Volume 5, Number 3, Page 1

Honduras

Honduras's New Laws Strengthen Economic Framework

by FIDE with Inter-American Trade Report Staff

Honduras’ latest legislative session has helped stabilize an economy once plagued by stagflationary conditions and a large fiscal deficit. The country now finds itself better positioned than ever to attract foreign investment and trade.

The enactment of the Honduran Tax Code stands out among the reforms passed between 1994 and 1997 (legislative sessions typically coincide with a full presidential term). The new Tax Code has created a body of legislation which establishes the general principals, administrative norms, penalties and processes applicable to every tax. This significant achievement, which took effect June 1, 1997, has laid the foundation for greater adherence to the judicial and administrative principals regulating fiscal-taxpayer relations.

Congress also approved several financial sector reform laws with the goal of improving living standards as well as stimulating agricultural and industrial production. Among these was the Law of Tax Equity and Employment Incentives which incorporates a series of modifications to the Property Tax Law. The law increased, for example, the minimum property tax imposed on citizens from 20,000 lempiras to 50,000 lempiras. Although such laws aim to improve the general population’s standard of living, this objective has not produced palpable results for the country’s impoverished majority. However, it could be that the fruits of the legislation recently approved will be reflected in coming years.

In addition, the Law for the Promotion of Agricultural and Industrial Production was enacted, creating the National Fund of Complementary Guarantees (Fondo Nacional de Garantías Complementarias). The tariff levied on imports of capital goods and primary materials was reduced to 1%. This law also eliminated the tax on sugar production, the 1% tax applicable to all exports and the tax on cattle exports.

The monetary and fiscal policies of the Central Bank have also been altered through legislative action. Decree 228-96 amended the Law of the Central Bank of Honduras, in order to make it more consistent with the government’s modernization program and current conditions in the country’s financial market. The Financial Institutions Law and the Law of the National Commission of Banks and Insurance were also issued for purposes of developing a legal framework that will guarantee the stability of the national financial system.

It is also worth noting that Honduras became a founding member of the World Trade Organization (WTO) on Jan. 1, 1995. In global terms, the country took several important steps during the latest legislative session toward defining the body of law that establishes the principles and regulations under which the national economy can function productively.

LAWS APPROVED BY THE '94-'97 LEGISLATURE
(Source: Martes Financiero, El Tiempo)

• Honduran Docent Statute Law (Nov. 1997)
• Tax Code (May 30, 1997)
• Law of the National Fund for Production and Housing (FONAPROVI) (May 30, 1997)
• Tariff Comparisons Law (May 28, 1997)
• Minimum Wage Law (Jan. 24, 1997)
• Honduras - Chile Agreement for the Promotion of Reciprocal Investment (Nov. 11, 1996)
• Law on the Promotion of Agricultural and Industrial Production (June 7, 1996)
• Law Tax Equity and Work Incentives (April 26, 1996)
• Law of the National Commission of Banks and Insurance (Nov. 18, 1995)
• Financial Institutions Law (Nov. 16, 1995)
• Honduras - U.S. Agreement for the Promotion of Reciprocal Investment (July 1, 1995)
• Law for the Restructuring of Public Sector Income and Spending Mechanisms. The promotion of Production and Social Compensation (Oct. 28, 1994).
• Tax on Net Assets Law (Oct. 28, 1994)

Incentives Offered by Honduras
(Source Information provided by FIDE)

INCENTIVES	FREE TRADE ZONE (FTZ)	EXPORT PROCESSING ZONE (EPZ)	TEMPORARY IMPORT LAW
Import Duties on Raw Materials, Components, and Others	100% Exemption	100% Exemption	100% Exemption if exported out of Central America
Export Taxes	100% Exemption	100% Exemption	100% Exemption
Local Sales Taxes	100% Exemption	100% Exemption	100% Exemption
Taxes on Profits	100% Exemption	100% Exemption	Subject to pay
Capital Repatriation	100% Exemption	100% Exemption	Subject to Central Bank
Taxes on Profit Repatriation	100% Exemption	100% Exemption	Subject to Central Bank
Currency Conversion	Unrestricted	Unrestricted	Subject to Central Bank
Sales to Local Market	5% of total production, paying customs duties	Only paying customs duties	N/A
Eligibility Requirements	Industrial & commercial companies can be established	Industrial and supporting companies can be established	HTS 9802 HTS 807A
Park Ownership	Public/Private	Private	Private

The Foundation for Investment and Development of Exports, FIDE, has offices in Tegucigalpa, Miami and Taiwan. Visit FIDE's Internet site at www.hondurasinfo.hn.