VAT, GST and Sales Tax in Honduras

Summary

Name of the tax Value-added tax (VAT) or sales tax
Local name Impuesto sobre Ventas
Date introduced 1-Jan-64
Trading bloc membership None that relate to VAT
Administered by Finance Secretary (http://www.sar.gob.hn/)
VAT rates
Standard 15%
Other 18% and exempt
VAT number format National Tax Registry number (RTN)
VAT return periods Monthly VAT return if taxable turnover exceeds HNL250,000 (approximately USD10,800); separate monthly withholding returns and annual informational return if taxpayer defined in Official Gazette as large or medium-sized taxpayer
Thresholds
Registration None
Exemption from VAT filing Annual taxable turnover below HNL250,000 (approximately USD10,800)
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • The supply of taxable goods or services made in Honduras by a taxable person
  • Self-consumption
  • The importation of goods or services from outside Honduras, regardless of the status of the importer, with the exception of exempt goods or services

Who is liable

A taxpayer for VAT purposes is any entity or individual that sup­plies taxable goods or services in Honduras in the ordinary course of a trade or business. Taxpayers that deal primarily with final consumers may be designated as withholding agents for VAT. All businesses must register as taxpayers; no separate registry for VAT taxpayers exists. The national tax registry number (RTN) is used for VAT purposes.

Small businesses. Taxpayers whose annual turnover is less than HNL250,000 (approximately USD10,800) are not required to pay VAT or file VAT returns.

Group registration. VAT grouping is not allowed under the Honduran VAT law. Legal entities that are closely connected must register for VAT as separate entities.

Non-established businesses and tax representatives. A “non-established business” is a business that has no fixed establish­ment in Honduras. A non-established entity is required to register as a taxpayer if it engages in business activities within Honduras. Foreign taxpayers must complete a tax questionnaire, which includes information such as the names of the current sharehold­ers and the projected sales during the first year. This information must be submitted together with the following documents:

  • A copy of the Articles of Incorporation, together with an offi­cial translation in Spanish
  • A special power of attorney granted to a legal representative in Honduras

The above documents must be apostilled or legalized by the Honduran Consul in the foreign taxpayer’s country of residence.

Registration procedures. Entities or individuals that are subject to the sales tax must register as taxpayers using Form CPAT-410. They also must request an authorization to print invoices or receipts.

Late-registration penalties. A taxpayer that fails to register for VAT on a timely basis is subject to a penalty equal to three average current base salaries. The average base salary for 2016 is HNL7,759.98 (approximately USD335).

Reverse charge. Not applicable.

Digital economy. There are no specific rules regarding the taxa­tion of the digital economy for VAT purposes. However, gener­ally taxable events indicated in Section B are treated the same whether or not they are transacted by digital means.

Deregistration. The taxpayer must notify the tax authorities about ceasing operations, and it must file its tax return within 30 days after that notification.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are subject to VAT.

Effective since 1 January 2014, the standard rate of VAT is 15% and applies to the supply of all goods or services, unless a spe­cific measure imposes a higher rate or allows an exemption. Also effective since 1 January 2014, a higher rate of 18% is imposed on supplies of alcoholic beverages and cigarettes and certain television and internet services.

The term “exempt supplies” refers to supplies of goods and ser­vices that are not subject to tax. Exempt supplies do not give rise to a right to an input tax deduction.

Examples of exempt supplies of goods and services

  • Goods that form part of the average weekly shopping
  • Pharmaceutical products
  • Cleaning fluids and disinfectants
  • Raw materials and tools for agricultural and agro-industrial

production; major and minor poultry species and fish, herbi­cides, insecticides, pesticides, rodenticides and other anti-rodents, live animals; means of animal reproduction; seed and vegetative material for the sowing and sexual and asexual spreading; raw material for the elaboration of balanced food in its final presentation, except that destined for pets

  • Transfer of assets in a merger or liquidation
  • Medical services
  • Personal insurance and reinsurance
  • Gasoline, kerosene and related oil products
  • Firewood and coal
  • Books and newspapers
  • Leather, except fine leather goods
  • Water and electrical services
  • Education
  • Passenger transport
  • Financial services

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “taxable event.”

