Legislation for Foreign Investment Statutes in Countries in the Americas
Comparative Study
1. Legal bases for foreign investment
Objective: Indicate if there is a Foreign Investment Statute and describe it. In the paragraphs below, indicate the legal rank of the norms contained in the Statute, i.e., regulations for expropriation fall under which rank?
1.1 Constitutional
The Constitution of Honduras.
1.2 Legal
Commercial Code, Investment Law as well as amendments and regulations, Labor Code, Decree No. 90-90 of August 14, 1990, Temporary Import Regime, Law Establishing Industrial Export Processing Zones and amendments, Law Establishing the Puerto Cortés Free Zone and amendments, Agrarian Reform Law, Organic Law of HONDUTEL, Privatization Law and amendments, Income Tax Law and amendments, Decree No. 18-90 of March 3, 1990.
1.3 Administrative
Ministry of Economy and Commerce, Ministry of Finance and Public Credit, Ministry of Foreign Affairs, Ministry of the Interior and Justice, Ministry of Labor and Social Welfare, Central Bank of Honduras, and the Mercantile Property Registers in the country’s departments.
Objective: It is essential that both the investor and the nature of the investment be identified, so as to determine to which activity and to whom the regulations will be applied. This is also essential at the international level, especially in case of dispute and arbitration.
2.1 Is foreign investment in your country legally defined or conceptualized?
Yes, it is defined in Article 3 of the Regulations of the Investment Law.
2.2 Are there registered records or mechanisms to clearly identify both the foreign investor and the nature of the investment?
Yes, in the Mercantile Property Register in the Ministry of Finance and Public Credit and in the Ministry of Economy and Commerce.
2.3 Is it possible for a natural person to resort to the foreign investment legislation?
Yes, because the definition of foreign investor provided in the Regulations to the Investment Law includes natural persons.
2.4 Is it possible for a citizen or resident to resort to the foreign investment regime?
Yes, when the national resides abroad and invests foreign resources in the country.
2.5 Can a recipient company funded with both domestic and foreign capital resort to foreign investment regulations? Is this subject to restrictions?
Yes, based on the foreign investment.
2.6 Is there a time limit for a foreign investor to be considered as such?
As long as the foreign investor has his investment in the country, duly registered.
2.7 Are restrictions imposed on the executive body or other staff of an enterprise. Are there nationality quotas? Under what conditions can the executives or other staff hired abroad send their earnings to their country of residence?
Not for executives provided there are no more than two. There are restrictions for other staff; the Constitution and the Labor Code establish that at least 90% of staff must be Hondurans who must receive at least 85% of the payroll. The percentage of Honduran workers could be as low as 10% if qualified Hondurans are not available but only for a period of five years until foreign labor is eliminated.
The Constitution of Honduras establishes that control of printed newspapers, radio and television as well as other intellectual, political and administrative orientation shall be the responsibility of Hondurans. It also establishes that Honduran workers shall have preference over foreign workers.
There are no regulations on foreign workers remitting their earnings abroad. This area is therefore subject to the provisions of the foreign exchange policy.
3. Scope of foreign investment activities
Objective: Define the legal scope of foreign investment in your country, as well as their conditions and limitations.
3.1 Describe the regulating principles of economic activity in your country.
a) Describe how economic freedom is guaranteed.
The Constitution of Honduras accords the private sector freedom to invest in any sector of the economy, reserving to the State certain basic industries for security reasons or public purpose.
b) Is the principle of economic nondiscrimination guaranteed? Describe how.
The Investment Law accords equal treatment to companies established in the country, whether national or foreign, and nondiscrimination on participation in corporations.
c) Public and private enterprises (local and foreign): do they compete on equal terms, or does the State have higher benefits?
Before 1990, state enterprises enjoyed all sorts of tax exemptions; with Decree No.18-90 of March 3, 1990 customs exemptions on imports of goods were rescinded.
3.2 Indicate the scope of foreign investment, i.e., does it include movable and immovable property, assets, concessions, claims to money, intellectual property, industrial property, leasing, technology, etc.
Investment in freely convertible foreign currency, lands, buildings, industrial plants, machinery, equipment, spare parts, accessories, raw materials, semi-manufactured goods, and other tangible and intangible goods, legally registered and intended for enterprises producing or marketing goods and services.
