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Honduras: Double Taxation on dividend income

On 28 March 2010, the National Congress of Honduras passed a law called “Strengthening of Income, Social Equity and Rationalization of Public Spending Law” contained in decree No. 17-2010. This decree reformed article 25 of the Income Tax Law which previously established that dividend income, or any other income received by profit sharing by natural persons with established residence in the country, would be taxed at a 10% rate. It established the obligation to withhold this tax on the company paying the dividend and only to those shareholders who are natural persons. Before this law, dividends were exempt from tax.

Later on, Congress issued law decree 278-2013 on 21 December 2013, where a new reform to article 25 was included. This reform established a 10% tax on dividend income received by companies, including holding companies. This results in double taxation, since dividends received by holding companies will be taxed at a 10% rate, and holding companies in return must withhold this 10% when paying dividends to its shareholders. This double taxation could have harmful effects on the economy by potentially decreasing investment. At present, a bill has been presented to Congress, which among others, requests the elimination of dividend tax when a holding company 
pays to its shareholder. Its approval is still pending.

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