Regulations of the Law for Support of Micro and Small Business

PURPOSE.- To regulate the provisions contained in Legislative Decree No. 145-2018, which contains the Law of Support for Micro and Small Enterprises published in the Official Gazette La Gaceta on November 28, 2018.

SCOPE OF APPLICATION.- The norms contained in this Regulation shall apply throughout the National Territory for all Micro and Small Enterprises beneficiaries in accordance with the provisions of the Law of Support for Micro and Small Enterprises.

DEFINITIONS.- For purposes of the application of this Regulation, the following terms are defined: 1. MERCHANTS: Merchants are, in accordance with the provisions of Article 2 of the Commercial Code, natural persons who are holders of a commercial enterprise and corporations established in commercial form. 2. DIFOMIPYME: Directorate for the Promotion of Micro, Small and Medium Enterprises of the Secretary of State in the Office of Economic Development. 3. FORMALIZATION: Procedure by which Micro and Small Enterprises are established in compliance with the requirements established in the Law of Support for Micro and Small Enterprises. 4. LAW: Law of Support for Micro and Small Enterprises 5. MICRO ENTERPRISE: Any economic unit with a minimum of one (1) remunerated person working in it, which may be its owner, and a maximum of ten (10) remunerated employees. 6. SMALL ENTERPRISE: Those with a better combination of productive factors and commercial positioning, which allow the business unit to accumulate certain profit margins. It has a more defined business organization and greater formalization in its management and registration, and has a minimum of eleven (11) and a maximum of fifty (50) remunerated employees. 7. INDEPENDENT PROFESSIONALS: Natural persons who perform work or provide services in the liberal exercise of a profession when there is no relationship of economic dependence between the parties and who freely set their remuneration. 8. SAR: Tax Administration Service 9. SEFIN: Secretary of State in the Office of Finance In the event that the legislation governing the sector of Micro and Small Enterprises undergoes reforms after the entry into force of the Law, the definitions expressed in numerals 5 and 6 of this Article must be adjusted to such reforms. TITLE II FISCAL BENEFITS, FORMALIZATION PROCEDURE AND OBLIGATIONS CHAPTER I BENEFICIARIES

BENEFICIARY CATEGORIZATION.- The beneficiaries of the Law are natural persons and legal entities categorized as Micro and Small enterprises, as follows: 1. Micro and Small enterprises that have been operating informally and are formalized within a period of twelve (12) months counted from November 28, 2018 and in compliance with the provisions of the Law. 2. Merchants who are formally established and registered in any Public Commercial Registry and Chamber of Commerce of the Country, regardless of their foundational capital, within a period of twelve (12) months counted from November 28, 2018: 3. Micro and Small enterprises established and in operation prior to the entry into force of the Law provided that:

• a)

  Successfully prove to the Secretary of State in the Office of Economic Development, between November 28, 2018 and December 31, 2019, that new remunerated job creation has increased by 30% compared to the payroll of remunerated employees in effect on September 30, 2018, as a result of capital investment or reinvestment, expansion of operations, or any increase in industrial, production, commercial or service activity;

• b)

  Accredit within a period of twelve (12) months counted from November 28, 2018 the authorization of the Secretary of State in the Offices of Labor and Social Security related to the preceding subsection; and, c. Accredit within a period of twelve (12) months counted from November 28, 2018, that they do not have annual gross income greater than Five Million Lempiras (L. 5,000,000.00) in the previous fiscal year. 4. Independent professionals such as: physicians, dentists, lawyers, public accountants.