For the supply of goods, the time of supply is the earlier of the issuance of the invoice or the delivery of the goods. For a supply of services, the time of the supply is the earlier of the issuance of the invoice or the performance of the services.

Importation. The time of supply for imported goods is when the goods are “nationalized,” that is, when the goods clear all cus­toms formalities for importation. For the importation of services, the time of supply is the earlier of the issuance of the invoice or the performance of the services.

Recovery of VAT by taxable persons

A taxpayer may recover input tax, which is VAT charged on goods and services supplied that are used to generate taxable income. Input tax is generally recovered by a deduction from output tax, which is VAT charged on supplies made. Input tax may be deducted in the month in which the invoice is received or in the following month.

Input tax includes VAT charged on goods and services supplied in Honduras, VAT paid on imports of goods and reverse-charge VAT on domestic self-consumption of services. The input tax credit is available only for goods and services acquired to gener­ate income and for the purchase of machinery and equipment.

A valid tax invoice or customs document must generally accom­pany a claim for an input tax credit.

Nondeductible input tax. No deduction is allowed on input tax charged on goods self-consumed or services rendered for the taxpayer’s own benefit. Also, the deduction is not allowed when the purchases are not properly documented with the correspond­ing invoices or receipts.

Examples of items for which input tax is nondeductible

  • VAT paid on items or services for personal consumption
  • VAT paid on gifts or presents

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • VAT paid on purchases of goods or fixed assets in order to produce sales subject to VAT
  • VAT paid for services needed to produce goods or other ser­vices subject to VAT and repair services

Refunds. If the amount of input VAT recoverable in a month exceeds the amount of output VAT payable, the taxpayer obtains an input VAT credit. The credit may be carried forward to offset output tax in subsequent VAT periods.

Partial exemption. Not applicable.

Preregistration costs. Taxpayers are not permitted to recover input VAT paid on purchases made prior to VAT registration.

Recovery of VAT by non-established businesses

Honduras does not refund VAT incurred by foreign or non-established businesses unless they are registered for VAT in Honduras.

Diplomats and international organizations. Diplomatic consular delegations, and international organizations and agencies are entitled to reimbursement for VAT paid in Honduras. Depending on the claimant’s status, the claimant may request a refund of the VAT or exercise the right to offset the VAT credit by making subsequent purchases subject to VAT. If the credit has not been offset after six months, the amount may be applied against other taxes.

Invoicing

VAT invoices and credit and debit notes. A taxpayer must gener­ally provide a VAT invoice for all taxable supplies made, includ­ing exports. An invoice is generally necessary to support a claim for input tax credit. If the nature of the business makes it imprac­tical for a taxpayer to issue tax invoices, the VAT authorities may authorize the use of cash registers and computerized systems to issue receipts instead of invoices.

The Honduran invoicing regulations establish that taxpayers should request an authorization from the tax authorities to print invoices or receipts. Taxpayers may use two methods in order to obtain their invoices or receipts:

  • Printing through printing houses
  • Self-printing through cash registers or computer systems con­nected to their accounting systems

Invoices or receipts that are self-printed by taxpayers include a barcode that contains important information about the transac­tion, which exempts taxpayers from having to enter the data manually into their accounting system.

A VAT credit note may be used to reduce VAT charged and reclaimed on a supply if the value is reduced for any reason (for example, the granting of a discount or bonus, a change in price or the return of the goods). A credit note must generally include the same information as a tax invoice.

Proof of export. VAT does not apply on supplies of exported goods. However, to qualify as VAT-free, exports must be supported by customs documents that prove the goods have left Honduras. Suitable evidence includes export invoices and bills of lading.

