Honduras Payroll and Income Tax Guide

Learn about payroll and income taxes in Honduras, including employer contributions and tax treaties.

Creviced in the heart of Central America, Honduras boasts a vantage location with free access to both the Pacific and Atlantic Oceans – a competitive advantage for global trade and business expansion. Driven by agriculture, textiles, and an emerging services sector, Honduras recorded a GDP of approximately $34.4 billion as of 2023, signaling steady growth despite its regional challenges.

For employers and international companies seeking to do business in Honduras and expand their footprint in Latin America, understanding the country’s payroll and tax landscape is key to a successful venture.

While the country offers competitive labor costs, a youthful workforce, and ongoing tax reforms aimed at simplifying compliance and attracting foreign investment, the devil is in the details. That’s where this guide comes in.

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What is Payroll Tax in Honduras?

As in many countries in Latin America, payroll tax in Honduras isn’t a singular tax, but rather a collection of mandatory contributions that both employers and employees are obligated to make to the government and social security systems. These contributions are primarily governed and collected by the Instituto Hondureño de Seguridad Social (IHSS), and cover healthcare, pensions, and labor risk insurance.

The other arm of the Honduran payroll tax is the personal income tax paid by employers on behalf of employees, based on their salary thresholds and tax residency status. These payments are managed by the Servicio de Administración de Rentas (SAR).

Social Security Contributions

In Honduras, social security contributions provide healthcare, maternity benefits, disability benefits, and retirement benefits. Contributions are mandatory for both nationals and foreigners, and shared between employers and employees.

IHSS Contributions (General Social Security)

Contributor	Rate	Basis
Employer	5%	Employee’s gross monthly salary
Employee	2.5%	Gross monthly salary

Contributions to the IHSS are capped at a monthly income of HNL 10,000. Earnings above this threshold are not subject to deductions.

Régimen de Capitalización Colectiva – RCC (Pension Fund)

Contributor	Rate
Employer	3.5%
Employee	2.5%

RCC contributions are also subject to the HNL 10,000 monthly cap.

Solidarity Contribution (for higher earners)

Applicable only to high-income earners, usually those exceeding 500,000 HNL annually. Both employers and employees in this category contribute 1% of their monthly earnings.

Régimen de Aportaciones Privadas – RAP (Housing and severance savings)

RAP sometimes doesn’t show up in standard social security breakdowns because it’s not administered by IHSS, and is often treated as a separate category.

However, in practical payroll terms, RAP is indeed a payroll deduction, and both employers and employees contribute to it at a standard 1.5% of their salaries.

Type of Contribution	Employer Rate	Employee Rate	Total Contribution	Applicable Cap
IHSS (Sickness & Maternity)	5.0%	2.5%	7.5%	HNL 10,000
RCC (Disability, Old Age & Death)	3.5%	2.0%	5.5%	HNL 10,000
RAP (Housing & Severance Savings)	1.5%	1.5%	3.0%	NA
Solidarity Contribution (only for high earners)	1%	1%	2%	NA

The contributions above are limited to those due from both employers and employees. As you’ll soon see, employers have more specific contributions to make.

Participation in the IHSS system is voluntary for self-employed individuals. However, there is a growing push to formalize and register independent workers, providing them with access to health and pension benefits.

Personal Income Tax (ISR - Impuesto Sobre la Renta)

In Honduras, ISR applies to both residents and certain non-residents who earn income sourced in the country. The tax system is progressive, meaning higher income brackets are taxed at higher rates.

Tax residents – nationals or foreigners who reside in Honduras for more than 183 days in a tax year – are taxed on worldwide income, while non-residents are taxed only on their Honduran-sourced income.

Annual Income (HNL)	Applicable Rate
0 – 198,996	Exempt
198,997 – 303,996	15%
303,997 – 707,991	20%
Over 707,991	25%

Employers withhold PIT at the source and remit it to the SAR on a monthly basis. If the progressive rates are based on annual gross earnings, how then are they withheld monthly?

This is achieved through a system known as “retención en la fuente” (withholding at source), which works by employers estimating employees’ total annual income based on their current monthly salaries, bonuses, and other regular payments. Using this projected yearly income, they determine which tax bracket the employee falls into and then divide the total expected annual PIT into 12 monthly installments.

