The Honduran Legal System and the Principle of Good Faith in Civil and Commercial Law

Honduras operates under a civil law system, characterised by a codified regulatory framework that governs legal relations. Unlike common law jurisdictions, where judicial precedent constitutes the main source of law, in Honduras, for a jurisprudential criterion to acquire binding force, it must be consolidated as “legal doctrine”. This occurs when the Constitutional Chamber of the Supreme Court of Justice issues at least three concurring rulings on matters of constitutional protection or unconstitutionality. However, the Chamber retains the power to deviate from its own jurisprudence, provided that it does so through duly substantiated reasoning.

Despite the pre-eminence of codified norms, the Honduran legal system recognises the application of general principles of law in agreements, businesses and commercial transactions. Among these, the principle of good faith plays a central role, since it not only governs the negotiation, execution and termination of legal acts but is also understood to be incorporated in an imperative manner in all contractual relationships.

Good Faith as a Pillar of the Legal System

In Honduran law, good faith imposes on the parties the obligation to act in accordance with the law within the framework of their relationships. Judges and arbitrators, when interpreting legal acts, resort to this principle to assess the specific circumstances of each case and guarantee a fair resolution.

It should be noted that national legislation does not provide a rigid definition of good faith. Instead, a flexible approach has been chosen that allows its adaptation according to the evolution of the law and the demands of legal practice. In this sense, good faith operates as a tool that assists justice operators in resolving disputes and protecting the rights of the parties.

Influence of Civil Law on Contractual Relations

The structure of civil law in Honduras significantly influences contractual dynamics, since the provisions contained in a contract have the force of law between the parties. Additionally, in the absence of express contractual provisions, the rules of the Civil Code and other applicable laws replace the will of the contracting parties. This helps to:

• ensure compliance with the agreed rights and obligations;
• provide legal security in the resolution of contractual disputes; and
• establish clear standards in the execution of business and transactions.

The Honduran regulatory framework in civil matters has been influenced by legislation in the European and Latin American tradition, in particular by the legal systems of France, Spain, Italy and Mexico. Likewise, there are public order regulations in specific areas, such as consumer protection, industrial property and the family patrimony regime.

Regulation of Commercial Law and Strategic Sectors

Honduran commercial law is mainly regulated by the Commercial Code, which covers various areas, including:

• commercial contracts;
• the regime of commercial companies;
• securities; and
• obligations and procedures in commercial matters.

In addition, there are specific regulations that affect strategic sectors, such as:

• legislation for the financial sector;
• regulation of the energy market;
• regulations on telecommunications;
• consumer protection in the service outsourcing industry (call centres); and
• legislation on maritime and land transactions.

Municipal Competences and Administrative Regime

Honduras does not operate under a federal model, but rather as a unitary state in which municipalities exercise regulatory competencies within their jurisdiction. However, these cannot contravene the provisions established in national regulations. Companies, for their part, must comply with certain municipal administrative requirements for the exercise of their economic activities.

In conclusion, the Honduran legal system is characterised by a clear and unified regulatory structure, which allows for the coherent application of legislation in various areas. This structure facilitates business operations and legal certainty, promoting a stable and predictable regulatory framework for the development of commercial and contractual activities.

Foreign Direct Investment in Honduras: Regulatory Framework and Strategic Sectors

Honduras maintains an open and receptive policy towards foreign direct investment (FDI), favouring a relatively flexible regulatory regime. There are no administrative or fiscal restrictions on the acquisition and operation of Honduran companies by foreign investors, except in relation to security matters.

Investor Protection Regime

The Law for the Protection of Investors’ Rights recognises the attraction, promotion and protection of investment – both national and foreign – as a priority objective of the state. Consequently, facilities and guarantees are granted for its growth and development.

This law establishes as a fundamental principle the national treatment of foreign investors, ensuring that they are not subject to limitations on access to markets. Likewise, they are guaranteed:

• the right to freely transfer profits, dividends and capital gains generated in the country abroad;

• access to credit in the Honduran financial system on equal terms;
• unrestricted participation in the shareholding structure of commercial companies; and
• the ability to establish branches and subsidiaries without additional limitations.

To benefit from this protection framework, investors must submit an application to the National Investment Council, whose jurisdiction covers the entire national territory.

Regulation by Economic Sectors

Although foreign investment does not face general restrictions, some strategic sectors are subject to specific regulations and require prior authorisations by competent government entities. These sectors include the following.

