Employers in Honduras have several tax responsibilities. One of these is contributing to the Honduran Social Security Institute (Instituto Hondureño de Seguridad Social - IHSS) on behalf of their employees. These contributions cover:

Social Security Contributions (IHSS)

• Sickness and Maternity (Enfermedad y Maternidad - EM): 5% of the employee's gross salary, up to a monthly ceiling (as of 2023, the ceiling is HNL 10,342.19).
• Disability, Old Age, and Death (Invalidez, Vejez y Muerte - IVM): 3.5% of the employee's gross salary, up to a monthly ceiling (as of 2023, the ceiling is HNL 10,796.49).

Professional Training Levy (INFOP)

Employers must also contribute 1% of the employee's gross salary to the Instituto Nacional de Formación Profesional (INFOP). This contribution funds vocational and professional training programs.

Housing Fund (RAP)

Employers are required to contribute 1.5% of the employee's gross salary to the Régimen de Aportaciones Privadas (RAP), or the Housing Fund, if the employee benefits from the fund. This contribution assists employees with housing solutions.

Other Potential Contributions

Certain industries or sectors may have additional employer tax contributions. For detailed sector-specific information, it is advisable to consult resources like the Honduras section of the Worldwide Tax Summaries by PwC.

In general, employers in Honduras can expect to contribute approximately an additional 11% on top of an employee's gross salary towards various social programs and funds. This percentage can fluctuate slightly depending on specific circumstances.

In Honduras, the income tax system is progressive. The tax rates for 2023 and onward are as follows:

• 0% tax rate on income below approximately HNL 199,039 per year.
• 15% tax rate on income between approximately HNL 199,039 and HNL 303,500 per year.
• 20% tax rate on income between approximately HNL 303,500 and HNL 705,814 per year.
• 25% tax rate on income above HNL 705,814 per year.

Income tax is calculated and withheld directly by the employer on the employee's monthly salary.

Social Security Contributions (IHSS)

There are two main types of social security contributions:

• Sickness and Maternity (Enfermedad y Maternidad - EM): This is 2.5% of the employee's gross salary, up to a monthly ceiling. As of 2023, the ceiling is HNL 10,342.19.
• Disability, Old Age, and Death (Invalidez, Vejez y Muerte - IVM): This is also 2.5% of the employee's gross salary, up to a monthly ceiling. As of 2023, the ceiling is HNL 10,796.49.

Housing Fund (RAP)

Employees contribute 1.5% of their gross salary to the Housing Fund, known as Régimen de Aportaciones Privadas (RAP), if they benefit from the fund.

Potential Additional Deductions

Honduran tax law allows for some limited deductions for medical and educational expenses (up to HNL 40,000 annually). Deductions may also be made for union dues if applicable to the employee's situation.

In Honduras, Value-Added Tax (VAT), or Impuesto Sobre Ventas (ISV), is a consumption tax applied to the price of goods and services. This multi-stage tax is applied throughout the entire supply chain.

VAT Rates

Honduras has a standard VAT rate of 15% for most goods and services. However, an increased rate of 18% is applicable to specific items like alcoholic beverages, tobacco products, and first-class or business class air tickets.

VAT-Exempt Services

Certain services are exempt from VAT in Honduras. These include services provided to recipients outside of Honduras, healthcare, education, prescribed medication, and most banking and insurance services.

VAT Registration and Reporting

Businesses exceeding 250,000 Honduran Lempiras (HNL) in annual taxable income are expected to register for VAT and collect it from customers, although formal registration is not required. Registered businesses must submit monthly VAT returns and pay taxes.

VAT Invoicing

VAT-registered businesses are required to issue tax invoices. These invoices must include the supplier's tax identification information (RTN), the customer's tax identification information (RTN), the date and invoice number, a clear description of the services provisioned, the applicable VAT rate, and the total VAT amount.

VAT on Imported Services

Honduras employs a reverse charge mechanism on imported services. This means that the Honduran recipient of the service must self-assess and pay VAT directly to the Honduran tax authorities, rather than the foreign service provider collecting it.

VAT on Digital Services

Honduras imposes a VAT on non-resident providers of digital or electronic services.

Honduras provides a range of attractive incentives to stimulate investment and economic growth across various sectors. These key tax incentive regimes include:

Free Trade Zones (Zonas Libres or ZL)

Businesses operating in Free Trade Zones (FTZs) benefit from 100% exemptions from income tax, sales tax, municipal taxes, customs duties on imported goods and equipment, and taxes on fuels used for production. Sectors eligible for these incentives include manufacturing, textiles, agribusiness, call centers, and business process outsourcing.

Temporary Import Regimes (Régimen de Importación Temporal or RIT)

Under the Temporary Import Regimes (RIT), businesses can temporarily import raw materials and capital goods with a suspension of import duties, VAT, and other taxes for re-export of finished products. This incentive is available to manufacturing industries that engage in the assembly, transformation, or processing of goods for re-export.

Tourism Free Zones (Zonas Libres Turísticas or ZLT)

Businesses in Tourism Free Zones (ZLTs) are generally exempt from income tax, customs duties, and municipal taxes. The specifics of these exemptions depend on the size of the investment and its location within a designated zone.

Renewable Energy Projects

Renewable energy projects generating at least 50MW of electricity using renewable energy sources are eligible for a 10-year income tax exemption. Additionally, the importation of equipment for renewable energy projects benefits from duty exemptions.

Other Tax Incentives

Other tax incentives include the Drawback Regime, where exporters may receive a refund of customs duties and taxes paid on imported raw materials used to produce exported goods. The Law for the Support of Micro and Small Enterprises also provides qualifying small and medium-sized enterprises (SMEs) with potential income tax exemptions.

Additional Considerations

The duration of specific tax incentives can vary (e.g., 10 years, 15 years). Each incentive program also has eligibility requirements based on industry sector, investment amount, employment creation, and other factors.