Law for the Promotion of Tourism

OBJECT OF THE LAW. This Law is of public order and national interest and has as its object to encourage and promote the tourism industry in Honduras, in line with the expected impacts and indicators projected by the National Program for Employment Generation and Economic Growth Honduras 2020, contained in Decree No. 36-2016 of April 14, 2016, published in the Official Gazette "La Gaceta" on April 29, 2016 and, with regional competitiveness through the application of second-generation incentives.

GOVERNING PRINCIPLES. This Law is based on the application of the following Governing Principles of Tax and Investment Policy in Tourism:

• 1)

  Cost/Benefit Principle;

• 2)

  Competitiveness Principle;

• 3)

  Equity Principle;

• 4)

  Equality Principle;

• 5)

  Co-responsibility Principle;

• 6)

  Legality Principle;

• 7)

  Proportionality Principle; and,

• 8)

  Transparency Principle. TITLE II INCENTIVES

BENEFICIARIES. The benefits of this Law may be enjoyed by natural or juridical persons engaged in services and tourism activities previously qualified by the Honduran Institute of Tourism (IHT), in accordance with the parameters of this Law. Once the qualification has been recognized by the Honduran Institute of Tourism (IHT), the State Secretariat of the Office of Finance (SEFIN), without requiring additional requirements, except for registration in the Register of Exempted Persons, must authorize through administrative resolution the corresponding tax and fiscal benefits. The beneficiaries are:

• 1)

  TOURISM INDUSTRY SERVICES: Development of Mixed Uses with Tourism Vocation, Large Hotels, Hotels, Small Hotels, Condo-Hotels, Time-share Accommodations, Fractional Property, Complementary Services Linked to Tourism Activity and/or Tourism Complexes;

• 2)

  TOURISM-ENABLING RELATED INFRASTRUCTURE: Convention Centers, Cruise Port Facilities (International Business/DAI), Inter-urban Ground Terminals, Maritime Ferry Terminals, Recreational Offerings Related to Tourism (Golf Course, Marinas, Aquariums, Thematic Parks, Canopy Tours, Diving Centers) and other recreational tourism offerings qualified as such by the Honduran Institute of Tourism (IHT);

• 3)

  SPECIFIC TOURISM INVESTMENTS: Investments linked to Protected Areas of Tourism Interest (Biological Reserves, National Parks, Wildlife Refuges, Natural Reserves); sites or monuments that form part of National Heritage and of Tourism and Cultural Interest such as National Monuments, Historic Monuments, Museums, Municipal Parks, Archaeological Parks and Public Roads; Historic Preservation Complexes; Special Sites for Tourism Planning and Development (Development Zones identified within the National Strategy for Sustainable Tourism), Special Tourism Zones of national interest; Special Zones of Tourism Interest due to their Urban/Cultural/Historical Context, Special Zones of Tourism Interest due to their Environmental/Natural/Ecological/Agroindustrial context, Special Zones of Tourism Interest of a specific nature; Tourism Concessions and tourism projects or community tourism enterprises;

• 4)

  RELATED TOURISM ACTIVITIES: Filming of Motion Pictures of Tourism/Cultural Benefit, Artistic Events and other Tourism Benefits, Sports Events with Tourism Purpose, Rescue of National Traditional Industries and activities of cultural organizations. In the case of temporary activities, applicable incentives are valid until the filming, sporting event or artistic event concludes. Equipment used for these related tourism activities may be temporarily imported into the country under a tax suspension regime, and the same must exit the country in accordance with applicable customs legislation and it is prohibited to sell them in national territory; otherwise they must pay applicable taxes;

• 5)

  TOURISM SERVICE OFFERINGS: Receptive Tourism Operators; and,

• 6)

  TOURISM TRANSPORTATION SERVICES: Air, Aquatic, Land Tourism and Leasing of Land and Aquatic Vehicles, only when their beneficiaries are constituted as companies of exclusive purpose for the development of tourism activity.