Foreign-currency invoices. VAT invoices must be issued in Honduran lempira (HNL).

VAT returns and payment

VAT returns. VAT returns are submitted monthly by the 10th day of the month following the end of the return period. Payment in full is due on the same date and must be paid in Honduran lem­pira.

Effective since November 2010, large taxpayers as defined in the Official Gazette are required to withhold 15% VAT on payments related to the following:

  • Transportation services
  • Cleaning and fumigation services
  • Printing and screen printing services
  • Investigation and security services
  • Commercial sites and machinery and equipment rent

This withheld VAT must be paid in full along with a separate monthly withholding return that, like the regular VAT return, must be submitted by the 10th day of the month following the end of the return period.

In addition, all taxpayers that withhold taxes must file the month­ly withholding return that covers VAT in addition to payroll taxes, local professional fees and any others withheld. This is Form DEI-540: Declaración Mensual de Retenciones (Monthly Withholding Declaration). Effective 1 January 2015, this with­holding return is also due to be submitted by the 10th day of the month following the end of the return period.

Taxable persons whose annual turnover is below HNL250,000 (approximately USD10,800) are not required to file VAT returns or pay VAT.

Special schemes. None.

Electronic filing and archiving. The new Honduran invoicing regu­lations do not allow electronic filing and archiving.

Monthly returns. The Honduran Tax Authorities issued Agreement No. DEI-SG-276-2015 (the Agreement), which requires taxpay­ers that currently file monthly sales tax returns to report pur­chases and imports (taxable or exempt) through a Monthly Purchases Sales Tax Return (the Return).1 The Agreement was published in the Official Gazette on 9 February 2016, and is effective as of that date.

Taxpayers subject to this new reporting obligation are those cat­egorized as medium and large taxpayers, including those:

  • Operating under special tax regimes
  • Carrying out VAT exempt business transactions

The Return must be filed through the Tax Authorities’ DET LIVE web-based platform during the first 20 days of each month.

Taxpayers are required to separate and identify purchases that generate sales tax credits from those considered as part of the company’s costs and expenses.

The Return replaces the Annual Sales Tax Credit Return, which taxpayers were required to file by 31 March 2016 for tax year 2015.

By getting information on a monthly basis, the Tax Authorities are seeking to improve their control on the sales tax credit claimed by taxpayers.

Penalties

The penalty assessed for the late submission of a VAT return is 1% if filed within five days after the filing date. If the tax liabil­ity is not paid within these five days, a 2% monthly penalty applies up to a maximum of 24%.

The surcharge assessed for the late filing of a VAT return is 5% per month, up to 60% if the tax liability is not paid by the 10th day of the month following the end of the return period.

1 Form DEI-527

Violation of formal duties. Failure to file and satisfy reporting obligations in Honduras is subject to a penalty of three base sala­ries (the current minimum base salary is approximately USD335). Such penalties apply to the following:

  • Providing false information when registering for VAT
  • Not registering with the proper tax authorities
  • Refusing to provide information to the tax authorities

The penalty assessed for not having the accounting registries updated and available for the tax authorities is 12 base salaries, which is increased by 25% if there is an aggravating circum­stance, e.g., repeated infringement, public employment, or fiscal damage more than HNL50,000 (approximately USD2,160).

Tax fraud. Tax fraud is deemed to occur if a taxpayer files a return that results in the underpayment of taxes as a result of illegal actions. The Penal Code provides the following prison terms for tax evasion:

  • Three to six years of imprisonment if the amount does not exceed HNL100,000 (approximately USD4,320)
  • Three to nine years of imprisonment if the amount does not exceed HNL500,000 (approximately USD21,599)
  • Six to 12 years of imprisonment if the amount exceeds HNL500,000 (approximately USD21,599)

In addition, a fine equal to 50% of the underpaid VAT applies. If the underpaid VAT cannot be calculated, the applicable fine is calculated based on the assessment issued by the tax authorities.