Tax Guide for US Expats Living and Working in Honduras
Who Is Liable For Income Taxes in Honduras
Resident and nonresident individuals, regardless of their nationality, are subject to tax on their worldwide income.
Individuals are considered resident if they live in Honduras for more than three consecutive months during a tax year.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable employment income includes salary, pensions, bonuses, premiums, commissions and allowances (for example, housing and educational allowances). Payments made to board members, other executives and counselors not included in the payroll are subject to a 12.5% withholding tax.
Self-employment and business income. Income derived from self-employment or from a trade or business is subject to tax.
Investment income. Dividends paid or credited by local companies to resident and nonresident individuals are subject to a 10% withholding tax. Royalties from franchises are subject to a 10% withholding tax. Technical advice and similar payments are subject to a 10% withholding tax.
Directors’ fees. Directors’ fees paid to nonresident individuals are subject to a 10% withholding tax. Directors’ fees paid to resident directors are taxed at the ordinary individual income tax rates.
Capital gains.
Capital gains are subject to a tax at a flat rate of 10%. Capital losses are deductible only if derived from the sale of depreciable assets or from the sale of non-depreciable assets sold in the ordinary course of a trade or business. Occasional (non-habitual) sales of non-depreciable assets are not subject to tax.
Deductions
Personal deductions and allowances. Annual deductions for medical and educational expenses are allowed up to a maximum of L 40,000.
Business deductions. All costs and expenses that are necessary to generate taxable income and protect investments are deductible.
Relief for losses. Self-employed individuals may not carry their losses forward or back.
B. Estate and gift taxes
Honduras does not impose estate or gift taxes. However, estates may be taxed as ordinary taxpayers if they derive income before distributions of assets are made to the beneficiaries.
C. Social security
Social security contributions are imposed on salaries at a rate of 7.2% for employers and 3.5% for employees. They are calculated on a maximum monthly salary of L 4,800.
To learn more about the history, culture, economy and other information about the Honduras
We have been preparing US income tax returns for US Citizens and permanent residents living in Honduras for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Honduras and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Honduras.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email