• Energy: Administered by the Secretariat of Energy, this sector covers investment in renewable energy, radiology, electricity, hydrocarbons and fuels, as well as the exploration of these resources. All investment in this area must strictly comply with current regulations.
• Telecommunications: Regulated by the National Telecommunications Commission (CONATEL), activities include broadcasting, terrestrial and satellite services, telemonitoring, internet, cable television and outsourcing of business services. CONATEL oversees free competition and compliance with licensing requirements.
• Banking and finance: The National Banking and Insurance Commission (Comisión Nacional de Bancos y Seguros de Honduras; CNBS) is responsible for supervising, controlling and inspecting financial entities, such as banks, insurance companies, savings banks, remittance companies and credit institutions.
• Natural resources: The Secretariat of Natural Resources and Environment regulates the exploitation of mining, forestry and water resources. Given their public and national interest, these activities are subject to rigorous requirements, and failure to comply therewith entails significant economic sanctions.

In summary, Honduras offers a favourable environment for foreign investment, with a legal framework that guarantees legal security and free participation in the market. However, investors must observe the applicable sectoral regulations and obtain the relevant authorisations from the competent government entities to avoid sanctions or operational restrictions.

Currently, the Honduran government is taking steps towards attracting foreign investment. Following the COVID-19 pandemic, the current government implemented relief measures pertaining to the payment of financial, fiscal and other productive sector obligations, such as energy, water and the internet. According to data from the Central Bank of Honduras, inflation in 2024 was 5.02%, and the same institution’s projections indicate that this percentage will remain unchanged in 2025.

However, the indicators suggest that the actions taken by the government have reduced investment in the country. Among the measures that have generated uncertainty among investors is Honduras’ withdrawal from the International Centre for Settlement of Investment Disputes (ICSID), an institution that offered investors the possibility of resolving disputes through neutral international arbitration instead of resorting to the national courts of the country receiving the investment.

Another controversial decision, both nationally and internationally, was the repeal of the Economic Development and Employment Zones Law (ZEDES), which offered tax incentives and regulatory flexibility to attract investors. Several ZEDES were already operating in Honduras at the time of its repeal, creating a climate of uncertainty for investors who now face doubts about the stability of the legal framework applicable to their projects. This situation has caused a domino effect, since an investor can establish a business in Honduras without the certainty that their activity will not be declared illegal in the future.

The consequences of these decisions have increased legal and financial uncertainty in the country. However, given that Honduras is in an election year, there is an expectation that the next government will establish a more stable and predictable framework for FDI. Despite this context, infrastructure and digital transformation – in both the administrative and judicial spheres – continues to accelerate, driven largely by investors who have access to financing, albeit at relatively high interest rates.

Trends in Commercial Transactions and Acquisitions in Honduras

The Honduran regulatory framework in commercial matters is based on the principle of autonomy of the will, allowing the parties to freely determine the content of their contracts within the limits established by current legislation.

Currently, a significant trend can be observed in certain key commercial operations, including the acquisition of shares, the purchase and sale of tangible and intangible assets, mergers and acquisitions (M&A) and the formation of joint ventures and consortia, particularly in contracts linked to the state.

Acquisition of Companies and Transfer of Shares

In the case of acquisitions of public companies, the purchase of shares can be carried out through the stock exchange or through a direct purchase, generally structured as a tender offer. Depending on the sector in which the company in question operates, authorisation from the corresponding regulatory body will be required.

A recent example of a purchase and sale of shares and assets in the financial sector was the acquisition of Banco Cuscatlán by Banco de los Trabajadores. Since both entities are subject to the supervision of the CNBS, and where the operation involved a change of share control, prior authorisation from said regulatory body was required to complete the transaction.

Although acquisitions of public and private companies follow similar schemes, there are key differences. The purchase and sale of shares in public companies must be carried out through the stock exchange and comply with specific requirements established by the regulatory authorities. In contrast, the transfer of shares in private companies does not require authorisation or disclosure of information, except in cases where the company operates in regulated sectors.

Joint Ventures and Consortiums in Contracts With the State

Joint venture and consortium structures have gained relevance in relation to infrastructure projects and technical advice at the state level. These strategic alliances provide a combination of experience and access to financing, facilitating the presentation of competitive offers.

It is important to note that the creation of a joint venture or consortium does not create a new legal personality independent of the participating companies. However, it does imply new tax obligations applicable to the temporary union. Additionally, these agreements may contemplate the creation of management and administrative bodies different from those of the companies that comprise them, establishing a specific distribution of responsibilities among the participants.

Mergers and Acquisitions in Honduras: Regulatory Aspects and Key Considerations

According to the Honduran Commercial Code, a merger of companies occurs when two or more entities dissolve to form a new one, or when an existing company absorbs one or more other companies. In both cases, the resulting entity – either the new company or the absorbing company – acquires ownership of the rights and obligations of the dissolved companies.

