Considerations on the annual fiscal year-end closing in Honduras

The annual period for the computation of the taxable income tax begins on January 1 and ends on December 31, however, there are periods different from the calendar year, which we call “Special Tax Period”, which must be previously notified in writing to the Tax Administration and in accordance with such period, the tax return and its own computation of the tax will be made.

The liquidation and payment of the Income Tax corresponds to a legal term of 4 months following the closing of the fiscal period. Taxpayers with a fiscal period according to the calendar year are obliged to file the tax return from January 1 to April 30 or the following business day of each year.

The return must be prepared and generated through the DET-Live application by means of Form 357 for legal entities and Form 277 for individuals, and then it must be filed through the Virtual Office. Payment can be made through a bank window or through an electronic branch.

In Honduras there are 3 applicable rates to determine the Income Tax and you pay whichever is higher:

  • 25% on the total taxable net income plus 5% on solidarity contribution rate.
  • 1% over the total gross income.
  • 1% on total net assets.

For purposes of determining the taxable income and comparing the results of the calculation of the tax payable, it is important to take into consideration the general requirements for the determination of taxable income, non-taxable income, deductibility of costs and expenses recorded by the taxpayer and total net assets.

Taxpayers should make sure to keep their accounting records properly supported with authorized tax documents according to the invoicing regulations.

It is important that taxpayers take into consideration the following aspects to perform the tax closing and determine the net taxable income:

  • Validate that all NON-taxable income (e.g. reimbursements from Honduran insurance companies, capital gains, interest) is identified.
  • Ensure that 100% of the goods or services sold at the fiscal closing date are invoiced.
  • Reconcile the income declared for sales tax purposes with the income reported for the Income Tax Return.
    Ensure that all fixed asset and uncollectible account write-offs have been notified.
  • Validate that the accounts corresponding to non-deductible expenses (e.g. security tax) are properly identified.
  • Reconcile the depreciation account when useful lives different from those fiscally recognized are recognized.
  • Ensure compliance with the tax rule for recording the uncollectible accounts expense (1% of credit sales, provided that the balance of the allowance does not exceed 10% of accounts receivable).
  • Ensure that the majority of expenses for services received during the year are accounted for.
    Ensure that expenses are recorded in accordance with the nature of the expenses, especially expenses that are subject to ISV or ISR withholdings, (e.g. freight, cleaning, printing, research, security, rentals of premises, machinery or equipment). In our experience, the SAR cross-checks the monthly withholding tax returns with the withholdable expense accounts and requests to document any differences according to their review criteria.
  • Reconcile provisions to determine non-deductible expense (e.g. labor liabilities).
  • Ensure that there is documentary support for deductible expenses and in the case of invoices or any other tax document, verify that they comply with all the requirements of the invoicing regulations.
    Verify that the debit and credit notes recorded in the accounting records are linked to a valid tax voucher.
  • Make sure to maintain a proper integration of the accounts corresponding to the effects of exchange differential, including the calculations made by the company’s system at the time of valuation of foreign currency accounts.
  • Perform the movement of the retained earnings account to identify that for any decrease corresponding to the payment of dividends, the withholding has been paid and paid.
  • To have a detailed auxiliary and its respective voucher of all withholdings that constitute a credit for the company (e.g. withholding Art. 50 of the Income Tax Law and withholding Advance ISR or ATN, 1%, Art. 19 Dec. 17-2010).
  • For net assets purposes make sure to apply the deductions allowed in the Law (e.g. reserve of accounts receivable, depreciations, revaluations of assets, construction in progress or fixed assets that are not in operation, financing of fixed assets that are in operation).
  • For purposes of the taxable base for 1% of income be sure to include all taxable income accounts.
    Considering that the tax authority performs comparative verifications, it is recommended that the groupings of accounts that are recorded at the declaration level be consistent with the groupings made in the previous year.
  • Before posting the income tax provision, it is possible to load the data in DET-LIVE, to obtain the calculation of the income tax generated by the system to compare it with the provisioned value and investigate any difference.

Aspects to consider related to Transfer Pricing

1- Before the closing: Obtain the preliminary analysis of the Transfer Pricing Study to know if the market values are being managed and determine if it is necessary to apply any accounting adjustment to be recorded at the closing of the fiscal year and thus avoid adjustments at the declaration level.

2- At the Transfer Pricing declaration level it is important to have the following information:

  • The prices you are applying in each of the transactions, in case of goods on which you are analyzing the profitability, make sure that this profitability indicator is within the margins of market value, in case of services, that this margin or the consideration of the service is at market value.
  • They must have the ranges, i.e., what is market value or against what is being analyzed and determining that it is a market value.
  • For transactions of goods, the description of the goods or at least of the main good of the operation.
  • Related company information (e.g. tax identifier, legal name of the company, country of domicile).
  • Define and confirm in the tax return if a Transfer Pricing adjustment was made or was necessary to be applied, which is declared in parallel in the Income Tax Return, in case it was not applied before the tax closing.

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