Honduras

The net taxable income of an enterprise is determined by deducting all ordinary and necessary expenses incurred in the generation of income. These include, among others, amortization and depreciation; municipal taxes; donations made in favor of the State, the Central District, municipalities, and legally recognized educational, charitable, and sporting institutions; mandatory employer and employee contributions to the social security system; and “reasonable” charges for royalties and management services.

In general, all expenses incurred in the generation of taxable income are considered deductible for income tax purposes. However, certain expenses are non-deductible, even if incurred in the generation of income (for example, interest paid to owners or shareholders and capital losses).

Depreciation is generally computed using the straight-line method. Taxpayers may obtain authorization from the tax authorities to apply alternative depreciation methods. Once a depreciation method is selected, it must be applied consistently in subsequent periods.

The following straight-line depreciation rates apply to certain common assets:

Goodwill may be amortized over a five-year period.

Organization and reorganization expenses are deductible in full, provided they do not exceed 10% of the initial capital stock. These expenses may be amortized over five years.

Interest expenses are deductible when incurred for the purpose of generating taxable income. Interest paid to shareholders, owners, or their spouses is not deductible.

Taxpayers may recognise a bad debt provision of up to 1% of total credit sales, subject to a cap of 10% of the accounts receivable balance.

Contributions made to organizations legally recognized by the government are deductible.

Capital losses are not deductible in determining net taxable income.Such losses may only be offset against capital gains, which are subject to a 10% tax rate (see Capital gains tax in the Other taxes section).

Provisions for contingent liabilities (such as severance pay) are not deductible for tax purposes. However, actual payments made during the fiscal year are considered deductible expenses.

With the exception of the Solidarity Contribution, net assets tax, Corporate Income Tax (CIT), and sales tax (where sales tax paid is credited against sales tax payable), taxes and contributions paid to districts or municipalities are deductible when determining taxable income.