Law on Public Security

The purpose of this Law is to establish mechanisms for strengthening justice operators in order to efficiently combat any threat to peaceful coexistence and the personal and material security of inhabitants and persons within the national territory.

The contributions created in this Law are of a temporary nature for a period of five (5) years, as a response to the national emergency of population insecurity that requires resources to combat delinquency and criminality in order to restore security among the population and attract greater investments to the country.

The resources collected from the contributions to strengthen the fight against delinquency and criminality shall be delivered to the State through the Office of Finance via the General Treasury of the Republic, which in turn shall create a Trust whose administration shall be in charge of representatives of the State, the business sector and Society as a guarantee of the proper use of such funds for the purposes of this Law with an accountability system that allows the population to learn through quarterly evaluations in a transparent manner of the administration of the Pro-Population Security funds and the results achieved in accordance with a plan prepared for such purpose. TITLE II SPECIAL CONTRIBUTIONS FOR POPULATION SECURITY CHAPTER I SPECIAL CONTRIBUTION FOR FINANCIAL TRANSACTIONS PRO-POPULATION SECURITY

A Special Contribution for Financial Transactions Pro-population security is hereby created, with a transitory character that shall be applied for five (5) years from the effective date of this Law.

This Special Contribution taxes operations conducted in National and Foreign Currency in the institutions of the national banking system, cooperatives that conduct savings and/or loan operations, the National Bank for Agricultural Development (BANADESA), Financial Societies, Representative Offices and Private Financial Development Organizations (OPDF), supervised by the National Banking and Insurance Commission (CNBS), hereinafter identified as FINANCIAL ENTITIES, in accordance with the following detail:

• a)

  Debits (withdrawals) in demand deposits and savings deposits made in the Financial Entities;

• b)

  Payments or transfers of funds through a financial entity, not made through the accounts indicated in the preceding subsection a), whatever denomination is given to these operations, the instruments used to carry them out, including through cash movements, and their legal documentation; regardless of the denomination of the accounts proper to the financial entities, transactions conducted with charges to them are covered by this standard;

• c)

  Acquisition in the financial entities, without using the accounts indicated in the preceding subsection a) of cashier's checks, certified checks, traveler's checks, electronic transfers or other similar financial instruments existing or to be created;

• d)

  Payments or transfers in favor of third parties on account of principals or commitments charged to money collected or received in their name, made by financial entities, without using the accounts indicated in the preceding subsection a), whatever denomination is given to these operations, the mechanisms used to carry them out, including through cash movements, and their legal documentation;

• e)

  Transfers or remittances of money, to the exterior or interior of the country, made through a financial entity, without using the accounts indicated in the preceding subsection a);

• f)

  The redemption of Fixed-Term Deposit Certificates; The Special Contribution for Financial Transactions Pro-population security originating from loan operations granted by the Financial Entities and the payments made thereof must be assumed by the lending Financial Entity. The National Banking and Insurance Commission (CNBS) must monitor that this Special Contribution is not transferred to the borrower through the increase in administrative expenses of the Financial Entities.

The Taxable Event of the Special Contribution for Financial Transactions Pro-population security is perfected in the following cases:

• 1)

  At the moment of the debit or withdrawal from the accounts indicated in subsection a) of the preceding article;

• 2)

  At the moment of making the payment or transfer referred to in subsection b) of the preceding Article;

• 3)

  At the moment of making the payment for the instruments referred to in subsection c) of the preceding Article;

• 4)

  At the moment of the payment or transfer referred to in subsection d) of the preceding article;

• 5)

  At the moment of ordering the transfer or remittance of money referred to in subsection e) of the preceding article;

• 6)

  At the moment of the redemption of the Fixed-Term Deposit Certificate referred to in subsection f) of the preceding article.

The taxable base is composed of the total value of the transaction carried out in the financial entity.

