HONDURAS Law and Practice Contributed by: Alberto Zúniga, Carlos Zúniga and Garhem Padilla, Baker Tilly Honduras
9.7 Interest Deductibility and Territorial Tax Regime The territorial system remains a defining feature of Honduran corporate taxation. Only income sourced within Honduras is subject to income tax. Interest payments are deductible where connected to taxable Honduran-source income, regardless of the residence of the lender, subject to transfer pricing and withholding requirements. No proposals to transition toward a worldwide system have been enacted. 9.8 Controlled Foreign Corporation Reform Honduras does not apply CFC rules and has not enacted legislation to tax undistributed foreign sub - sidiary income. While international discussions on anti-deferral measures continue globally, no formal CFC proposal has been approved domestically. 9.9 Anti-Avoidance Rules Domestic anti-avoidance mechanisms operate primar - ily through minimum tax provisions, transfer pricing rules and the application of the economic substance principle, rather than through treaty-based limitations. In particular, Honduran legislation includes measures designed to prevent the artificial erosion of the tax base, such as the advance income tax applicable to taxpayers reporting recurring losses while maintaining significant gross income levels. Honduras does not currently maintain a network of double taxation conventions. As a result, treaty-based anti-abuse provisions – such as limitation-on-benefits clauses or principal purpose tests – do not form part of the domestic anti-avoidance framework. Conse - quently, anti-avoidance enforcement relies predomi - nantly on domestic tax rules, administrative review and transfer pricing controls. 9.10 Transfer Pricing and IP Taxation Transfer pricing remains the principal BEPS-aligned enforcement area. Recent developments include enhanced reporting obligations and increased scru - tiny of cross-border financing and service arrange - ments. The tax authority has shown growing technical engagement in this field, particularly in documentation reviews.
no comprehensive BEPS-based overhaul has been enacted. 9.3 International Tax Honduras maintains a territorial tax system. As such, many BEPS concerns relating to worldwide taxation or foreign income deferral are not central features of the domestic regime. The primary BEPS-relevant area in practice is transfer pricing compliance for cross- border related-party transactions. 9.4 Competitive Tax Policy Objectives Honduras continues to position itself as a jurisdiction with a relatively simple corporate tax framework and sector-specific investment incentives. While international transparency measures have increased, the domestic regime has not incorporat - ed aggressive anti-base-erosion mechanisms such as CFC inclusion rules or interest limitation regimes aligned with BEPS Action 4. This reflects an ongo - ing balance between fiscal oversight and investment competitiveness.
9.5 The Competitive Tax System Key structural characteristics include: • a territorial tax system; • the absence of CFC rules; • no global minimum tax regime; • no comprehensive treaty network; and • sector-based incentive regimes.
These features contribute to administrative simplic - ity, although they also limit international co-ordination mechanisms. 9.6 Hybrid Instruments and BEPS Implementation Honduran legislation does not currently contain specific anti-hybrid mismatch rules comparable to BEPS Action 2 recommendations. Hybrid instrument planning is therefore not specifically targeted under domestic law, although general substance and trans - fer pricing principles may apply where relevant.
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