HONDURAS: A GROWING MARKET FOR BUSINESSdumaslex
At Dumas Lex we believe Honduras offers plenty of opportunities for new business ventures and entrepreneurship, which is why we are beginning a monthly series analyzing its business climate and legal developments, with a special focus on industry changes, leads, and prospects. In this initial release, we provide a general view of the country, its legal framework, and general requirements for local and foreign investments. Our goal is to provide the reader with sound legal perspectives and insights gained from our experience with local businesses.
Undoubtedly Honduras´s location and geographical structure provide a significant allure for investors, especially due to its proximity to one of the largest economic zones in the world. With numerous routes to Central and North American markets by air, land, and sea, Honduras offers commercial transfers with reduced delivery times and reasonable logistics costs. These advantages provide the region, especially Honduras, the opportunity to benefit from nearshoring currently driven by supply chain and productivity shortcomings in Asian markets. This context opens many opportunities for investing in manufacturing, car parts assembly, and other industries for which Honduras has ample infrastructure and the required legal framework.
Several systems can be used for investments that provide tax and fiscal advantages, the two main ones being Free Zones and Temporary Import Regimen (RIT). These systems offer exemption from import and export duties, income tax, and other operational benefits. Recently the Government implemented a system to process all Free Zone petitions through an online platform, improving transparency and expediting authorizations. Honduras has signed many free trade agreements, the most relevant one to date being “DR-CAFTA” subscribed with the United States of America, the Dominican Republic, and the other Central American nations.
Other instruments allow national or foreign investors to pursue projects in areas as diverse as energy, tourism, construction, BPOs, manufacturing, or communications.
Corporate laws allow for various business structures and the ability to start operations usually can be realized in a few days. It is also possible for foreign companies to obtain permission to operate in the country; however, this option usually takes longer to complete since it is subject to several governmental approvals. Incorporation must be handled by an Attorney who will provide adequate advice on the best corporate structure for each type of business.
Honduran taxes are based on a territorial tax system (no taxes on foreign income). Payments made to foreign entities are subject to withholding taxes. All tax obligations have strict deadlines and fines can be considerable, so we always recommend companies hire permanent and competent tax advisors to comply promptly and in the required form with all fiscal duties (including local or municipal taxes). Dumas Lex can assist in these matters through its network of professional associates.
Banking services are robust and fundamentally effective, with strong government oversight and comprehensive connection to international banking, including several foreign banks that operate in Honduras. There are few limits on currency transfers, with US Dollar being the predominant foreign currency in circulation.
The judicial system is operational and allows for all types of actions (criminal, civil, commercial, family, labor, etc.). Contracting parties are free to choose laws that will govern agreements and jurisdiction for conflict resolution. Alternative dispute resolution methods are available (including conciliation and arbitration). Foreign court judgments and international arbitration resolutions are recognized and can be executed in the country.
Work regulations are based on the Labor Code (issued in 1959), other labor and social security laws, and all international treaties signed by Honduras (including conventions with International Labor Organization). We strongly recommend that all companies operating in Honduras obtain legal advice on employment and payroll matters since a breach of any responsibilities could result in financial sanctions (which can be substantial) or unnecessary expenses.
In future editions, we will expand on many of these subjects. In the meantime, we remain available for any inquiries you might have regarding Honduran laws or the opportunities available in this growing market.
Authors: Rodolfo Dumas (Managing Partner); Marlon Andino (Partner)