The passive subjects of the Special Contribution for Financial Transactions Pro-population security are natural or juridical persons, owners holding demand deposits and savings deposits, whether in individual, joint or solidarity form; those who make payments or transfers of funds; those who acquire cashier's checks, certified checks, traveler's checks, electronic transfers or other similar financial instruments existing or to be created; those who order payments or transfers in favor of third parties; those who instruct transfers or remittances of money and those who redeem Fixed-Term Deposit Certificates.

The following are exempt from this Contribution:

• 1)

  The accounts in financial entities corresponding to the Central Bank of Honduras and the Public Sector, except Public Enterprises, Autonomous Entities and Decentralized Entities;

• 2)

  The trust accounts created by the Central Bank of Honduras and the Public Sector, except Public Enterprises, Autonomous Entities and Decentralized Entities;

• 3)

  Loan operations of the National Bank for Agricultural Development (BANADESA) to the agricultural sector up to an amount of Six Hundred Thousand Lempiras (L.600,000.00).

• 4)

  On condition of reciprocity duly accredited by the State Secretariat in the Office of Foreign Affairs, debits (withdrawals) from accounts in financial entities corresponding to diplomatic missions, consular offices, international organizations and foreign diplomatic personnel accredited before the State of Honduras;

• 5)

  Debits (withdrawals) from accounts enabled in financial entities by Cooperation Agencies and implementing entities dependent on Foreign Governments that are exempt by virtue of international agreements accredited by the State Secretariat in the Office of Foreign Affairs;

• 6)

  Debits (withdrawals) from savings deposits in national currency of natural persons with an average balance in the immediately preceding month less than or equal to one hundred twenty thousand lempiras (L.120,000.00);

• 7)

  Debits (withdrawals) from savings deposits in foreign currency of natural persons with an average balance in the immediately preceding month of an amount less than or equal to six thousand dollars of the United States of America ($6,000.00) or its equivalent;

• 8)

  Direct transfers from client accounts intended for credit in fiscal accounts that collect national or municipal taxes and accounts that collect legal contributions to social security;

• 9)

  Accounts used for the payment of legal benefits and/or bonuses created by legal norm;

• 10)

  Debits (withdrawals) for the concept of account maintenance;

• 11)

  Debits (withdrawals) corresponding to reverse entries due to error or cancellation of documents previously credited or debited to the account;

• 12)

  Debits (withdrawals) in accounts that entities governed by the Law of Financial System Institutions and the Securities Market Law maintain among themselves and with the Central Bank of Honduras, for purposes of clearing or monetary, credit and exchange policy;

• 13)

  Debits (withdrawals) in accounts used, exclusively, by automated teller machine network administrators originating from fund movements made through such networks as well as transfers that originate from or are destined for the mentioned accounts designated for this sole purpose;

• 14)

  Debits (withdrawals) in accounts used, exclusively, by debit and/or credit card operators;

• 15)

  Remittances originating from abroad.

• 16)

  Transfers made by natural persons when they do not exceed Ten Thousand Lempiras (L.10,000.00) 17) Accounts of patronatos or water boards with legal personality. 18) Electronic transfers made between accounts of the same natural or juridical person within the same financial entity; and, 19) The Catholic Church and the Evangelical Church, as religious institutions, and; 20) International Humanitarian Organizations, subject to prior qualification by the State Secretariat in the Office of Finance through the General Directorate of Exemptions and Customs Franchises. The exemptions established in this article must be granted in accordance with the requirements and procedures that for this purpose the Executive Directorate of Revenues (DEI) shall establish.

The rate of the Special Contribution for Financial Transactions Pro-population security is zero point three percent (0.3%).

Financial entities must act as Withholding or Collection Agents for this Special Contribution in each taxable operation. The declaration, liquidation and payment must be made in the form and conditions established by the Executive Directorate of Revenues (DEI). The amounts withheld or collected shall be remitted to the Treasury in accordance with the following detail: 1) That withheld or collected between the 1st and 15th of each month must be credited no later than the 20th of the same month; and, 2) That withheld or collected between the 16th and the last day of each month, must be credited no later than the 5th of the following month. The State Secretariat in the Office of Finance must send a monthly report of income from this concept to the Legislative Branch.

