WHAT IS WITHHOLDING TAX?
Withholding tax is the tax that companies are obliged to withhold from salaries earned by employees when annual income exceeds the taxable ceiling.
WHAT DOES OUR LEGISLATION TELL US REGARDING THIS TAX?
Article 22 paragraph b. of the Income Tax Law states that the tax charged to individuals domiciled in the country will be in accordance with the following progressive rate scale:
This Scale of progressive rates is automatically adjusted annually as of the year 2017 and is made by applying the interannual variation of the Consumer Price Index (CPI), published by the Central Bank of Honduras (BCH) of the previous year. Likewise, these values are adjusted in the Articles of the Law that refer to them.
WHAT ARE THE ELEMENTS INVOLVED IN THE WITHHOLDING TAX?
The elements involved in the withholding at source are:
- A Withholding Agent: It can be through a natural person or a legal entity that is empowered and authorized by law (The Employer).
- A Taxpayer: Is the person (employee) who receives a payment, remuneration, or any type of income by way of salary or wages, and on whom the obligation to pay the tax falls.
- The Generating Event: Refers to the action that is performed and that is subject to be carried out by the Withholding Agent.
- Taxable Base: It is the value or amount subject to withholding (total income received by the worker during the fiscal year).
- Rate: is the percentage applicable to the taxable base defined by law, with which the withholding at source will be determined.
- Income: Income is considered to be any kind of yield, profit, gain, income, interest, product, product, profit, participation, salary, wage, salary, fee and, in general, any receipt in cash, securities, in kind or credit, which modifies the taxpayer's net worth.
HOW IS THE CALCULATION OF THE PROGRESSIVE TABLE PERFORMED?
To understand how the progressive table works in practice, it is necessary to take into account the L40,000.00 deduction for medical expenses. For example, someone who earns L30,000.00 per month, must multiply that salary by the 12 months of the year, which results in an annual salary of L360,000.00. From this value, L40,000.00 for medical expenses must be subtracted, leaving L320,000.00 of net taxable income, placing it in the 15% and 20% bracket.
The above example is formulated:
L30,000.00 x 12 months = L.360,000.00
- medical expenses 40,000.00
Taxable income 320,000.00
Withholding Tax Calculation
| From L0.01 | L199,039.47 | L199,039.47 | ||
| From L199,039.48 | L 303,499.90 | 15% | L. 104,460.43 | L.15,669.06 |
| From L303,499.91 | L 705,813.76 | 20% | L. 16,500.10 | L.3,300.02 |
| Total annual income tax | L.18,969.08 | |||
| Total Monthly Withholding at Source | L.1,580.76 | |||
WHO ARE EXEMPT FROM WITHHOLDING?
The Withholding Tax does not apply to those employees who are located in the first line of the progressive table, and who receive annual income of less than L239,039.47 or L19,919.96 per month.
Leonel Zaldivar