REQUIREMENTS. Natural and juridical persons who wish to access the benefits of this Law must comply with the following requirements:

• 1)

  Prove compliance with the beneficiary qualification, according to the type of project, in accordance with Article 3 of this Law;

• 2)

  Demonstrate to the Honduran Institute of Tourism (IHT), the availability of financing for said Project;

• 3)

  Present to the Honduran Institute of Tourism (IHT) a feasibility study, which must include the influence on the geographic zone, activities and subjects benefited, the increase in investments, generation of foreign currency and projections of generation of direct and indirect employment related to the tax cost. All of this must be aligned with the objectives of the National Program for Employment Generation and Economic Growth Honduras 2020, contained in Decree No. 36-2016 of April 14, 2016, in accordance with the Fiscal Responsibility Law and its regulation. If required, according to the project category, a Master Development Plan will also be required. In order to enjoy the benefits contained in this Law, the following persons are excepted from the previous requirements: natural and juridical persons who have made new investments since the entry into force of Decree No. 278-2013 of December 21, 2013, containing the Law for the Ordering of Public Finance, Control of Exemptions and Anti-evasion Measures, whether in remodeling, expansions, renovations, new infrastructure, complementary investments or new investments, and therefore may enjoy the benefits granted in this Law by only proving the total amount of investment made and their waiver of the previous legal regime.

BENEFITS TO PROJECTS. Beneficiaries of this Law must enjoy the following benefits:

• 1)

  Exemption from payment of Income Tax, Net Asset Tax and Solidarity Contribution and their Related Taxes, for a period of fifteen (15) non-extendable years;

• 2)

  Exemption from Income Tax and any of its withholdings on payments for services or fees contracted with natural or juridical persons, national and foreign, indispensable for the studies, installation, implementation, engineering, construction and monitoring of the project for up to a period of five (5) years;

• 3)

  Exemption from payment of Sales Tax on local purchases of goods and services directly linked to the construction, renovation or restoration, new infrastructure, complementary investments or new investments in the tourism activity qualified by the Honduran Institute of Tourism (IHT) for a non-extendable period of ten (10) years;

• 4)

  Projects enjoy all benefits established in the Customs Law in relation to the importation of machinery and equipment necessary for the construction and maintenance of the project. Said machinery and equipment must be intended solely and exclusively for the project;

• 5)

  Within these benefits, it includes the exemption from payment of Import Customs Rights (DAI), Selective Consumption Tax and tariffs, rates, surcharges, rights, general and special contributions and other customs taxes on the importation and local purchase of inputs, goods, materials and equipment directly related to the development, installation, construction, equipping, repair, replacement and maintenance of the Tourism Project for up to a period of ten (10) years. This exemption does not include fees for electronic services, security or modernization services, which must be paid for the services and controls that the Customs Administration provides. Natural and juridical persons who wish to avail themselves of the tax benefits contained in this Law or who for any reason must process a credit note or tax refund must comply with the formalities, deadlines and procedures contained in the Current Legal Framework. Likewise, regarding tax exemptions, as well as compliance with commitments and objectives of additional generation of employment and foreign currency in the country, all rights, prerogatives, obligations and controls contained in said Current Legal Framework must be applicable to them. The tax benefits and other incentives contained in this Law are personal and cannot be transferred to persons other than the beneficiaries. Natural and juridical persons who make improvements, expansions, renovations, complementary investments or new investments for an amount equal to or greater than thirty-five percent (35%) of the net present value of the initial discounted investment, using the monetary policy rate of the Central Bank of the month prior to the submission of the application, may avail themselves of this Law and enjoy the benefits granted therein. Without prejudice to the above and, in accordance with the provisions of the Tax Code, the natural or juridical person who avails themselves of the benefits of this Law and makes a new investment must waive the benefits of any legal regime to which they are subject and initiate the procedures for the closure and liquidation of said benefits before the State Secretariat of the Office of Finance (SEFIN). Companies of social tourism interest may enjoy benefits and must be advised and supported by the Honduran Institute of Tourism (IHT) on a mandatory basis.