A period of sixty (60) business days from the effective date of this Law is granted to financial entities to adapt their computer systems for the collection of this Special Contribution. CHAPTER II SPECIAL CONTRIBUTION FOR MOBILE TELEPHONY

A Special Contribution with transitory character for Mobile Telephony Pro-population security is hereby created that taxes the activities and services rendered by mobile telephony operators. The National Telecommunications Commission (CONATEL) shall monitor so that these costs are not transferred to the user

The taxable base is the total monthly gross revenues of companies engaged in mobile telephony services.

The passive subjects are juridical persons that develop the activities and services of mobile telephony established in the country and are regulated by the General Telecommunications Law.

RATE. The rate is one percent (1%).

DECLARATION, LIQUIDATION AND PAYMENT. The declaration, liquidation and payment of the Special Contribution for Mobile Telephony for Population Security shall have monthly frequency and must be presented and paid within the first ten days of the month following the generation of income, in accordance with the form and conditions established in the regulation issued by the Executive Revenue Directorate (DEI). CHAPTER III SPECIAL CONTRIBUTION FOR ENVIRONMENTAL PROTECTION

PURPOSE. A Special Contribution of a transitional nature for Environmental Protection is created, which taxes the exploitation and commercialization of minerals in the country carried out by natural and legal persons.

TAXABLE BASE. The taxable base is the FOB (Free On Board) value of the export registered in the Merchandise Declaration.

TAXPAYERS. The taxpayers of the Special Contribution for Environmental Protection are natural and legal persons who carry out activities of exploitation and/or commercialization of minerals.

RATE. The rate is five percent (5%).

DECLARATION, LIQUIDATION AND PAYMENT. The declaration, liquidation and payment of the Special Contribution to the Environment shall be made jointly with the liquidation operations of the Merchandise Declaration. CHAPTER IV SPECIAL CONTRIBUTION FROM THE FOOD AND BEVERAGE SECTOR

PURPOSE. The Special Contribution of a transitional nature for Population Security is created, originating from the commercialization of food and beverages under international franchises that are under any special regime.

TAXABLE BASE. The taxable base is the total gross monthly income received by commercial companies that dedicate themselves to the commercialization of food and beverages that operate in the country under international franchises that are under any special regime.

TAXPAYERS. The taxpayers are legal persons that develop the activities and services of commercialization of food and beverages that operate in the country under international franchises and that operate under any special regime.

RATES. The rate is zero point five percent (0.5%).

DECLARATION, LIQUIDATION AND PAYMENT. The declaration, liquidation and payment of the Special Contribution for food and beverages that operate in the country under international franchises that are under any special regime shall have monthly frequency and must be presented and paid within the first ten days of the month following the generation of income, in accordance with the form established in the regulation issued by the Executive Revenue Directorate (DEI). TITLE III SUPPORT MEASURES FOR POPULATION SECURITY CHAPTER I NUMBER PORTABILITY

CREATION. The National Telecommunications Commission (CONATEL) must issue the necessary administrative regulations that obligate mobile telephone operators to implement in the country the number portability of mobile telephony, which must be in operation within one hundred twenty (120) calendar days following the approval of this Law. CONATEL must, within a period of thirty (30) business days from the effective date of this Law, issue the regulations to regulate number portability. Mobile telephone operators are authorized to deduct from the contribution indicated in Chapter II of Title II of this Law the costs associated with the implementation of number portability, and must remit the remainder in the form and by the means established by the Executive Revenue Directorate (DEI). TITLE IV TRUSTEE FOR THE ADMINISTRATION OF THE FUND FOR PROTECTION AND POPULATION SECURITY CHAPTER I

CREATION. The "Fund for Protection and Population Security" is created, which shall function through a trust financed with the special contributions of Title II of this Law, donations and contributions in any form received from the public or private sector, as well as from the returns obtained from investments.