FISCAL BENEFITS OF MICRO AND SMALL ENTERPRISES.- The beneficiaries described in numerals 1, 2 and 3 of the preceding Article have the following fiscal benefits:

• 1)

  Exemption from payment of the Income Tax established in Article 22 of the Law of Income Tax and its Reforms;

• 2)

  Exemption from payment of the Net Asset Tax established in Articles 5 through 16 of the Tax Equity Law contained in Legislative Decree No. 51-2003 published in the Official Gazette La Gaceta on April 10, 2003;

• 3)

  Exemption from payment of the Solidarity Contribution established in Article 22 of the Tax Equity Law contained in Legislative Decree No. 51-2003 published in the Official Gazette La Gaceta on April 10, 2003, as reformed by Article 15 of Legislative Decree No. 278-2013 published in the Official Gazette La Gaceta on December 30, 2013;

• 4)

  Exemption from payment of the Advance of one percent (1%) in concept of Income Tax established in Article 19 of the Law for the Strengthening of Income, Social Equity and Rationalization of Public Spending contained in Legislative Decree No. 17-2010 published in the Official Gazette La Gaceta on April 22, 2010;

• 5)

  Exemption from payment of twelve point five percent (12.5%) in concept of Income Tax established in Article 50 of the Law of Income Tax as reformed by Article 10 of Legislative Decree No. 194-2002 published in the Official Gazette on March 30, dated June 5, 2002;

• 6)

  Exemption from registration fees related to the act of business establishment;

• 7)

  Exemption from municipal fees that originate from the application of Articles 146 and 151 of the Law of Municipalities contained in Legislative Decree No. 134-90 published in the Official Gazette La Gaceta on November 19, 1990;

• 8)

  Exemption from the Personal Property Tax of the Municipalities established in Articles 75 Numeral 2 and 77 of the Law of Municipalities contained in Legislative Decree No. 134-90 published in the Official Gazette La Gaceta on November 19, 1990, when it comes to the beneficiaries described in numeral 2 of the preceding Article;

• 9)

  Exemption from the Tax on Industry, Commerce and Services of the Municipalities established in Articles 75 Numeral 3 and 78 of the Law of Municipalities contained in Legislative Decree No. 134-90 published in the Official Gazette La Gaceta on November 19, 1990, when it comes to the beneficiaries described in numeral 2 of the preceding Article; and, 10. Exemption from charges for the issuance of administrative acts, licenses or other concepts necessary for its operation, which must be carried out in public institutions.

FISCAL BENEFITS OF INDEPENDENT PROFESSIONALS.- Independent professionals have only the fiscal benefit of being exempt from payments and any fees in the processing of health licenses and operation permits in municipalities during the period of the Law's validity.

APPLICATION OF FISCAL BENEFITS.- The fiscal benefits in the matter of Income Tax established in the Law, in accordance with the rules established in Article 1 Numeral 2 of the Tax Code, are in effect as of the 2019 fiscal year.

TERMS OF FISCAL BENEFITS.- The enjoyment of the fiscal benefits described in Article 3 shall be carried out in accordance with the following rules: 1. FIVE (5) NON-EXTENDABLE YEARS: Fiscal benefits described in numerals 1, 2, 3, 4 and 5 of Article 3 of this Regulation. 2. THREE (3) YEARS: Fiscal benefits described in numerals 6, 7 and 8 of Article 3 of this Regulation. This term may be extendable for two (2) additional years upon properly motivated request of the Secretary of State in the Office of Economic Development.

EXCEPTIONS TO THE ENJOYMENT OF FISCAL BENEFITS.- The following are not beneficiaries of the fiscal benefits described in Article 3 of this Regulation:

• 1)

  Independent professionals, except as provided in the second part of Article 8 of the Law;

• 2)

  Legal entities that develop economic activities of contracting regulated by the State of Honduras;

• 3)

  Legal entities that have as partners, shareholders or social participants natural persons who already form part of another commercial corporation in an equal activity;

• 4)

  Legal entities that have as partners, shareholders or social participants natural persons who have been part of another commercial corporation in a similar activity;

• 5)

  Micro or small enterprises that include within their social participation legal entities, regardless of their category; and, 6. Legal entities that integrate within their social organization in the capacity of partner, shareholder or social participant natural persons who have been partners, shareholders or social participants of a legal entity that engages in a similar activity and is dissolved, liquidated or closes its operations as of the entry into force of this Law. 7. Persons covered by special regimes, in accordance with the provisions of Article 33 of the Law of Efficiency in Income and Public Spending contained in Legislative Decree No. 113-2011 published in the Official Gazette La Gaceta on July 8, 2011 and Article 17 of the Law of Fiscal Responsibility contained in Legislative Decree No. 25-2016 published in the Official Gazette La Gaceta on May 4, 2016. CHAPTER II FORMALIZATION MECHANISMS AND PROCEDURE FOR OBTAINING THE CERTIFICATE

