US embassy cable - 04TEGUCIGALPA950

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000950 
 
SIPDIS 
 
USDOC FOR 5102/FOREIGN TRADE ZONES (ITA/IA) 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EINV, HO 
SUBJECT: INFORMATION ON FREE TRADE ZONES IN HONDURAS 
 
REF: STATE 72748 
 
1. This cable is a response to reftel and provides 
information about Honduran Free Trade Zone laws: 
 
a. Does the country have any type of customs free zone, free 
trade zone, foreign trade zone, export processing zone, 
freeport or manufacturing bonded warehouse?  How many zones 
are there currently? Are there geographic limitations as to 
where they can be located?  Are they successful? 
 
-- Honduras has a Free Trade Zone program (FTZ) that allows 
the free importation of equipment and inputs for the use of 
export-oriented industries which is free of customs and most 
taxes, excluding income tax.  There are two main components 
of the Free Zone program under Honduran law: Free Trade 
Zones and Export Processing Zones.  There are 252 companies 
in 32 FTZ zones in Honduras with 95 customs points.  There 
are no geographic limitations on free trade zones, as 
Honduran law allows a free trade zone to be formed anywhere 
in the country.  These free zones have increasingly 
developed in the last 7 years.  There were approximately 
105,000 workers in FTZ companies in 2003, a 12% increase 
from 2002.  Exports from FTZ companies generated USD 590 
million in 2003, accounting for 24% of total exports. 
 
b. How is the authority structured?  Is the zone federally 
or locally administered?  Are they considered enclaves that 
are outside of the country or are they customs-controlled? 
 
-- The free-trade zones are managed privately but have to 
comply with regulations set forth by the Ministry of 
Industry and Trade.  Municipalities locally administer FTZs 
through customs authorities throughout Honduras.  They are 
considered enclaves that are outside of the country. 
 
c. Is a license or other type of authority required for each 
manufacturing activity in the zone?  If so, roughly how long 
does the process of obtaining a license take? 
 
-- To obtain a free trade zone license, an authorization 
request must be sent to the Ministry of Industry and Trade. 
It takes 15 days for the evaluation and issue of the 
license.  The company seeking a free trade zone license is 
required to pay a fee of 2 million lempiras (USD 111,203) to 
the GOH, and must show proof of availability of real 
property and technical and financial resources required for 
the purposes of the free-trade zone. 
 
d. Can businesses manufacture products in the zone?  Can 
they manufacture using both foreign and domestic inputs? 
Can the merchandise be sold in the home market? 
 
-- Business manufacturers can produce goods in the free 
trade zones in Honduras.  Manufacturers can use domestic and 
foreign inputs to produce these goods.  Only 5% of total 
production of merchandise can be sold in the local market, 
with the payment of corresponding duties and import and 
sales taxes. 
 
e. What are the customs benefits related to manufacturing or 
processing in the zone?  Can merchandise be imported and re- 
exported duty free? Is duty payable on manufactured 
merchandise upon leaving the zone for the home market?  Is 
capital equipment used for zone manufacturing activity 
permitted entry free of duty? 
 
-- Any company located in a free trade zone, industrial park 
or export processing zone is exempt from paying import 
duties on goods and capital equipment, surcharges, selective 
consumption taxes, and sales taxes.  In addition, the 
production within these areas is exempt from Honduran 
federal and municipal taxes.  Merchandise can be imported 
and then re-exported duty-free in export processing zones 
and temporary import regimes.  Manufactured merchandise 
leaving the zone for the home market is duty free.  Any 
capital equipment that is exclusively used for zone 
manufacturing activity, providing these goods are not 
produced in the country, are exempt from duties, surcharges, 
consular fees, and other taxes. 
 
f. Are there any special provisions for small and medium- 
sized businesses?  Or, for new foreign direct investment? 
 
-- Provisions are the same for any size of business. 
Honduran law prohibits discriminatory or preferential export 
and import policies affecting foreign investors. 
 
g. Are there any tax exemptions (i.e., exemptions from tax 
on merchandise, income, real property)? 
 
-- Income tax is payable on income derived from operations 
within Honduras, except for firms operating in the 
industrial parks, located in the free tourism zones (ZOLT) 
or under the temporary import regime.  Companies in free 
trade zones, export processing zones, and temporary import 
regimes are 100% exempt from import duties for raw materials 
and inputs, export taxes, local sales and excise taxes, 
taxes on net assets, taxes on profits, and taxes on capital 
repatriation.  Companies in free trade zones and export 
processing zones are also 100% exempt from taxes on profit 
repatriation.  Tax is payable on real property found in free- 
trade zones.  Income from labor performed in free trade 
zones, export-processing zones, and temporary import regime 
are subject to income tax (for individuals earning more than 
the legally specified level. 
 
h. Are there any other financial incentives (loans, funding 
for infrastructure or facilities, subsidies on rent, 
utilities)? 
 
-- The Honduran government does not currently provide 
incentives such as subsidies and preferential loans for free 
zone companies. 
 
i. Are there exemptions from other laws or regulations 
(environmental, labor laws, nonproliferation export 
controls)? 
 
-- There are no exemptions from other laws or regulations. 
 
j. Are there any restrictions or requirements, such as 
export requirements, local content requirements, or 
ownership requirements? 
 
-- The Investment Law of 1992 largely governs investment 
conditions in Honduras, and guarantees national treatment to 
foreign private firms in Honduras with a few exceptions. 
For all investments, at least 90 percent of a company's 
labor force must be Honduran and at least 85 percent of the 
payroll must be paid to Hondurans.  The law does not limit 
foreign ownership of businesses, except for those 
specifically reserved for Honduran investors, i.e., small 
firms with capital less than 150,000 lempiras (approx $8,600 
dollars).  Honduras has no quota regulations for any of its 
exports. 
 
2. If there are any further questions on Honduras's FTZ, 
please contact Mauricio Achata (achatamb at state.gov, 504- 
236-9320, x4827) or Roy Alonzo (roy.alonzo at mail.doc.gov, 
504-236-9320, x4092). 
 
Palmer