3.3 Reserved sectors
a) Indicate the sectors or economic activities reserved exclusively for the State in your country. Explain the regulations pertinent to these areas.
The only sectors reserved exclusively to the State are: a) issue of coins and bank notes and b) manufacture, importation, distribution and sale of arms, ammunition and similar articles.
Articles 292 and 342 of the Constitution refer to the above mentioned.
b) Indicate the sectors or economic activities in which only foreign investment is excluded, restricted or limited in your country. Explain in what consists said exclusion, restriction or limitation.
The foreign investor is excluded from small-scale trade and industry as defined in Article 3 of the Regulations to the Investment Law. Foreign investors may not engage in these activities unless they become naturalized Hondurans, and provided reciprocity exists in their respective countries (Article 49, Regulations to the Investment Law).
c) Does the Principle of International Reciprocity exist in the legislation of your country?
Yes, with respect to air services and small-scale trade and industry .
d) Is foreign investment subject to performance requirements?
No, except in the following cases: a) companies resorting to fiscal incentive regimes to promote exports; b) requirements in respect of rules of origin and tariff treatment are established in trade conventions or agreements signed by Honduras; and c) requirements for the preservation of public health and the conservation of natural resources.
e) Can foreign investors take part in the privatization processes of your country?
No, since foreign investors take part in public auctions or direct negotiation with state enterprises, but if their offers are equal to those made by a national, preference is given to the national provided he can guarantee economic capacity to make the purchase in question (Privatization Law).
4. Rights and protection of foreign investment
Objective: Identify the type of treatment granted foreign investment i.e.: its rights, protection and incentives.
4.1 Treatment granted to the foreign investor and the investment.
a) National treatment or Most-Favored-Nation clause ? (Refer to paragraphs 3.1 and 3.3).
Yes, since the foreign investor is given the same treatment as the national investor in all economic sectors as well as most favored nation treatment by giving him equal treatment to the foreign investor from any other country.
4.2 Protection of Property
a) Constitutional or legal grounds that may lead to expropriation of, or limitations to property.
For purposes of agrarian reform or urban development or any other purpose in the national interest (Constitution of Honduras).
When the property constitutes a latifundium or the lands are idle or uncultivated or under exploited or when the holdings have been fragmented into minifundia resulting in poor use or destruction of natural resources or low production yields; or in the case of rural holdings owned by two or more persons and when the holdings are exploited indirectly (Agrarian Reform Law).
The Organic Law of HONDUTEL allows for easement, right of way and expropriations to carry out the work of HONDUTEL.
b) How is compensation determined? Which value is it based on? How is it settled?
The value of the property will be equal to the average value declared by the owner for the purposes of the payment of property tax during the three years prior to the date of the expropriation; if no value was declared, the average declared value for other property located in the same area will be used as the base value.
With respect to payment, the Honduran Constitution and the Agrarian Reform Law provide that compensation should be in cash and Agrarian Debt Bonds redeemable annually (Agrarian Reform Law and Organic Law of HONDUTEL)
c) Can the authorities take possession of expropriated assets prior to paying compensation?
No, because until the expropriating institution makes payment, property transfers may not be made in the Public Trade Register (Agrarian Reform Law and Organic Law of HONDUTEL).
d) Is property of both corporal and incorporeal assets equally guaranteed?
The Commercial Code regulates all trade matters and guarantees protection of all legally acquired tangible and intangible assets.
4.3 Transfers of investment, remittances of capital and benefits.
a) Under what conditions may investments in the form of foreign exchange, capital goods, technology, associated credits, etc., be brought into the country? Are there specific regulations for each item?
In freely convertible foreign currency, tangible or intangible goods in all forms and condition capable of being capitalized as credits to the foreign investment, capitalization of profits and other forms of applicable investment pursuant to the spirit and objectives of the Investment Law.
There are regulations for tangible goods based on the value determined by the customs authority pursuant to the Law for the Customs Valuation of Goods (Investment Law).
The Commercial Code provides that investments other than money shall be understood to be transfers of ownership and shall be appraised and certified by legally appointed appraisers where the goods are estimated at over L5,000.
b) Are there restrictions to the remittances of capital, benefits, debt service, or other remittances derived from foreign investment?
