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January 19, 2023
2023-0125

Honduras' ZEDE regime is recognized as abolished following review by OECD Forum on Harmful Tax Practices

  • On 5 January 2023, the new results of the Peer Review on Harmful Tax Practices were published, reflecting the "Abolished" status of the Honduran Special Development and Employment Zones (ZEDE) regime.
  • This status was determined after the Honduran National Congress approved the total repeal of the ZEDE regime in the country on 20 April 2022.

Background

On 27 July 2022, the Organisation for Economic Co-operation and Development (OECD) published the results of the Harmful Tax Practices Peer Review Results, through which it reviews, among others, the potential harmful aspects of certain preferential regimes under Action 5 of the Base Erosion and Profit Shifting (BEPS) Action.

In that review and as a result of the meeting held in April 2022 by the Forum on Harmful Tax Practices (FHTP), the conclusions on 12 preferential regimes were updated, including the ZEDE regime and the Free Zones (ZOLI) regime, with the observation that there were potentially harmful aspects that needed to be addressed.

ZEDE regime abolishment

ZEDEs were initially established as areas of Honduran territory subject to a special regime within which investors would be in charge of fiscal, security and conflict resolution policies. However, on 20 April 2022, the Honduran National Congress approved the total abolishment of the ZEDEs in the country.

The elimination of the ZEDEs was achieved through the derogation of the constitutional reform of approval and ratification containing the creation, operation and of all matters concerning the Employment Zones, as well as the decree containing the Organic Law (approved on 12 June 2013).

New Harmful Tax Practices Peer Review Results

On 5 January 2023, the new findings of the Peer Review on Harmful Tax Practices were published, based on the FHTP meeting held in November 2022.

In accordance with these findings, the status of abolished is recorded in relation to the ZEDE regime, expanding on the fact that no grandfathering is foreseen for the same.

Finally, it is important to note that the FHTP has not yet issued a pronouncement on the other preferential tax regimes currently in force in Honduras, such as the ZOLI regime (included in the July 2022 results) and Call Centers and Business Services Outsourcing.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Honduras, S. de R. L.

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

 

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