CONSTITUTION AND OPERATION OF THE FUND. The Executive Branch is authorized, through the Secretary of State in the Office of Finance, to subscribe through private bidding or auction proceedings the necessary contract or contracts for the constitution and operation of the trust. The constitution of the trust shall be authorized on plain paper and without formalities, and shall comply with the requirements established in the Commercial Code, which must be registered in the Public Commercial Registry of Francisco Morazán, a registration that shall not incur any fees, taxes or registration rights for its registration. The fiduciary institution shall be remunerated from the returns produced by the investments made by means of the funds received. It is prohibited to establish clauses or conditions by means of which the resources derived from the contributions are committed to finance the administration and management of the fund.

DESTINATION. The resources of the "Fund for Protection and Population Security" shall serve to finance actions for the prevention and control of common or organized crime in any of its forms or denominations. The funds of the Trust, must be allocated to the activities that the Judicial Branch, Public Ministry, the State Department in charge of Security, the State Department in charge of Defense, Fire Department of Honduras and other institutions, hereinafter called "Trustee Institutions" develop for the prevention and control of crime and criminality. The purchases and acquisitions that are made with charges to the Fund must be carried out in accordance with the Plan of Purchases and Acquisitions approved by the Technical Committee. This plan of purchases and acquisitions must establish actions of prevention and control duly itemized in order to define its lines of action among which security actions, social actions, public lighting and others related to the objective of the Fund must be contemplated. The Trust with the technical advice of CONATEL must contract with mobile telephone operators authorized to operate in the country, programs, technological equipment, installation and administration of electronic devices for the control of entries and exits of calls from and to the penitentiary centers of the country, operations that must be supervised by CONATEL. The trusts must present to the Trust the indicators and goals to be met.

TECHNICAL COMMITTEE. The Trust shall have a Technical Committee composed of a principal member or his respective alternate, in the following manner:

• 1)

  Director of the Technical Committee, with veto power, designated by the President of the Republic;

• 2)

  Director of the Technical Committee, with veto power, designated by the Honduran Council of Private Enterprise (COHEP); and,

• 3)

  Director of the Technical Committee, designated by the National Forum for Convergence (FONAC). The designees shall serve for twenty-four (24) months. The positions of the Technical Committee shall be held on an honorary basis. In case of impediment or temporary absence of a Director, he shall be replaced by his respective alternate. The alternate Directors who replace a principal member shall do so on a temporary or permanent basis, according to the type of vacancy that has occurred. Under this Technical Committee, an Administration and Acquisitions Committee shall operate that shall be composed of and under the responsibility of the trustee and a representative of the Technical Committee described above. This committee must have the advice of specialists in security policies, crime control and prevention. This Administration and Acquisitions Committee shall provide a quarterly report to the Technical Committee, as well as to the general public, of how the trust funds were invested. Without prejudice to the controls exercised by the Superior Court of Accounts over such funds, it shall be mandatory to conduct an external audit of the funds administered at the conclusion of each fiscal year.

TRANSFERS. The President of the Republic shall establish for each fiscal year the amount from which transfers of resources from the special contributions from the "Fund for Protection and Population Security" must be made to the trust created for "Fund for Social Programs" authorized by Legislative Decree No. 87-2011. The Fund for Protection and Population Security shall never be less than One Billion Five Hundred Million Lempiras (L. 1,500,000,000.00).

EXEMPTION. Exemption is granted from fees, contributions, taxes or import tariffs or special taxes on charges or surcharges of the tax on sales of production, consumption and/or purchases of goods and services that are made with charges to the "Fund for Protection and Population Security".

SUSPENSION. The collection of security fees or their equivalents charged by municipalities is temporarily suspended as long as this Law remains in effect.