When the merger gives rise to a new company, its constitution must comply with the provisions applicable to the corresponding type of company. In the case of a merger by absorption, the incorporating company must modify its by-laws to reflect the changes resulting from the operation.

Regulation and Procedure

Although Honduran legislation does not develop in depth the operational aspects of this type of transaction, its effects are comparable to those regulated in other jurisdictions. Among the most relevant aspects are the following:

• the absorbing company or the new entity assumes the full obligations and rights of the merged companies;
• new by-laws are drafted, or existing by-laws amended, in the acquiring company as appropriate;
• the transaction must be published in the media on at least three occasions, allowing interested third parties to file objections; and
• the merger takes effect once it is registered in the corresponding registry, provided that all debts of the merged companies have been paid or the securities have been deposited as collateral (escrow).

Change of Control and Sector Regulation

The acquisition of shares or a change in the internal control of a company, as a general rule, does not require registration in the Commercial Registry. However, in regulated sectors, such as finance, energy and telecommunications, transaction structures must be notified to the competent authority for review and approval.

Likewise, certain M&A transactions may be subject to the provisions of competition regulations. In Honduras, legislation prohibits economic concentrations that restrict or diminish free competition. An economic concentration is understood as any operation that involves the taking or change of control in one or more companies through the acquisition of shares, control of the administration, merger, the acquisition of assets or any other mechanism that grants significant influence in corporate decisions.

Notification and Evaluation of Economic Concentrations

Economic concentrations must be notified to the Commission for the Defense and Promotion of Competition, which carries out an analysis to determine their compliance with current regulations. Among the factors considered in this analysis are:

• the market share of the economic agents involved and their impact on competition;
• the possibility of anti-competitive practices, such as the imposition of barriers to the entry of new participants in the market;
• the capacity to raise prices unilaterally, without other actors being able to counteract said market power; and
• the need for the operation to avoid the exit of productive assets from the market when one of the parties faces financial difficulties.

Labour Implications of M&A

A fundamental aspect of the acquisition of a company is the continuity of labour relations. Honduran regulations establish that the acquirer must assume pre-existing labour obligations for a minimum of six months. Failure to comply with this provision may result in the payment of significant compensation, which has a considerable financial impact on the acquiring company.

Corporate Governance and Corporate Structures in Honduras

Corporate governance in Honduras is governed primarily by the Commercial Code, complemented by commercial uses and customs in the absence of specific regulation. Within the Honduran legal framework, six types of commercial companies are recognised, with the corporation being the most commonly used legal form due to the advantages it offers in terms of the transfer of shares and limited liability of shareholders with respect to the amount of subscribed capital. This structure is also ideal for establishing subsidiaries of foreign companies in the country.

A Honduran corporation or limited liability company can be established by a single partner (single-person company), or by multiple shareholders/partners who may distribute their participation according to their interests. Both legal and natural persons, national or foreign, can be partners in this type of entity.

In contrast, a foreign company that wishes to operate in Honduras without establishing a new entity can choose to establish a branch, which functions as an extension of the parent company and does not have an independent legal personality.

Differences Between a Subsidiary and a Branch

The branch of a foreign company is registered as a secondary establishment of the parent company in Honduras, allowing it to carry out commercial operations and maintain a presence in the country. It does not constitute an independent legal entity, but rather acts as an extension of the parent company. All rights and obligations acquired by the branch are attributed directly to the parent company. The parent company is responsible for the obligations contracted by the branch with third parties in Honduras.

A subsidiary (anonymous company/limited liability company with foreign capital) is constituted as an independent legal entity, with the capacity to assume obligations and respond to third parties. It allows the foreign company to operate in Honduras without exposing its assets directly to the risks of the local market. The parent company participates as a shareholder and makes decisions about the subsidiary, but its liability is limited to its shareholding.

Choosing a Legal Vehicle

The decision between establishing a branch or a subsidiary will depend on various factors, such as:

• the degree of control that the parent company wishes to maintain over operations in Honduras;
• patrimonial responsibility for obligations acquired in the country;
• registration time and costs, considering the administrative requirements for each structure; and
• the nature of the operations, especially in regulated sectors such as energy, construction and finance, where the law imposes certain corporate requirements.

Corporate Sole Proprietorship in Honduras

Since 2013, Honduran legislation has allowed the constitution of sole proprietorships, facilitating the creation of commercial companies with a single partner without restrictions on their origin or legal nature.

Most Commonly Used Legal Structures in Honduras

The most commonly used corporate structures in the Honduran business sector include:

• joint stock companies (SA), which are ideal for companies with high share capital, robust corporate governance structures and ease of share transfer; and
• limited liability companies (S de RL), which provide greater flexibility in administration and are often used by family businesses, restricting the entry of new partners.

