HONDURAS Law and Practice Contributed by: Alberto Zúniga, Carlos Zúniga and Garhem Padilla, Baker Tilly Honduras
poses, but for tax purposes it is treated as a taxable presence in Honduras. There is no preferential or punitive regime applica - ble solely because the local vehicle is structured as a branch rather than as a subsidiary. 5.3 Capital Gains of Non-Residents Capital gains derived by non-residents from the sale of shares in Honduran corporations are subject to taxation. A 4% withholding applies on the gross trans - action value at the time of transfer. The non-resident seller must subsequently determine the final tax due at a 10% rate on the net gain (ie, the difference between the acquisition cost and the sale price), with credit given for the amount withheld. Indirect transfers may also be subject to taxation. Where shares of a foreign holding company derive their value primarily from a Honduran subsidiary, the tax authority may apply the economic substance principle to assert Honduran taxing rights over the transaction. Because Honduras has no double tax treaties in force, no treaty relief is available for either direct or indirect disposals. 5.4 Tax Implications of Change of Control Honduran legislation does not contain standalone “change of control” trigger rules comparable to those found in certain treaty jurisdictions. However, a change in ownership that results in the disposal of shares – whether directly or indirectly – may trigger capital gains tax. In group restructurings, the tax authority may ana - lyse whether the transaction effectively results in the transfer of a Honduran business or underlying assets. The economic reality principle may be invoked to look beyond formal ownership layers where appropriate. 5.5 Formula-Based Income Attribution Honduran corporate income tax is not based on for - mulary apportionment principles. Income attribut - able to a local affiliate is determined under ordinary accounting rules, subject to transfer pricing adjust - ments where related-party transactions exist.
An exception applies to certain transportation activi - ties (air, maritime and land transport operated by for - eign entities), where taxable income may be deemed as a percentage of gross revenue derived from Hon - duran sources. 5.6 Deductibility of Intra-Group Management and Administrative Charges Payments made by a Honduran subsidiary to a foreign affiliate for management or administrative services are deductible, provided that: • the expense is necessary and directly linked to the generation of taxable income; • adequate supporting documentation exists; • the charge reflects arm’s length pricing; and • the applicable withholding tax has been properly applied and remitted. The tax authority frequently reviews management fee arrangements to verify the existence of real services and to prevent profit shifting through inflated charges. Substance and documentation are therefore critical. 5.7 Restraints on Related-Party Borrowing Related-party financing is not subject to a formal thin capitalisation ratio under Honduran domestic law. Interest paid to a non-resident affiliate is generally deductible, provided that it is: • connected to the generation of taxable Honduran- source income; • properly documented; and • consistent with the arm’s length principle under transfer pricing rules. In addition, interest payments to non-residents are typically subject to a 10% withholding tax. As a prac - tical matter, withholding compliance is relevant both from an exposure perspective and because failure to withhold may jeopardise the deductibility of the expense at the local level. Beyond conventional debt instruments, the Tax Administration may also scrutinise intercompany bal - ances that function economically as disguised profit distributions. In particular, shareholder or related-party receivables that do not arise from genuine commercial
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