OBLIGATIONS. Natural or juridical persons who develop projects under this Law must comply with the following obligations:

• 1)

  Register in the Register of Exempted Persons maintained for this purpose by the State Secretariat of the Office of Finance (SEFIN), complying with the form and requirements contained in the Current Legal Framework, as well as performing its annual renewal;

• 2)

  Declare and keep updated their tax domicile, as well as make available the information and documentation that the State Secretariat of the Office of Finance (SEFIN), the Tax Administration or the Customs Administration may require, in accordance with the current legal framework;

• 3)

  Present the Sworn Statement of Fiscal Sacrifice in the periodicity contemplated in the current legal framework and in the manner determined by the competent authority;

• 4)

  Present the forms, declarations and reports required by the State Secretariat of the Office of Finance (SEFIN), the Tax Administration and the Customs Administration, in the manner and periodicity contemplated in the current legal framework;

• 5)

  Beneficiaries of this Law are obligated to charge the Tourism Services Rate and Sales Tax, on the sale of goods and services they perform, and remit them to the Treasury;

• 6)

  Demonstrate having initiated a process of certification of standard or quality seal in order to increase the competitiveness and quality of tourism products, services and offerings of Honduras;

• 7)

  Include within their service charges and management contracts, the charge of Sales Tax and the applicable Tourism Rate. The previous obligation excludes those complementary services that operate within lodging and accommodation service establishments, which by their nature are already subject to the charge of said tax and rate on the lodging service only;

• 8)

  Invest in the proposed tourism project the amount indicated in the respective application and maintain said investment for the term that the Income Tax exemption lasts; without prejudice to what is established in the final paragraph of Article 4 of this Law;

• 9)

  Begin the construction, renovation or restoration of the real estate intended for the proposed tourism activities in the project application within a period not exceeding twelve (12) months counted from the date of notification of the resolution of the State Secretariat of the Office of Finance (SEFIN) by which the tax benefits are granted;

• 10)

  In applicable cases, begin its activities in accordance with the Tax Code within a period not exceeding three (3) years, counted from the date of notification of the resolution of the State Secretariat of the Office of Finance (SEFIN) that grants the tax benefits;

• 11)

  Keep a faithful and detailed record of the exempted articles and goods, which must be available for the competent authorities in accordance with the current legal framework; and,

• 12)

  The others established in the applicable current legal framework. TITLE III INVESTMENT INCENTIVES

FISCAL STABILITY AGREEMENT. The State of Honduras, through the National Investment Council (CNI), once the projects mentioned in this Law or others of national interest have been approved, must issue, without any requirement other than the resolution authorized by the State Secretariat of the Office of Finance, for a period equivalent to that of the recovery of the investment, a Fiscal Stability Agreement, which establishes that the benefits granted by this Law must be maintained in accordance with the deadlines and conditions under which the investment must be carried out.

PORTFOLIO OF PROJECTS FOR THE ENTIRE COUNTRY. The National Investment Council (CNI) must manage a portfolio of potential tourism-related investments that guarantees that the benefits thereof are for the entire country. To that end it must:

• 1)

  Request from the central government, autonomous institutions, decentralized institutions and municipalities, information about potential projects within their scope of competence or territory;

• 2)

  Maintain the file of feasibility studies that were financed by the State or International Cooperation and could not be realized;

• 3)

  Access the information it deems necessary to conduct pre-feasibility, feasibility or potential studies of a tourism zone;

• 4)

  Contribute to the creation of associated centers for the provision of new services or existing services of any kind. The same have the duration determined at the time of their creation;

• 5)

  Authorize the application of specific benefits of a special regime to natural or juridical persons beneficiaries of another special regime in industries declared of national interest, located anywhere in the national territory; and,

• 6)

  Authorize the establishment of projects subject to special regimes anywhere in the country, provided that the type of project has been declared of national interest and, the same is of environmental sustainability, respecting current environmental standards.