In regulated sectors such as energy, construction and finance, the incorporation of a joint stock company is recommended, since its structure facilitates compliance with the requirements of the applicable regulations.

The Commercial Code establishes a regulatory framework that seeks to balance rights and obligations between companies and their shareholders, with special attention to the protection of minority shareholders. This regulation contributes to corporate stability, mitigating potential conflicts and promoting a harmonious relationship between the different interest groups within a company.

In this sense, legislation in Honduras recognises that all shareholders enjoy equivalent rights. However, the Commercial Code incorporates specific provisions that protect minority investors against potential abuses by majority shareholders, preventing the latter from exercising their position of control to the detriment of corporate equity.

The key rights of minority shareholders include:

• the right to subscribe to new shares issued to avoid the dilution of their participation and voting rights;
• the right to oversight, which allows them to access financial statements and demand transparency in corporate management;
• the right to challenge corporate agreements that violate their interests;
• the possibility of requesting the holding of meetings when these have not been convened in a timely manner;
• the power to resort to ordinary jurisdiction in the event of decisions that are detrimental to them; and
• the right to receive dividends and enjoy limited liability.

In companies with significant assets or a diversified shareholding structure, it is common to sign shareholder agreements, which allow for a clear definition of management and direction rights, establish exit mechanisms for shareholders and provide effective methods for resolving disputes, thereby strengthening corporate governance.

As mentioned in the foregoing, foreign investors in Honduras receive “national treatment”, which means that they enjoy the same rights and are subject to the same obligations as Honduran citizens. Consequently, subsidiary companies, whether they are corporations or limited liability companies, as well as branches, must comply with the obligation to approve their balance sheets and financial statements annually, subsequently registering them in the Public Registry of Commerce.

Additionally, entities subject to supervision by administrative bodies must submit specific information to the corresponding authorities for audit and control purposes.

For example, some regulated institutions require prior authorisation from the Commission to modify their statutes or their corporate constitution. In these cases, the request for authorisation must be submitted within 30 days following the adoption of the agreement by the competent corporate body.

Likewise, in the case of money remittance companies, the transfer of voting shares will require authorisation from the Commission when it involves the acquisition or increase of shareholding by a percentage equal to or greater than 10% of the paid-in capital, especially if said transfer could entail a change of control in the entity. To achieve such transfer, a detailed application must be submitted that includes the number of shares to be transferred, the amount of the transaction, information on the purchaser – whether a natural person or legal entity – as well as the source and origin of the resources used for the purchase.

Similarly, in the event that the acquisition of shares exceeds 25% of the total issued, the operation must be processed through the Central American Stock Exchange.

In Honduras, the obligation to identify the final beneficiary of any transaction within the financial system has been implemented, in compliance with the provisions on the prevention of money laundering and financing of terrorism.

Finally, companies in the natural resources sector are required to submit environmental impact studies and environmental control plans to demonstrate that their economic activities do not have a significant negative impact on the environment.

Regulation and Development of the Securities Market in Honduras

In Honduras, the securities market is governed by the Securities Market Law, approved in 2001, whose purpose is to promote the development of the national market under principles of transparency, efficiency and balance, guaranteeing healthy competition and ensuring the protection of investors and the public interest.

The law is applicable to all securities transactions that originate in public offerings. In contrast, operations carried out without a prior public offering are considered private in nature and are excluded from the scope of this regulation.

Current Situation of the Securities Market in Honduras

The Honduran securities market, although constantly evolving, remains limited in scope and depth. Despite efforts to strengthen this sector and encourage investment, its growth has been insignificant.

The Central American Stock Exchange is the main securities trading entity in the country. However, access to this investment mechanism remains limited due to the low confidence of local investors and the existence of more developed financial markets in the region, which are more attractive. In this context, most operations carried out in the Honduran stock market involve bonds issued by the Central Bank of Honduras.

Although Honduran investors have the possibility of participating in the stock market, bank credit remains the main financing mechanism for companies and individuals. Access to the stock market, both domestically and internationally, is still mainly reserved for companies with high purchasing power, which restricts its use as an accessible and widely used source of financing in the national economy.

As mentioned in the foregoing, the Securities Market Law constitutes the main regulatory framework that regulates transactions in this sector. However, its application is limited exclusively to public offerings of securities, which may only be carried out by:

• issuers with respect to their own securities;
• holders of securities in the secondary market; and
• brokerage firms in the primary and secondary markets.

A public offering of securities is understood to be any offer, express or implicit, intended to issue, place, negotiate or market securities, whether directed to the general public or to specific groups and disseminated through any means. This process is mainly executed through stock brokerage, which can be carried out under two modalities:

• on behalf of others – consists of the purchase, sale, placement, distribution, brokerage or negotiation of securities on behalf of clients in exchange for a commission; and
• on one’s own account – involves the regular acquisition of securities with one’s own resources, with the aim of subsequently placing them on the market and obtaining a differential in price.

