones), per set (original and six (6) copies): No fiscal value; c) Form 6-A Departure Permit (Customs Clearance) per set (original and three (3) copies): THIRTY-FIVE LEMPIRAS EXACTLY (L 35.00); d) Form 9A-1 TEMPORARY ENTRY AND DEPARTURE PERMIT FOR VEHICLES per set (original and three copies): ONE HUNDRED THIRTY-FIVE LEMPIRAS EXACTLY (L 135.00); e) Form 22-A Departure Permit (Customs Cabotage) per set (Original and four (4) copies): THIRTY-FIVE LEMPIRAS EXACTLY (L 35.00); and, f) National (MN) and International (MI) seals or stamps used in the customs offices of the Republic, in transit or procedures related to internal or international merchandise transit, export or any other customs regime has a price of TWENTY-THREE AMERICAN DOLLARS EXACTLY (US$ 23.00) or its equivalent in Lempiras converted at the exchange rate in effect on the date of acquisition.

• 2)

  Under the control and supervision of the Customs Administration, the Honduran Private Enterprise Council (COHEP), shall be in charge of the purchase, sale and distribution of the seals or stamps that will be used in the internal transits conducted by the FREE TRADE ZONES, which shall not have any FISCAL VALUE.

• 3)

  It is prohibited for the Honduran Private Enterprise Council (COHEP) to prepare, purchase, sell, print, distribute or create customs forms and seals or stamps used in customs operations, other than those listed in this Article.

• 4)

  In the event that the need arises to incorporate new customs forms or types of seals, the Honduran Private Enterprise Council (COHEP) must obtain prior and express authorization from the Ministry of Finance.

• 5)

  The printing and purchase costs of such customs forms and seals or stamps must be paid by the Honduran Private Enterprise Council (COHEP), which must deduct them from the authorized sale price. From the resulting difference, the Honduran Private Enterprise Council (COHEP) is entitled, as a commission for administration, to the following amounts: Form: DGA-01-90, Description: Single Customs Declaration (DUA) or equivalent customs document, Amount: L 35.00 Form: 6-A, Description: Departure Permit (Customs Clearance), Amount: L 10.00 Form: 9A-1, Description: Temporary Entry and Departure Permit for Vehicle, Amount: L 35.00 Form: 22-A, Description: Departure Permit (Customs Cabotage), Amount: L 10.00 Form: Seals or Stamps, Description: Seals or Stamps, Amount: US$ 8.00 To facilitate the distribution and sale of customs forms and seals or stamps, the Honduran Private Enterprise Council (COHEP) is authorized to appoint distributors, but the compensation to these is their responsibility.

• 6)

  For the application of the previous numerals, the Honduran Private Enterprise Council (COHEP) has the following obligations:

  • a)

    It shall be directly responsible for the inventories and sales of the same conducted by the distributors authorized by it;

  • b)

    Remit to the State on the forms that the Customs Administration establishes for such purpose, in the account in the name of the General Treasury of the Republic at the Central Bank of Honduras (BCH), during the first ten (10) days of the month following the month in which the sale occurred, the remainder resulting from subtracting from the sale price of the forms and seals or stamps, the cost and administration commission granted to the Honduran Private Enterprise Council (COHEP);

  • c)

    Send to the Ministry of Finance the original document of the monthly deposit in which the corresponding remittance is made, having to attach a report detailing the volume and amount of sales, acquisition costs, initial and final inventories and amounts in favor of the State derived from the printing of customs forms and seals or stamps corresponding to the operations conducted in the preceding month;

  • d)

    Request in writing from the Customs Administration the authorization for the printing of customs forms and the preparation of seals or stamps, taking care to maintain in its inventory a sufficient quantity to be able to efficiently meet demand. Such request must be resolved within a maximum period of ten (10) business days counted from the date of submission; and, e) Transfer to the National Investment Council for its operations the amount that corresponds to it in application of numeral one (1) subsection a) of this Article, during the first ten (10) days of the month following the month in which the sale occurred. The National Investment Council is in charge of the "Country Brand" and "Country Image" Project.

• 7)

  The Customs Administration must determine the design, technical characteristics and minimum security requirements currently required for both customs forms and customs seals or stamps. In case of modification to any of the customs forms or change in technical specifications of the seals or stamps, the Customs Administration, with prior Authorization from the Ministry of Finance, must notify the Honduran Private Enterprise Council (COHEP) with sixty (60) calendar days in advance of such modification.

• 8)

  In the case of migration of physical customs documents to electronic documents, during the validity of this Decree, the Ministry of Finance together with the Customs Administration must determine the collection mechanism established in numeral 1) of this Article, which must be communicated to the Honduran Private Enterprise Council (COHEP) for its implementation within a maximum period of sixty (60) business days. The Honduran Private Enterprise Council (COHEP) must maintain physical inventories to meet demands for physical customs documents in case of system failures duly proven.

• 9)

  The Ministry of Finance through the Customs Administration must impose sanctions in accordance with what is established in the Tax Code for non-compliance with the provisions of this Article.

To reform Article 2 of Decree No. 105-2011 dated September 14, 2011 and published in the Official Gazette "La Gaceta" on October 1, 2011 and its reforms in the sense that the contributions created by such Decree shall have permanent validity from the entry into force of this Decree; likewise, Article 2 of Decree No. 192-2011 dated November 4, 2011 and published in the Official Gazette "La Gaceta" on December 3, 2011 and its reforms is reformed, in the sense that the destination of the trust fund resources shall serve to finance programs and projects in the area of education, prevention, control, protection and population security.

The Tax Administration must conduct an audit of natural persons or legal entities in the coffee sector to verify and ensure that the effects of the application of Article 22-A of the Income Tax Law were not transferred to producers. In the event that it is determined that such transfer exists, the Tax Administration must notify the amount that must be remitted to the State.

This Decree shall enter into force as of the day of its publication in the Official Gazette "La Gaceta". Done in the city of Tegucigalpa, municipality of the Central District, in the Session Hall of the National Congress on the twenty-first day of the month of March of the year two thousand eighteen. ANTONIO CÉSAR RIVERA CALLEJAS PRESIDENT JOSÉ TOMÁS ZAMBRANO MOLINA SECRETARY SALVADOR VALERIANO PINEDA SECRETARY To the Executive Branch Therefore: Execute it Tegucigalpa, M.D.C., April 18, 2018 JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICE OF FINANCE ROCIO IZABEL TABORA Executive Branch EXECUTIVE DECREE NUMBER PCM-007-2018 THE PRESIDENT OF THE REPUBLIC IN COUNCIL OF SECRETARIES OF STATE, WHEREAS: The State of Honduras embraces the majority of international instruments of the Universal System and the Inter-American System of Human Rights, in addition to ratifying ILO Convention 169, and from the foregoing arises the obligation to recognize, respect, protect, promote and above all, guarantee the full exercise of rights and freedoms recognized therein to all persons, without any discrimination based on race, sex, language, religion, political opinion or national or social origin, economic position, birth, gender identity or any other condition. WHEREAS: The Constitution of the Republic in its Article 15 provides: "Honduras makes its own the principles and practices of International Law that tend toward human solidarity....", and likewise recognizes in its Article 59 that "the human person is the supreme end of society and the State. All have the obligation to respect and protect it. The dignity of the human being is inviolable"; in the same sense Article 63 of such legal body provides that "the declarations, rights and guarantees that this Constitution enumerates shall not be understood as a denial of other declarations, rights and guarantees not specified, which are born from the ..... and dignity of man". WHEREAS: That in accordance with Article 245, numeral 11 of the Constitution of the Republic, it corresponds to the Constitutional President the General Administration of