PROVISIONS ON MUNICIPAL PERMITS AND TAXES. Tourism projects under this Law must pay to municipalities the Tax on Real Property and the Tax on Industry, Commerce and Services, whose taxpayer, taxable base, and taxable event and scope, are defined in said Law. The payment for Operating Permit, Construction Permit and municipal rates for public services must bear proportionality between the cost of the service and the service effectively provided. Hidden taxes or amounts with additional taxes, levies, rates, surcharges, rights, contribution improvements should not be paid as long as the procedures for their determination contained in the Law of Municipalities and its Regulation and the Law of Contribution for Improvements are followed. Tourism projects are exempt from any other payment or additional amount for taxes, levies, rates, surcharges, rights, contributions for improvements, as long as the procedures for their determination contained in the Law of Municipalities and its Regulation and the Law of Contribution for Improvements are followed. Tourism projects are exempt from any other payment or additional amount for taxes, levies, rates, surcharges, rights, contributions, permits, tariffs or municipal fees of any nature, created through Tax Plans or acts of general character of the municipalities. Natural and juridical persons covered under this Law must make all withholdings that by law correspond for payment of Personal Income Tax of their employees and remit them in the deadlines and manner that the Municipalities establish. Tourism projects enjoy preference and priority in the granting of municipal environmental and construction permits and environmental permits and licenses, by the environmental authority, according to its categorization. The requirements for the processing of said permits and licenses must be those contemplated solely in law and regulations on the subject. In any case, the permits and licenses to which this Article refers must be issued within a maximum period of (60) business days after their request.

INCENTIVES FOR PROJECT INVESTMENT. Natural or juridical persons who invest in projects under this Law may avail themselves of the following benefits:

• 1)

  Deduct as an expense from their taxable net income, the entirety of interest paid for credit purchases with mortgage guarantee or financial leasing of apartments, dwellings or time-share accommodations, for the first two hundred fifty (250) average minimum wages, of their purchase or lease value, in zones of the country that the State of Honduras declares as priority for the Tourism Sector through the Council of State Secretaries;

• 2)

  Establish investment trusts in real estate or infrastructure projects as investment vehicles directly linked to the tourism activity qualified by the Honduran Institute of Tourism (IHT). These investment vehicles can only buy, sell or rent real property and must have a minimum of twenty-five (25) investors who are natural persons and none of them can represent more than twenty percent (20%) of the capital to be invested. Juridical persons cannot participate in these mechanisms, with the exception of pension funds and savings and housing cooperatives. Investment vehicles are exempt from payment of Income Tax and their investors must pay capital gains tax on the benefits they receive. The administrators of the investment vehicle can only charge an administrative fee that cannot exceed the amount or percentage determined by the National Banking and Insurance Commission (CNBS);

• 3)

  Investments financed by capital contributions made by natural and juridical persons who are shareholders or holders of social shares in a company owning or through a special purpose vehicle of a tourism project qualified by the Honduran Institute of Tourism (IHT), in accordance with the parameters of this Law and that constitute an amount equal to or greater than thirty-five percent (35%) of the net present value of the initial discounted investment of said project, may be deducted by the contributors from their taxable net income from Income Tax, once only in the year in which the investment is made and for the entirety of said capital investments. This benefit should not be considered as an expense in the fiscal year, but rather as a benefit of reduction of the amount of the taxable base to be calculated in said Income Tax, applies only for purposes of calculating the Income Tax to be paid. When after applying the benefit, the taxable net income is equal to zero, or the investment exceeds the taxable net income, Income Tax will not be paid. In cases where after applying the benefit, a taxable net income is determined in the declaration, Income Tax must be paid exclusively in accordance with what is established in Article 22 of the Income Tax Law. In cases where the gross income declared is less than one point five percent (1.5%) Article 22-A of the Income Tax Law will not be applicable. Said deduction is non-transferable and must be made in the fiscal year in which the investment is made. This benefit will be in effect for fifteen (15) years counted from the year this Law enters into force.