No, the Investment Law permits this type of remittance provided that the investment is registered in the Investment Registry in the Ministry of Economy and Trade.
c) Are there different kinds of exchange ratets? To which does the foreign investor have access?
The Regulations for the Public Negotiation of Foreign Currency in the Exchange Market allows any natural or juridical person to acquire foreign currency directly or through a currency broker, at public auction held in the Central Bank of Honduras.
4.4 Taxes and incentives to foreign investment.
a) Explain briefly the taxes that foreign investments are subject to.
There are different taxes for different economic activities depending on whether they are local or foreign: 8 municipal taxes; 31 central government taxes; and there are three decentralized agencies to which the enterprise makes social security or housing contributions for its workers.
b) Are there special tax rules for foreign investment?
35% on income or profits obtained by foreign companies through branches, subsidiaries, affiliates, agencies or legal representatives.
35% for royalties and other sums paid for the use of patents, designs, processes or secret formulas, trademarks, copyright, and the like.
c) Has your country signed agreements with other countries in the Americas to avoid double taxation? If yes, list those countries.
No.
d) Are there other incentives to foreign investment, such as access to domestic credit, investment insurance, industrial parks, customs exemptions, etc.?
Equal treatment of foreign and local investors mean that they both enjoy the same type of incentives. There are no special incentives for foreign investment.
Some common incentives are:
The Investment Law guarantees access to financing through the national financial system and the secondary stock market.
Fiscal incentives are provided under the Temporary Import Regime, the Law Establishing Industrial Processing Export Zones and amendments (ZOLT), the Law Establishing the Puerto Cortés Free Zone and amendments, and the Banana Production Incentives Law, which grant fiscal incentives to companies dedicated to the export of products or services as well as tourism.
Investment insurance: the foreign investor has access to insurance backed by instruments signed by Honduras such as MIGA.
5. Dispute settlement
Objective: Because Bilateral Investment Treaties (BITs) will be part of another study, only an overview of the subject is required here.
5.1 Domestic settlements: Can the foreign investor resort to the same procedures as the national investor? Are there special forms of appeal available to foreign investors? Please describe.
Foreign investors have the same rights as national investors to bring their disputes before the courts without discrimination.
5.2 International settlements: Is your country a member of ICSID or other international arbitration mechanisms on the subject of investment?
Yes. It is also a party to the Inter-American Convention on international Commercial Arbitration.
5.3 Has your country signed BITs with other countries in the Americas? What is the present status of said agreements, i.e., approved, ratified, in effect?
With the United States (pending approval by the National Congress).
5.4 Where in the juridical hierarchy of your country are international treaties and specifically the Investment Protection Agreements? Analyze your response in relation to the Constitution and domestic laws.
The highest law is the Constitution of Honduras followed by treaties and international conventions.
5.5 Do said agreements have "direct effect", that is to say, can they be invoked by the parties directly before the Courts and then applied to the case in question? If not, under what circumstances can they be invoked and applied?
See reply to the preceding question.
6. National authorities
Objective: To identify th agencies in charge of foreign investment, their organization and functions.
6.1 Is foreign investment handled by specially appointed offices in your country? What is their hierarchical status? How are their actions integrated? What are their main attributions?
a) The Ministry of Economy and Commerce is responsible for the formulation and development of policies for the promotion and development of investments and exports as well as the regulation of national, regional and international trade and the administration of fiscal incentive laws and the Investment Register.
b) The Ministry of Finance and Public Credit, responsible for State finances, administers, inter alia, the public debt, authorization for the incorporation of foreign companies into Honduran trade, and Debt Conversion and Privatization Programs.
c) The Central Bank of Honduras is responsible for the country’s monetary and exchange policy, administers public auctions of foreign currency, regulates external financing operations, the Clearing House, and the Bank Examiners Office.
d) The Mercantile Property Register is responsible for the registration of all real property in the country.
e) The Ministry of Foreign Affairs is responsible for the country’s foreign policy, and administers the issue of entry and exit visas for individuals.
f) The Ministry of the Interior and Justice is responsible for the administration of the country’s internal migration and the granting of residential status to foreigners.
g) The Ministry of Labor and Social Welfare is responsible for work permits for foreigners in companies established in Honduras.