The supervision of compliance with this regulation falls to the CNBS, although the Central American Stock Exchange is given the power to establish the specific requirements for participation in the purchase and sale of these instruments.

Likewise, companies listed on the Central American Stock Exchange are subject to strict provisions regarding the prevention of money laundering and terrorist financing. In this context, market players have a fundamental role in the application of KYC policies, which involves the collection and verification of financial information beyond what is conventionally expected.

Finally, foreign investors are subject to the same regulations and obligations as national investors, thus guaranteeing equal conditions for participation in the securities market.

Fund Management Companies and Public Offering of Securities in Honduras

The Securities Market Law defines fund management companies as those entities whose exclusive corporate purpose is the administration of one or more mutual funds and/or investment funds, in accordance with the provisions established in the current regulations.

Registration and Regulation

To operate legally in Honduras, companies must register in the Public Registry of the Securities Market. As a requirement for registration, interested parties must provide detailed information about their administrative, labour, legal, economic and financial situation, as well as their contingent obligations. This information must be presented in accordance with the general regulations issued by the competent authorities, which are adjusted to the characteristics of the issuer, the securities and the public offering, as appropriate.

Participation of Foreign Investors

Honduran legislation does not impose restrictions or sanctions on foreign investors who wish to operate under this regime. These investors are considered traders, and are therefore subject to the general provisions of Honduran commercial law.

Public Offering of Securities by Foreign Issuers

The law allows for public offerings of securities issued by foreign entities, provided that both the securities and their issuer are duly registered in Honduras, specifically in the Public Registry of the Securities Market and in an authorised stock exchange.

Additionally, these foreign issuers must comply with the provisions established in the Securities Market Law, as well as with the regulations issued by the CNBS. Likewise, it is a requirement that the securities subject to the offer be registered in the stock exchanges of their countries of origin, provided that said countries maintain reciprocity agreements with Honduras at the government level or between their respective supervisory bodies.

In Honduras, the merger control regime is regulated by the Law for the Defense and Promotion of Competition and is administered by the Commission for the Defense and Promotion of Competition (the “Commission”). This regime applies to both national and foreign investments that may impact free competition in the Honduran jurisdiction.

The Commission is responsible for analysing and determining the compatibility of an economic concentration operation, evaluating whether it could have adverse effects on free competition. According to the regulations, companies that intend to merge must notify the Commission before the operation takes effect. The Commission defines which concentrations are subject to verification based on three criteria: the amount of assets, participation in the relevant market and the sales volume of the agents involved. To be subject to review, the concentration must meet the threshold for at least at least one of these criteria.

Determination of the relevant market is based on two dimensions: the product market and the geographic market. The product market covers all those goods or services that, from the consumer’s perspective, are interchangeable or substitutable due to their characteristics, prices and uses. The geographic market, for its part, delimits the area in which consumers can find alternative suppliers under similar market conditions.

An initial criterion for identifying the relevant markets in which the concentration operation will have effects consists of analysing the economic activities carried out by both economic agents before the merger. The thresholds established for the mandatory notification of an economic concentration are as follows:

• when the total amount of the assets of the economic agents involved in the concentration in the national territory exceeds the equivalent of 4,000 annual minimum wages, approximately USD16 million;
• when the total sales volume of the economic agents involved in the operation in the national territory exceeds 5,000 annual minimum wages, approximately USD20 million; and
• when the economic agents directly involved in the economic concentration operation reach or exceed 25% of the market share in the relevant market.

The process begins with the presentation of the notification to the Commission, which must include details on the structure of the transaction, a comparative analysis of the impact of the merger, financial statements and relevant corporate documents. The Commission then conducts a preliminary analysis to determine whether the transaction poses a risk to competition. If no impacts are identified, the merger is approved. However, if potential restrictions to competition are detected, the Commission may require corrective measures, such as divestitures or conduct commitments. In cases where a serious impact on competition is evident, the Commission may block the transaction.

The Commission also has powers of supervision and control after the approval of a merger, in order to detect potential anti-competitive practices. Among the aspects that may be subject to surveillance are market concentration, exclusive distribution agreements that restrict competition and unilateral control of the market. Restrictions on the entry of new competitors and possible effects on prices, innovation and product availability are also evaluated.

If the merger is blocked, the investor may request reconsideration of the resolution before the Commission itself. Once the administrative route has been exhausted, the investor has the possibility of going to the competent judicial bodies to challenge the decision and obtain a favourable resolution.

Regarding the criteria for review, see 6.1 Applicable Regulator and Process Overview.

