BAYS ISLANDS FREE ZONE UPDATE

On Wednesday, November 29, 2006, Honduran president Mel Zelaya and the National Congress traveled to Roatan and passed historic legislation establishing the Bay Islands Free Zone that will include only the islands of Roatan, Guanaja, and Utila. It was agreed that the Cayos Cochinos Islands would be excluded from the free zone designation. The following is preliminary information that was presented to residents and guests at an open meeting on the matter on Wednesday, November 29^th, 2006.

The focus of this legislation is to promote tourism in the Bay Islands. According to research that was conducted by the government and private groups, the fishing industry (in the past the mainstay of the islands’ economy) has been in decline over the past few years. The Bay Islands Free Zone is viewed as a means for continuing to promote the islands and boost the economy, as the focus for growth switches to tourism.

 A governing council has been established and will be responsible for administering the Bay Islands Free Zone as a semiautonomous department of Honduras. The governing council will be led by the governor of the Bay Islands and will consist of seven appointed representatives and three ministers from the Federal government as well as selected members of other groups. This council will also be responsible for creating the By-laws of the Free Zone law. The governing council has been mandated to complete the By-laws and present them to the president and congress no later than March 30, 2007.

There is some uncertainty as to how non-tourism based businesses will be affected by the Free Zone designation. How the law will designate between tourism and non-tourism business in not yet known and until the By-laws are written and instituted, the businesses effected the exact numbers for the reduction of taxes and duties are unclear.

 The government has already ratified some changes that we can relate:

1. No duty on goods shipped to the Bay Islands (for tourism related businesses)
2. The current 12% sales tax will be eliminated
3. The current 16% hotel/rental tax will be eliminated
4. No income tax will be assessed (for tourism related businesses)
5. The capital gains taxes will be reduced from 10% to 4% or eliminated entirely

We were informed that there will be no change in the laws for obtaining residency here in the Bay Islands. It was also stated that 1/3 of the revenues collected from fees and taxes will go toward infrastructure, hospitals and education. The government can opt to spend more than the requirement but must give at least 1/3 of those funds to the islands to maintain infrastructure, hospitals and education.

One concern for the Bay Islands that was addressed was travel with firearms. The new laws stipulated that people are no longer allowed to carry a firearms anywhere in the Bay Islands and anyone found with a firearm will have it confiscated. Police, military and licensed security guards are exempt.

 While all real estate taxes and fees will remain unchanged, this legislation will be another boom to the already brisk real estate market in the Bay Islands. Land values will most certainly rise due this newly formed Bay Islands Free Zone. Permit and fees for construction projects will most likely increase.

The government has modeled this initiative after areas such as the Bahamas and the Cayman Islands.

 Any updates or changes in the designations will be posted on our website and updated as soon as the changes are verified and confirmed.

Please contact us at info@roatanfreezone.com if you have any input, questions or comments.