FORMALIZATION MECHANISMS.- Formalization may be carried out through any of the following mechanisms:

• 1)

  Registration in accordance with the provisions of Legislative Decree No. 313-2013 dated January 15, 2014 which contains the Law for the Protection, Benefits and Regularization of Informal Activity and its Regulation;

• 2)

  Registration through the "My Company Online" portal, in accordance with the provisions of Legislative Decree No. 284-2013 dated January 8, 2014, which contains the Law for Job Generation, Promotion of Entrepreneurial Initiative, Business Formalization and Protection of Investors' Rights and its Regulation; and, 3. Any other mechanism contained in the Commercial Code, other applicable laws or this Law.

COOPERATION.- The Tax Administration Service (SAR) and other institutions involved in the application of the Law must provide cooperation to the Secretary of State in the Office of Economic Development in the function of receiving and delivering documentation and information from the interested party seeking to benefit from the benefits established in the Law.

MECHANISMS FOR OBTAINING THE CERTIFICATE.- The legal representatives or legal agents of the beneficiaries described in Article 2 of this Regulation may initiate the procedure for regularization and formalization through the following mechanisms: 1. Present the respective form in the offices of SAR at the national level; or, 2. Fill out the virtual form through My Company Online.

PROCEDURE FOR OBTAINING CERTIFICATE THROUGH SAR.- The merchant must go to any SAR office at the national level with the intention of accessing the benefits of the Law. For this purpose, the merchant must fill out the certificate request form for beneficiary of the Law, to which shall be attached a copy of the Identity Cards of the partners, which must be compared with their originals by SAR personnel, except in the case of numeral 4 of Article 2 of this Regulation. Upon presentation of the application with the required documentation, SAR shall electronically forward the application to the Secretary of State in the Office of Economic Development for its evaluation; which must be resolved within a period of no more than five (5) days, counted from the date of presentation of the application. Upon receipt of the proceedings, the Secretary shall analyze the admissibility of the application and if approved, shall electronically forward to SAR the Certificate that substitutes the operating permits issued by municipalities, which shall be delivered by the Tax Administration Service (SAR) to the applicant following the security controls established for it.

PROCEDURE FOR OBTAINING THE CERTIFICATE THROUGH MY COMPANY ONLINE.- The merchant must access the My Company Online Portal and fill out the certificate request form for beneficiary of the Law, to which shall be attached a copy of the Identity Cards of the partners, except in the case of numeral 4 of Article 2 of this Regulation. The Secretary of Economic Development through DIFOMIPYME, with the information provided in the application, shall issue the Certificate within a maximum period of 05 days counted from the date of submission of the application, which must be sent to My Company Online and the latter shall forward it to the electronic address incorporated in the application. Prior to issuance of the Certificate through this mechanism, SAR must verify that there is no violation of what is established in Article 12 of the Law.

ISSUANCE OF CERTIFICATE.- The Certificate shall be issued one time only and solely to the applicants described in Article 2 of this Regulation. In case of theft, loss or destruction of a Certificate, the beneficiary may request in writing to the authority that issued it and attach the police report in case of theft or a Sworn Statement that expresses the causes that originated the loss or destruction of the Certificate, a copy of the original on the basis of which it was presented and which is in his possession, indicating the mention "CERTIFIED COPY". This certified copy shall have the same date as the original Certificate.

CHARACTERISTICS OF THE CERTIFICATE. The Certificate issued by the Secretariat of Economic Development through DIFOMIPYME must comply with the following characteristics:

• 1)

  Unique registration number;

• 2)

  QR Code;

• 3)

  Watermarks as security guarantees;

• 4)

  Name of the Micro or Small Enterprise;

• 5)

  Category or economic activity to be conducted;

• 6)

  Address;

• 7)

  Names of Partners, shareholders or social participants, when applicable; and, 8. Estimate or number of remunerated jobs; 9. Validity for a maximum period of twelve (12) months.