Regarding remedies and commitments, see 6.1 Applicable Regulator and Process Overview.

Regarding enforcement, see 6.1 Applicable Regulator and Process Overview.

There is no specific foreign investment or national security review regime applicable to FDI, apart from the entities referenced throughout this article. However, certain restrictions – such as those previously mentioned – may apply in sectors like finance, telecommunications and broadcasting, energy, mining and natural resources. Additionally, foreign ownership is strictly prohibited in military, defence and certain public infrastructure projects related to these areas.

Likewise, under the Honduran Constitution, only Honduran nationals by birth or companies wholly owned by such individuals may acquire or possess real estate within 40 kilometres of the country’s borders.

Criteria for review are not applicable in this jurisdiction, as Honduras does not have a foreign investment/national security review regime.

Remedies and commitments are not applicable in this jurisdiction, as Honduras does not have a foreign investment/national security review regime.

Enforcement is not applicable in this jurisdiction, as Honduras does not have a foreign investment/national security review regime.

As mentioned in the foregoing, Honduras has the Law for the Promotion and Protection of Investments, which establishes a regulatory framework aimed at ensuring adequate conditions for the development of business activity. Its purpose is to encourage investment and facilitate private economic activity, ensuring that its positive impact translate into benefits for the country’s population.

For corporations, the applicable tax rate is 25% of the total net taxable income. Natural or legal persons who have earned gross income exceeding HNL1 billion in the previous fiscal period must pay 1% of such income when the application of the rates specified in subsection (a) or (b) of Article 22 (25%) of the Income Tax Act results in amounts lower than 1% of the declared gross income.

The rate will be reduced to 0.5% for the following:

• the production, distribution or marketing of cement, steel and their derivatives for construction (this does not include the sale of scrap or mining industry activities);
• public services provided by state-owned companies;
• medications and pharmaceutical products for human use at the producer, importer or marketer level;
• the bakery sector and the production, distribution or marketing of steel-derived products for construction (excluding the sale of scrap or mining industry activities); and
• the production, marketing or exportation of coffee.

Additional Tax Rates

The net assets tax taxes the total net assets of Honduran corporations that have acts of commerce (merchants) as their main purpose of business. The applicable tax rate is 1% on corporations’ net assets established in the balance sheet, which is updated on 31 December of every year.

As a supportive contribution tax, corporations – except those in special regimes – that have a net taxable income greater than LNH1 million (USD40,420.37) must pay a supportive contribution tax equal to 5% of the LNH1 million surplus.

Such taxes are applicable regardless of whether the company is organised as a corporation or a partnership

In Honduras, the payment of dividends – or any other type of profit or reserves – perceived by a resident, domiciled individual or corporation is subject to a withholding tax of 10%, which must be withheld and paid by the corporation. The payment of incomes, earnings, dividends or other profits or reserves of natural or legal persons made to non-residents or non-domiciled persons, including foreign investors, on FDI is subject to a 10% withholding tax. Honduras has not signed double taxation treaties; therefore, the percentage remains the same regardless of the number of stocks or the holding period.

To mitigate the tax burden, reorganisations can be structured by way of a merger instead of transferring assets between group companies, considering that Honduras includes mergers, spin-offs, assignments and absorptions of shares in which companies reorganise commercially under the capital gains exception. Additionally, in Honduras, there are more than ten tax benefits that companies can take advantage of to receive exemptions from income tax and sales tax, achieve tax efficiency and reduce the tax burden. Furthermore, donations are recognised as tax shields that can be deducted from the net income of companies, and this mechanism can also be used to achieve tax efficiency and reduce tax burden.

Honduras does not exempt capital gains. In Honduras, capital gains are generated from benefits, rents, utilities or any other increment in a corporation’s patrimony or assets arising from the disposition or alienation of real state, mining belongings, rights, shares or stocks in corporations, fixed assets of corporations, water rights, intellectual and industrial property rights, goodwill or any other positive results of activities that are not classifiable under the corporation’s commercial purpose, including immovable property, shares or stocks, production goods, etc, according to the Income Tax Act.

The Honduran Income Tax Law states that the capital gain obtained by a corporation or individual must be taxed at 10% of the total obtained gain. However, the transfer of real estate or rights and securities by a non-resident, or a non-domiciled resident, is subject to a 4% withholding tax on the total amount of the operation. This applies without affecting the Honduran capital gain tax liability of 10% of the net profit, which is due regardless of whether a positive or negative difference arises from the equation.

An indirect sale of shares in a Honduran company has the following effects if the intermediary companies do not have economic substance, according to the Honduran principle of economic reality.