This way, employees are taxed monthly, not in a lump sum at year-end, and adjustments are made if salaries increase. At the end of the year, a reconciliation is done (or during the annual filing) to ensure the correct amount was paid; overpaid taxes are refunded, and underpaid taxes are charged.

Unlike the social security contributions, there is no limit on PIT taxable earnings. Deductions are nonetheless allowed for dependents, medical expenses, and education, subject to limits.

Honduras Payroll Tax Calculator

Income Bracket (HNL)	Tax Rate	Taxable Amount	Tax Due (HNL)
0 – 198,996	0%	198,996	0
198,997 – 303,996	15%	105,000	15,750
303,997 – 707,991	20%	403,994	80,799
Above 707,991	25%	92,009	23,002
Total Personal Income Tax			119,551 HNL

It gets more complex, especially considering that you now have to convert these values to a monthly figure.

Attempting to do this manually, with the other mandatory social contributions, for every employee in your company, is a surefire way to make a mistake and face the resulting penalties from the Government.

It’s why you should use our Remote People Global Payroll Calculator – a handy tool that you can use to calculate payroll taxes for both local and foreign employees in any country.

Employer and Employee Contributions

In Honduras, employers are responsible for accurately calculating and withholding both social security and personal income taxes from their employees’ salaries. These include mandatory contributions to institutions such as the IHSS and the RAP. Employers must remit social security contributions directly to the respective bodies every month, and are also required to remit the withheld ISR to the SAR. Timely filing and payment are essential to avoid penalties.

Meanwhile, employees are expected to ensure they are appropriately registered with IHSS to access benefits and to review their payslips to confirm that the appropriate deductions are being made each month. While employers handle the logistics, employees are responsible for keeping their personal information up to date with the IHSS, SAR, and RAP; and must report any discrepancies or errors in contributions. In some cases, especially when income comes from multiple sources, employees may also need to file annual tax declarations.

Breakdown of Employer Contributions

While employers and employees in Honduras are required to make joint contributions to several social protection programs, some payments are required solely of employers. The table below combines both the general and specific contributions.

Contribution Type	Rate (% of Gross Salary)	Recipient Institution
IHSS – Healthcare (Sickness & Maternity)	5.0%	IHSS
IHSS – Pension (Invalidez, Vejez y Muerte – IVM)	3.5%	IHSS
Riesgos Profesionales (Workplace Injury Insurance)	0.2% – 3.4%	IHSS
RAP – Severance and Housing (optional, common)	1.5%	RAP
INFOP – Vocational Training Contribution	1.0%	INFOP
Total Employer Contribution		11.2% – 14.4%

INFOP (Instituto Nacional de Formación Profesional)

It’s a 1% employer-paid contribution used to fund national vocational training and skill development programs, applicable to all employers with more than five employees.

Workplace Accident Insurance (Seguro de Riesgos Profesionales)

Managed by IHSS, this covers accidents and occupational diseases contributions made solely by employers ranging from 0.2% to as high as 3.4% depending on the assessment of work-associated risk.

Industry-Specific Tax Rates

While Honduras maintains a relatively uniform corporate income tax (CIT) rate of 25%, plus a 5% solidarity tax for entities with income above HNL 1 million annually (effectively 30%), several sectors enjoy preferential tax treatment through special regimes aimed at stimulating foreign investment and export-driven growth.

Companies operating in approved zones like ZIPs (Zonas Industriales de Procesamiento) benefit from exemption from CIT for up to 20 years, no customs duties on imported raw materials, and exemption from VAT and other local taxes.

Qualified tourism businesses under the Tourism Incentives Law may enjoy a 10-year exemption from income tax and import tax exemptions on construction and equipment.

Investors in renewable energy receive accelerated depreciation options and 10–15 years of tax exemption.

Finally, textile and manufacturing export companies benefit from income tax or VAT exemptions on exports, as well as duty-free importation of raw materials and machinery.

Read more on similar investment opportunities in Honduras here.

Double Taxation Treaties in Honduras

Honduras has a limited network of Double Taxation Treaties (DTTs) compared to other countries in Latin America. As of now, its only active treaty is with Spain, aiming to prevent double taxation and curb tax evasion.

Simplify Payroll and Tax Compliance in Honduras

Navigating payroll and tax compliance in Honduras can be overwhelming, particularly with the many social security rates and PIT calculations. Remote People’s intuitive payroll system simplifies the process by automating calculations, ensuring timely filings, and staying up-to-date with legal thresholds, so you can focus on scaling your team.