USES OF THE CERTIFICATE. This special Certificate is the sole accrediting document to enjoy the benefits established in the Law. The certificate for purposes of enjoying tax benefits shall have a duration of admissibility according to the term established in the Law, unless they fail to comply with their obligations. Likewise, said Certificate must be presented in the annual registration in the Registry of Exempt Parties at the Secretariat of State in the Office of Finance. The certificate replaces the operating permits issued by municipalities and for these purposes shall have a duration of 12 months. Such Beneficiaries must process their corresponding national and municipal permits and licenses for their operation, under the warning that if they do not do so, they will not enjoy the benefits granted by the Law. Any damages or losses of any kind that may occur during the period of 12 months due to the operation of a Micro or Small enterprise shall be the responsibility of the beneficiary of this Law. The applicant and the persons who appear as partners in the certificate shall be civilly, criminally, and administratively responsible for any misuse thereof.

REGISTRATION OF CERTIFICATES. The Secretariat of State in the Office of Economic Development through DIFOMIPYME, as the issuing entity, must maintain a permanent registry of all Certificates of Law Beneficiaries issued, which must contain, at least, the number of the unique Certificate, with the folio and registration volume, the name of the beneficiary enterprise, address, and the date of its issuance.

DELEGATION OF CERTIFICATE ISSUANCE TO OTHER ENTITIES. The Beneficiary Certificate shall be signed and issued by the authorities of the Secretariat of Economic Development through DIFOMIPYME, who may delegate the signature and issuance of the Beneficiary Certificate to other Government offices.

ENTITY IN CHARGE OF CERTIFICATE ISSUANCE. The Secretariat of State in the Office of Economic Development is the entity responsible for the authorization of the Certificate, for which purpose My Enterprise Online must generate said Certificate. The Revenue Administration Service and any entity of the Public Administration must provide the cooperation required by said Secretariat.

INVALIDITY OF THE CERTIFICATE. The special Certificate shall become void and without effect: 1. When it is proven that the partners of the Micro and Small Enterprises have as partners persons other than or not listed in the special certificate. 2. When the corresponding national and municipal permits and licenses for their operation are not processed within the period of twelve (12) months counted from the date of issuance and signature of the certificate. To this effect, once the aforementioned term has elapsed, the Secretariat of State in the Office of Economic Development must require the presentation of the corresponding national and municipal permits and licenses for their operation, so that they may continue to enjoy their benefits. CHAPTER III OBLIGATIONS