• If the seller is a non-resident or is not domiciled in Honduras, the sale of the shares in the holding company is subject to a 4% withholding tax on the gross value of the transaction applicable to the Honduran company, without any deductions, as capital gains tax. The settlement and payment of the 4% withheld must be made within ten calendar days following the transaction.
• The capital gains tax liability limit for the party receiving the gain is 10% of their net gain, which is determined by comparing the real value of the company against the sale value. Consequently, the taxpayer must settle this, in their favour or otherwise, before the State of Honduras. This determines whether additional payment is required to the Honduran Tax Administration, or whether they can receive a credit note from the same.
• If the difference is in favour of the taxpayer, according to the Tax Code, they are entitled to a refund of overpaid taxes through a credit note request. If the difference is not in the taxpayer’s favour, they must pay the outstanding amount within ten calendar days following the transaction.

Article 10 of the Transfer Pricing Regulation of the Income Tax Law provides that natural or legal persons engaging in one or more business or financial transactions with a related or affiliated natural or legal person, either domestically or abroad – or with those covered by special regimes enjoying tax benefits – must determine the amount of taxable benefits in accordance with the arm’s length principle. Thus, any transaction made between related parties must respect the arm’s length principles, establishing the value agreed in the transaction as the market price.

Honduras has its own transfer pricing rules, including an act and by-laws that reference and follow the OECD’s transfer pricing guidelines, and which also incorporate various valuation methodologies and reporting requirements. Recently, Honduras introduced a new obligation for companies to submit a country-by-country report to the Honduran tax authority.

Labour legislation in Honduras establishes a fundamental regulatory framework for personnel administration and the protection of workers’ rights, guaranteeing job stability and preventing unjustified dismissals. At the same time, it allows for agreements to negotiate contractual conditions, as long as these do not contravene the provisions of the law.

It is a requirement to formalise labour relations through a written contract. In the absence of such contract, the regulations presume the veracity of the declarations made by the worker, which can generate risks for the employer in the event of claims. In the event of dismissal, the employer must comply with the payment of compensation, calculated based on the seniority and salary of the worker, ensuring respect for the labour rights recognised in current legislation.

Workers enjoy inalienable rights, such as the enjoyment of paid vacations and the payment of a Christmas bonus. Likewise, the work day must not exceed eight hours, or 44 hours per week, with additional surcharges established for overtime, night work and work on holidays.

The concept of “labour liabilities” refers to the economic obligations that companies have with their employees. Adequate management of this aspect is key to financial planning and cash flow control. However, these commitments can represent a significant burden, especially in the face of possible reforms that increase the employer’s obligations, generating uncertainty in financial administration.

Regarding freedom of association, Honduran legislation allows the formation of unions with a minimum of 30 members, limiting the coexistence of multiple unions within the same company. Hindering the creation of unions or intervening in their formation is expressly prohibited.

Collective contracts prevail over individual contracts, and any individual provision that contradicts a collective contract will be void unless it is more favourable to the worker. In turn, the provisions contained in collective contracts must be compatible with labour legislation, which has a prevailing character. To be legalised, unions must register with the Ministry of Labor and Social Security, which reviews the compliance of their statutes with the applicable regulations, although without exhaustive monitoring of their operation.

Likewise, it is mandatory to have an internal work regulation, which establishes the rules that regulate working conditions within the company. These regulations must be drawn up in accordance with the provisions of collective contracts or, in their absence, by a joint commission, without including technical or administrative rules.

In Honduras, the principles of legality, proportionality and due process must be respected when imposing disciplinary sanctions on workers, in accordance with the provisions of the Labor Code:

• legality – sanctions must be contemplated in labour legislation, in the internal regulations or in the individual contract of the worker;
• proportionality – the seriousness of the violation must be evaluated before applying any sanction, which can range from a warning to the termination of the contract, always guaranteeing respect for the rights of the worker; and
• due process – a disciplinary procedure must be followed, which includes the right of the worker to present his or her defence at a hearing, with prior notification of the reasons for and details of the violation.

The disciplinary procedure includes a prior investigation, notification of the hearing and the possibility of the worker having union representation or witnesses. Once the hearing has been held, the employer has a period of one month to make a decision on the corresponding sanction.

If the worker does not appear without justification, the employer may proceed according to the law, without this implying automatic acceptance of the attributed violations. The omission of these principles may generate legal consequences for the employer, including lawsuits and administrative sanctions.

Nevertheless, it should be noted that the Honduran legal framework does not usually require extra regulations for foreign investors, but rather focuses on the application of its common laws applicable to labour matters, such as the Labor Code, Occupational Safety and Health Law and internal labour regulations, among others.

However, with respect to collective bargaining agreements, the Labor Code mentions – in Article 53 – that there shall not be more than one collective bargaining agreement within the company, and union associations are already duly regulated under Article 468, since this is a common practice in work centres with large workforces.