TOURIST AND INVESTMENT VISAS. The National Migration Institute (INM) or, as the case may be, the Consulates of Honduras abroad, is authorized to issue tourist visas for citizens of countries that require visas when visiting the country. These visas may be issued through electronic means and simple procedures, by full right, without requirement of legal representative and within a maximum non-extendable period of forty-eight (48) hours from their request or issued upon entry to the country, has a cost of Ten Dollars of the United States of America (US$10) payable upon entry to the country, the resources collected will form part of the Patrimony of the Fund for Investment, Promotion and Development of Tourism (FITUR). When citizens of those countries have visas to enter the European Union, United States, Canada, Singapore or Australia, a visa is not necessary to enter the country. Foreigners who invest more than Two Hundred Thousand Dollars of the United States of America (US$200,000) or its equivalent in Lempiras, directly in a tourism project, in shares of a commercial company engaged in tourism may opt for residency or work visa in Honduras. This extreme must be proven before the Honduran Migration Institute (IHM). TITLE IV FUND FOR INVESTMENT, PROMOTION AND DEVELOPMENT OF TOURISM (FITUR)

FUND FOR INVESTMENT, PROMOTION AND DEVELOPMENT OF TOURISM (FITUR). The Fund for Investment, Promotion and Development of Tourism (FITUR) hereinafter called the Fund or FITUR, is created with the purpose of providing financing for the promotion and development of tourism at the national level. This Fund must function as an entity of private law, with its own juridical personality, auxiliary to the public administration and as such, governed by the Commercial Code, with the capacity to perform all types of acts and celebrate all types of contracts for the periods it considers necessary. The Fund for Investment, Promotion and Development of Tourism (FITUR) shall prepare the necessary regulations for its operation, within a period of up to ninety (90) days after its publication in the Official Gazette "La Gaceta".

PATRIMONY. The Fund for Investment, Promotion and Development of Tourism (FITUR) will have as its initial patrimony the contribution it receives from the State and the private sector, as well as those that come from friendly countries and regional or international financial organizations. The Executive Branch defines the annual budgetary resources and assets it transfers for its operation and the fulfillment of its purposes. The Fund may contract credit lines and conduct all types of financial operations that are required both within and outside the country and guarantee their payment with its own patrimony.

GOVERNANCE STRUCTURE OF FITUR. Its internal governance structure is composed of:

• 1)

  The State Secretariat of the Office of Economic Development (SDE), which presides over it;

• 2)

  The State Secretariat of the Office of Finance (SEFIN);

• 3)

  The Honduran Institute of Tourism (IHT);

• 4)

  The State Secretariat of the Offices of Labor and Social Security;

• 5)

  The National Chamber of Tourism of Honduras (CANATURH);

• 6)

  The Honduran Council of Private Enterprise (COHEP); and,

• 7)

  A representative of the National Program for Employment Generation and Economic Growth Honduras 2020 or whom the President of the Republic designates.

PURPOSES OF FITUR. FITUR has the following purposes:

• 1)

  Identify sites for the development of tourism projects;

• 2)

  Buy, rent, sell land or associate with land owners, for the development of tourism projects;

• 3)

  Obtain and grant financing for the development of tourism projects;

• 4)

  Carry out directly or through third parties, the development plans of tourism development poles, the design and construction of basic infrastructure;

• 5)

  Create among others, credit lines to support the development of national air, land and aquatic transportation for tourism purposes;

• 6)

  Protection of natural areas and parks; and,

• 7)

  Others that defined by its regulation and that comply with the purposes established in this Law.

Real property intended for the development of a tourism project may be subject to the procedure established in the Law for the Promotion and Protection of Investments contained in Decree No. 51-2011 dated May 3, 2011.