OBLIGATIONS OF BENEFICIARIES. The beneficiaries of the Law have the following obligations: 1. To enroll annually in the Registry of Exempt Parties administered by the Secretariat of State in the Office of Finance by the General Directorate of Control of Customs Franchises. The beneficiary may conduct the enrollment procedure directly or through a legal representative and without payment pursuant to the provisions of numeral 9 of Article 3 of this Regulation. 2. Once the certificate is obtained, the beneficiary must comply with the obligations established in Articles 3 and 4 of the Law and the other obligations contained in this Regulation. 3. During the validity of the certificate, the beneficiary must process the corresponding national and municipal permits and licenses for their operation; in case of non-compliance, the certificate loses its effect. 4. Within the Constitution of the company, the beneficiary must declare the willingness to submit to the Regime of the Law and this Regulation. 5. To submit the Sworn Declaration of Tax Sacrifice in accordance with Article 9 of the Law, no later than May 30 of each year. 6. To submit declarations, retain taxes if applicable, declare their address and other matters contained in the Tax Code contained in Decree No. 170-2016 and its amendments and Erratum Slip in accordance with the provisions of Article 18 Numeral 2 of the aforementioned legal instrument. 7. To comply with the formal obligations contained in Articles 62, 63, 64, 65, 66, 67, and 68 of the Tax Code contained in Decree No. 170-2016 and its amendments and Erratum Slip. 8. To comply with the obligations established in the second paragraph of Article 5 of the Law, relating to: a. Tax on Capital Gains established in Article 10 of the Income Tax Law and its amendments, following the rules established in Article 14 of the Law on Efficiency in Revenue and Public Spending and its amendment established in Article 13 of the Law on Ordering of Public Finances, Control of Exonerations and Anti-Evasion Measures contained in Decree No. 278-2013 and its amendments and interpretations. b. Tax on Dividends or any other form of profit participation established in Article 25 of the Income Tax Law and its amendments contained in Decrees No. 17-2010 published in the Official Gazette La Gaceta dated April 22, 2010, No. 278-2013, published in the Official Gazette La Gaceta dated December 30, 2013, and Decree No. 125-2014, published in the Official Gazette La Gaceta dated April 29, 2015. c. Unified Tax of ten percent (10%) on income from interest established in Articles 10, 11, and 12 of the Law on Simplification of Tax Administration contained in Decree No. 110-93, published in the Official Gazette La Gaceta dated August 14, 1993, amended by the Law on Restructuring of Income Mechanisms and Reduction of Public Sector Spending, Promotion of Production and Social Compensation contained in Decree No. 135-94, published in the Official Gazette La Gaceta dated January 7, 1995. d. Income Tax resulting from the calculation method stipulated in Article 22-A of the Income Tax Law and its amendment established in Decree No. 31-2018, published in the Official Gazette La Gaceta dated April 20, 2018. e. To apply one percent (1%) withholding to national and foreign suppliers and contractors, in accordance with Article 19 of the Law on Strengthening Revenue, Social Equity and Rationalization of Public Spending, contained in Decree No. 17-2010, published in the Official Gazette La Gaceta dated April 22, 2010, and its Erratum Slip published in the Official Gazette La Gaceta dated May 29, 2010. f. To apply the Income Tax Withholding on payments made to natural and legal persons, residents and non-residents, in accordance with the provisions of Articles 5 and 28 of the Income Tax Law. TITLE III OVERSIGHT AND SANCTION REGIME

OVERSIGHT. In accordance with the provisions of the Tax Code, the Secretariat of State in the Office of Finance through the General Directorate of Control of Customs Franchises, by itself or with the assistance of the Tax Administration and the Customs Administration, must ensure the proper use and compliance with the purposes established in the Law.

SANCTION REGIME. The Secretariat of State in the Office of Finance, the Secretariat of State in the Office of Economic Development, the Revenue Administration Service or other Institution of the Central Government, and the Municipalities, within the scope of their competence, must sanction the non-compliance with the obligations established and derived from the application of the Law. TITLE IV FINAL PROVISIONS

SWORN DECLARATION OF TAX SACRIFICE. The technical criteria and information that the Sworn Declaration of Tax Sacrifice form must contain shall be approved by Agreement by the Secretariat of State in the Office of Finance in coordination with the Tax Administration and the Customs Administration.

INDIVIDUAL MERCHANTS. Pursuant to the provisions of Article 17 of the Law and Article 7 of the "Law for Job Generation, Promotion of Business Initiative, Formalization of Businesses and Protection of Investors' Rights" contained in Decree No. 284-2013, published in the Official Gazette La Gaceta dated June 5, 2014, Individual Merchants do not require any authorization nor notification from any authority of the Central, departmental, or municipal Government regarding accounting books. Nor shall they pay any fee or tax related to such books. Accounting may be maintained through computer systems that comply with the accounting standards required by the State without need for authorization or notification to any authority.

ADDITIONAL PROVISIONS. The Secretariat of State in the Office of Finance in coordination with the Tax Administration, through Agreement, shall regulate everything not regulated in this Regulation.

EFFECTIVE DATE. This Agreement shall take effect on the date of its publication in the Official Gazette La Gaceta. LET IT BE COMMUNICATED AND PUBLISHED. JUAN ORLANDO HERNANDEZ ALVARADO President of the Republic ROCÍO IZABEL TÁBORA MORALES Secretariat of State in the Office of Finance