According to Article 361 of the Labor Code, salary includes not only fixed or ordinary remuneration, but also any payment in cash or in kind that represents remuneration for services rendered, regardless of its name. This includes gratuities, additional salaries, periodic bonuses, payment for additional work or overtime and remuneration for working on mandatory rest days, as well as commissions, percentages on sales and profit sharing.

Honduran labour legislation recognises the following concepts.

• Notice: In open-ended contracts, either party may terminate the employment relationship by giving notice, which must be given in advance proportional to the worker’s time of service.
• Severance pay: In the event of unjustified dismissal in an open-ended contract, the employer must pay the worker severance pay as compensation, the calculation of which will be based on the duration of continuous employment.
• Vacations: Starting from the first year of employment, the worker acquires the right to annual paid vacations, the duration of which will depend on the time worked in the company. If the employment relationship ends due to unjustified dismissal, the employer must pay the proportional part of the accumulated vacations.
• Thirteenth month: According to the Law of the Seventh Day and Thirteenth Month as Bonus, this benefit is calculated based on the average of the ordinary salaries earned during the corresponding year.
• Fourteenth month: The Regulation of the Fourteenth Month of Salary as Social Compensation establishes that this payment is made based on the average of the ordinary salaries received in the respective year. If the worker has worked continuously between 1 July and 30 June of the following year, 100% of the salary will be paid; otherwise, the proportional part will be paid.

In addition, the Labor Code and the Honduran Social Security Institute (Instituto Hondureno de Seguridad Social; IHSS) impose an obligation on employers to register their workers in the social security system, guaranteeing access to medical care, coverage for work-related accidents and pensions. This registration must be done at the beginning of the employment relationship, regardless of the type of contract or salary. The employer must contribute 5% of the salary for health and maternity insurance, and 2% for disability, old age and death, although these percentages may be subject to modification. In case of non-compliance with the registration, the employer will be responsible for all the benefits that the worker would have received had the registration been carried out in a timely manner.

In 2024, the creation of the individual capitalisation labour reserve fund was approved. The fund is financed with employer contributions equivalent to 4% of the monthly salary, up to a maximum of three minimum wages. These contributions are not part of taxable income.

At the end of the employment relationship, the employee has the right to receive the amount accumulated in his/her private contributions regime (RAP) account, with treatment differentiated depending on the cause of termination of the contract.

Regarding the merger of companies or change of employer, Article 28 of the Labor Code mentions that the replaced employer will be jointly and severally liable with the new employer for the obligations derived from the contracts or the law arising before the date of its substitution for a term of six months. Once this term has expired, only the liability of the new employer will subsist, based on the principle of risk alienation, which establishes that the rights of the workers must be respected regardless of the losses of the worker.

As explained in the foregoing, FDI is promoted in Honduras by giving foreign investors the same treatment and rights as Hondurans, so there is no special screening or review process that takes IP into account.

Honduras offers moderate protection in terms of IP. However, its legal framework is aligned with international treaties, such as:

• the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (the “TRIPS Agreement”);
• the Paris Convention for the Protection of Industrial Property;
• the Berne Convention for the Protection of Literary and Artistic Works;
• the Patent Cooperation Treaty (PCT); and
• the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR).

However, due to the low number of patent applications in the country, challenges and limitations may arise in specific sectors and cases, such as:

• patents in the pharmaceutical and health sectors – these require prior approval from the Ministry of Health, which can create barriers to their registration;
• software and works generated by artificial intelligence – there is no specific regulation in this area, which leaves these creations unprotected and limits the effective application of measures against piracy; and
• agricultural and biotechnological patents – the registration and approval of such patents depends on the National Institute of Agriculture, with poor regulation hindering their effective protection.

Currently, Honduras lacks specific legislation dedicated to the protection of personal data. The legal framework on this subject is limited to constitutional provisions and a few references within the Law on Transparency and Access to Public Information.

Constitution of the Republic of Honduras

As the foundation of Honduran legislation, the Constitution addresses data protection in Article 76, which states that “The right to honor, personal and family privacy, and self-image is guaranteed”.

The Law on Transparency and Access to Public Information

This law contains a few references to data protection, primarily in Articles 24 and 25, which establish the following:

• personal data must always be protected;
• legal actions may be initiated by the affected party or the state to ensure such protection;
• access to personal data is permitted only by judicial decree or upon the request of the individual to whom the data pertains, or their representatives or successors; and
• no person may be compelled to provide personal data that could result in discrimination, harm or risks to their property or moral integrity.

While the law primarily governs the transparency and accessibility of public institutional data, it also includes regulations concerning the use and sharing of both institutional and personal data by public entities.