Double Taxation Agreements (DTAs) and Their Impact on Honduras’ Competitiveness

The importance of double taxation agreements

In an increasingly globalized economic environment, countries compete not only to attract foreign investment but also to facilitate the international expansion of their businesses. In this context, Double Taxation Agreements (DTAs) have become a key instrument of fiscal and economic policy.

These agreements help reduce international tax burdens, provide legal certainty to investors and exporters, and enhance countries’ competitiveness in global markets. The absence of such instruments places countries at a disadvantage compared to their regional peers.

What are double taxation agreements?

Double Taxation Agreements are international treaties between two States aimed at preventing the same income or capital from being taxed twice, both in the source country and in the taxpayer’s country of residence.

Typically, DTAs regulate matters such as:

• Allocation of taxing rights between States

• Limits on withholding taxes on dividends, interest, and royalties

• Permanent establishment rules

• Methods for eliminating double taxation (tax credit or exemption)

• Mechanisms for information exchange and dispute resolution

In practice, DTAs provide legal certainty, tax predictability, and fiscal efficiency, all of which are highly valued by international investors.

Has Honduras entered into DTAs with other countries?

Currently, Honduras does not have any Double Taxation Agreement in force, which represents a clear competitive disadvantage compared to other countries in the region.

For comparison purposes:

• Belize has 14 agreements

• Costa Rica has 4 agreements

• Panama has 17 agreements

From a legal standpoint, Honduras does have the authority to enter into such agreements. The Tax Code, under Article 1, numeral 2, establishes:

“The Executive Branch is empowered to approve agreements to avoid double taxation, following the procedure required by the Constitution of the Republic.”

Likewise, Article 209 of the Tax Code, entitled Agreements to Avoid Double Taxation, provides that:

The Executive Branch, through the Secretariat of State in the Office of Finance (SEFIN), with the assistance of the Tax Administration and the Customs Administration, is empowered to enter into agreements with one or more States to avoid double taxation on income and capital, following the procedure established by the Constitution of the Republic.

This demonstrates that the legal framework exists, although it has not yet been implemented through an active international tax policy.

Impact of the absence of DTAs on Honduran exporters

The lack of double taxation agreements directly affects Honduran exporters, particularly those providing services or selling goods abroad.

The main impacts include:

• Effective double taxation, as taxes paid abroad cannot always be fully credited in Honduras

• Loss of price competitiveness, since the additional tax burden increases the cost of goods or services

• Disincentives to international expansion, especially for SMEs and service-based businesses

• Difficulty competing with companies from countries that benefit from DTAs

In sectors such as professional services, technology, consulting, agro-exports, and specialized manufacturing, this situation represents a structural barrier to international growth.

Importance of DTAs in attracting foreign direct investment

For foreign investors, the existence of DTAs is a key factor in investment decision-making. These agreements help to:

• Reduce or eliminate withholding taxes

• Avoid double taxation on profits

• Provide clear rules on permanent establishment

• Minimize tax risks and disputes with tax authorities

Countries with an extensive DTA network are generally perceived as tax-efficient, predictable, and investment-friendly jurisdictions, which translates into higher inflows of foreign capital.

Impact on Honduras’ regional competitiveness

The absence of double taxation agreements places Honduras at a competitive disadvantage within the region, particularly compared to countries that have strategically used DTAs to promote investment and international trade.

While other Central American and Caribbean countries actively integrate into the global economy through DTA networks, Honduras continues to face:

• Higher tax costs for investors and exporters

• Lower attractiveness as a regional hub

• Limited integration into global value chains

• Missed opportunities in favor of more competitive neighboring jurisdictions

Double Taxation Agreements do not represent a loss of tax sovereignty, but rather a modern tool to strengthen the economy, attract investment, and facilitate international trade.

Honduras already has the legal basis to move forward in this area. The challenge lies in transforming this legal authority into an active international tax policy, aligned with competitiveness, export promotion, and foreign investment objectives.

Advancing in the negotiation and execution of DTAs would allow Honduras to level the competitive playing field in the region, improve its country brand, and create more favorable conditions for sustainable economic growth.

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For more information on how this innovation may affect your operation or investment in Honduras, the Galindo & Asociados team   the Galindo & Asociados team is at your disposal.

Carlos Galindo

Socio de Impuestos

carlos@galindoyasociados.com

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