COMPENSATION OF TRUSTS. In cases where there are internationally recognized successful experiences in citizen security issues in plans or programs implemented in a municipality and that meet the requirements stipulated in this provision, the Trust is authorized to make transfers of resources from the "Fund for Protection and Population Security" to the trust created by said municipality, a transfer that must minimally cover, proportionally, the amounts that the municipality would cease to receive due to the temporary suspension of the municipal security fee, taking as reference the immediately preceding fiscal year for which it collected for this concept. For other municipalities to benefit from this provision they must comply with the following requirements:

• 1)

  That the decision to implement a security plan, supported by the citizens, be made in an open town meeting;

• 2)

  That the Municipal security plan be certified by the State Department in charge of Security.

• 3)

  That they establish a trust for the administration of resources allocated to the municipal security plan.

COLLECTION, SUPERVISION AND ENFORCEMENT. The collection, supervision and enforcement of the Special Contributions of Title II of this Law are the responsibility of the Executive Directorate of Income (DEI). The National Banking and Insurance Commission (CNBS) must ensure that the Special Contribution for Financial Transactions for Population Security is not transferred to account holders and that these operations are properly itemized in the accounting records of the Financial Entities. Non-compliance with the obligations set forth in Title II of this Law shall be sanctioned in application of the provisions of the Tax Code.

INFORMATION. Financial Entities are obligated to report the detail of the withholdings and collections made in the means, forms and periods that the Executive Directorate of Income (DEI) determines through regulation.

NON-DEDUCTIBILITY. The Special Contributions of Title II of this Law are not deductible for purposes of the Income Tax nor of other taxes.

PERMANENT CHARACTER. The provisions of this Law that refer to number portability have a permanent character.

DESTINATION OF THE PRODUCT OF THE CONTRIBUTION. Without prejudice to what is established in the current legal norms regarding the allocation of income in the Single Account of the General Treasury of the Republic, said resources shall be transferred, with a special income code, via the Integrated System of Financial Administration (SIAFI) for the formation of the "Fund for Protection and Population Security". The General Treasury of the Republic shall immediately credit the funds obtained to the account of the trust created for this purpose.

The collection that comes from the Special Contribution for Financial Transactions for Population Security, shall be registered as other taxes administered by the Executive Directorate of Income (DEI), and the collection thereof through the National Financial System does not cause the payment of collection commissions to such institutions that act as withholding or collection agents; the omission of what is prescribed herein shall make the Financial Institution responsible for the administrative sanctions imposed by the Executive Directorate of Income (DEI) or the National Banking and Insurance Commission (CNBS) without prejudice to the legal actions that correspond. For accounting purposes, the other special contributions are considered as other taxes administered by the Executive Directorate of Income (DEI).

Commercial Entities that engage in the business of casinos and slot machines are taxed with one percent (1%) on monthly income, applying the same rules established for the contributions of Title II of this Law, and which shall be regulated by the Executive Directorate of Income (DEI).

REGULATIONS. The regulation of this Law must be drafted jointly by the State Department in charge of Finance and the Executive Directorate of Income (DEI) within a period no greater than thirty calendar days from the date of entry into force of this Decree.

EFFECTIVE DATE. This Decree shall enter into force on the day of its publication in the Official Gazette "La Gaceta". Given in the city of Tegucigalpa, Municipality of the Central District, in the Chamber of Sessions of the National Congress, on the twenty-second day of the month of June of Two Thousand Eleven. JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT RIGOBERTO CHANG CASTILLO SECRETARY JARIET WALDINA PAZ SECRETARY To the Executive Power Therefore: Execute. Tegucigalpa, M.D.C., July 5, 2011. PORFIRIO LOBO SOSA PRESIDENT OF THE REPUBLIC. MARLÓN PASCUA CERRATO STATE SECRETARY IN CHARGE OF NATIONAL DEFENSE OSCAR ARTURO ALVAREZ GUERRERO STATE SECRETARY IN CHARGE OF SECURITY