SPECIAL REGISTRY.- The Institute of Property (IP) must create a special registry for the registration of the real property referred to in the preceding Article.

CONSTITUTION OF TRUSTS. FITUR may constitute trusts in accordance with the Commercial Code for the fulfillment of its purposes. TITLE V FINAL PROVISIONS

SANCTIONS REGIME. Natural or legal persons who avail themselves of the benefits of this Law are subject to verification, control, and inspection procedures by the Ministry of State in the Office of Finance (SEFIN), and those who fail to comply with the conditions or obligations assumed, or who make improper use thereof, shall be subject to the sanctions established in the Tax Code, without prejudice to any other responsibilities that may arise in accordance with the provisions of said legal order.

TERRITORIAL PLANNING. Territorial planning plans for the tourism sector must be approved by the Honduran Institute of Tourism (IHT). It also falls to this institution to determine the densities, occupation percentages of properties, maximum permissible heights, separation from the beach line inland, and others deemed necessary to preserve the natural environment. All of the foregoing must be done in compliance with the Law of Territorial Planning.

WITHHOLDING AND PAYMENT OF TOURISM TAX.- Natural and legal persons who avail themselves of the benefits of this Law must collect, withhold, and remit the Tourism Tax referred to herein within ten (10) business days of the month following its collection.

All incentives and benefits granted to projects under this Law are non-extendable.

REGULATIONS. The Ministry of State in the Office of Finance, jointly with the Ministry of State in the Office of Economic Development and the Honduran Institute of Tourism (IHT), must issue the Regulations of this Law within a period of ninety (90) days, counted from the date of entry into force of this Decree.

TRANSITIONAL PROVISION. An amnesty is decreed for a period of up to six (6) months regarding the payment of fines, interest, and other charges to tourism projects currently in operation that have not obtained their environmental license and its renewal, and/or Environmental Compliance Report (ICMAS), before the Ministry of State in the Offices of Energy, Natural Resources, Environment and Mines (MIAMBIENTE). Likewise, the fines established in Articles 5 and 6 of Decree No. 90-90 dated August 14, 1990, containing the LAW FOR THE ACQUISITION OF URBAN PROPERTY IN THE AREAS DELIMITED BY ARTICLE 107 OF THE CONSTITUTION OF THE REPUBLIC, are hereby repealed.

REPEALS. For purposes of this Law, the following are repealed: 1) The Law of Incentives to Tourism, contained in Decree No. 314-98 dated December 18, 1998; and, 2) The tax or fiscal benefits related to the tourism sector or branch, contained in other general or special laws in force. The processing of benefits maintained by taxpayers who availed themselves of any tourism regime that is repealed by this Law shall be transferred to the Ministry of State in the Office of Finance with the assistance of the Honduran Institute of Tourism (IHT) and the Administrative Commission of the Tourism Zone of the Bay Islands (ZOLITUR), in accordance with the mandates established in the Tax Code, the Fiscal Responsibility Law, and the Law for the Organization of Public Finance, Control of Exemptions and Anti-Evasion Measures, and other applicable legal framework in force; respecting rights acquired under previous legislation.

EFFECTIVE DATE. This Decree shall enter into force as of the date of its publication in the Official Gazette "La Gaceta". Given in the city of Tegucigalpa, municipality of the Central District, in the Session Hall of the National Congress on the fifteenth day of the month of August of the year two thousand seventeen. MAURICIO OLIVA HERRERA PRESIDENT MARIO ALONSO PÉREZ LOPEZ SECRETARY ROMÁN VILLEDA AGUILAR SECRETARY To the Executive Branch For Implementation: Let it be executed. Tegucigalpa, M.D.C., August 17, 2017. JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICE OF FINANCE WILFREDO CERRATO THE SECRETARY OF STATE IN THE OFFICE OF ECONOMIC DEVELOPMENT ARNALDO CASTILLO