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Business Operations in Venezuela (Portfolio 993)

Tax Management Portfolio, Business Operations in Venezuela, discusses the significant features of Venezuelan income tax law as applied to foreign investors conducting business activities in Venezuela.

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DESCRIPTION

In addition to a detailed discussion of the taxation of domestic and foreign legal entities and individuals, this Portfolio includes an analysis of the legal and regulatory provisions governing the conduct of business operations in the country. The Detailed Analysis addresses the principal business entities as well as the significant areas of investment and commercial regulations. It also discusses the most significant immigration and labor issues. Finally, the Detailed Analysis contains an in-depth analysis of the Venezuelan tax system. A guide to the Detailed Analysis is provided by a Table of Contents. A Table of Abbreviations is also included.
The Worksheets supplement the information contained in the Detailed Analysis with important economic and tax information, including the text of the U.S.-Venezuela income tax treaty.


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AUTHORS

Business Operations in Venezuela was authored by the following experts.
JOSÉ GARCÍA
José García, Universidad Católica del Táchira (B.D. Public Accounting, 1993); Universidad Austral, Buenos Aires (International Tax Law Certificate, 2007), Universidad Monte Avila (Certificate in Hydrocarbon Law, 2008); Universidad Gran Mariscal de Ayacucho (Master Degree in Managerial Sciences, 2013); member, Venezuelan Federation of Public Accountants of the State of Miranda.

RAMÓN MULLERAT
Ramón Mullerat, University of London (LL.B., 1988); College of Europe, Bruges (European Law Certificate, 1988); University of Notre Dame School of Law (LL.M., 1989); Harvard Law School (International Tax Program, 1992); Professor, Instituto de Empresa, Madrid; Professor, Instituto Superior de Derecho y Economía, Madrid; former member, Board of Directors of the U.S.-Spain Chamber of Commerce; co-author, 997 T.M., Business Operations in Chile.

LUIS FERNANDO MIRANDA
Luis Fernando Miranda, Universidad Central de Venezuela (Public Accounting, 1986); Columbia University (Professional Extension Program); Professor, Universidad Central de Venezuela, Caracas; member, Tax Committee of Venamcham; former member, Committee of Coindustria. Partner, PricewaterhouseCoopers Venezuela (1991–2010).

TABLE OF CONTENTS

Detailed Analysis

I. Venezuela - An Overview

A. The Country, Its People, and Economy

1. The Country

2. Language

3. Population

4. Political Organization

a. National Power

(1) Legislative Branch

(2) Executive Branch

(3) Judicial Branch

(4) Civic Branch

(5) Electoral Branch

b. State Power

c. Municipal Power

5. The Economy

a. Overview

b. Gross Domestic Product

c. Inflation and Currency

d. International Trade

e. Monetary Reserves and Capital Flows

f. Other Trade Initiatives

B. Sources of Law

1. Statutes

2. The Court System

II. Operating a Business in Venezuela

A. Foreign Investment Regulation

1. Opportunities

2. Incentives

a. Legal Stability Agreements

b. Corporate Tax Incentives

c. Capital Incentives

d. Research and Development Incentives

3. Regulation of Foreign Investment

a. In General

b. Establishing or Acquiring a Business in Venezuela

(1) Start-up Ventures

(2) Acquisitions of Existing Companies

(a) Acquisitions from Foreign Investors

(b) Acquisitions from Venezuelan Investors

(i) In General

(ii) Acquisitions of Shares in the Securities Markets

(3) Reserved Industries

(4) Competent Authority

(5) Reporting Requirements

(a) Initial Notice

(b) Annual Notice

(6) Establishment of Lower Tier Subsidiaries

(7) Repatriation of Capital and Earnings

c. Foreign Currency Denominated Loans

d. Transfer of Technology

(1) In General

(2) Notice Requirements

(3) Contractual Restrictions and Requirements

(4) Rights Enuring from Registration

(5) Annual Filing Requirements

B. Currency and Exchange Controls

1. General

2. Purchase of Foreign Currency by Private Sector

a. Imports

b. Dividends, Interest, Royalties and Fees

c. American and Global Depositary Securities and Receipts

3. Sale of Foreign Currency by Private Sector

a. Exports

b. Hydrocarbon Activities

c. New Direct Foreign Investments

d. Other Activities

4. The Public Sector

5. Foreign Exchange Sanctions

C. Trade and Commerce Regulation

1. Imports and Exports

a. Custom Duties and Other Taxes

b. Export Duties

c. Non-Tariff Barriers

(1) Licenses and Quotas

(2) Antidumping

d. Regional Trade Agreements

(1) The Andean Community

(2) Group of Three

(3) World Trade Organization

(4) Mercosur

(5) Other Trade Agreements

e. Free Trade Zones

f. Import Documentation

g. Export Incentives

2. General Regulation of Business

a. Monopolies and Restrictive Trade Practices

(1) In General

(2) Telecommunications Industry

b. Price Controls

3. Licensing and Franchising in Venezuela

a. Patents

(1) Patentability of Inventions

(2) Application Procedure

(3) Licensing

b. Trademarks

(1) In General

(2) Registration Requirements

(3) Licensing

c. Industrial Know-How

d. Copyrights

e. Limitations on Licensing

D. Immigration Regulations

E. Labor Relations

1. Maximum Working Week and Minimum Salary

2. Fringe Benefits and Employer Monetary Obligations

a. Vacations

b. Mandatory Profit-Sharing

c. Housing Benefits

d. Transportation Benefits

e. Pension Contributions

f. Unemployment and Professional Training Contributions (Paro Forzoso y Capacitación Profesional)

g. Housing Policy Contribution (Vivienda y Politica Habitacional)

h. Payroll Tax

i. Seniority Contributions

j. Other Benefits

3. Employment of Expatriates

4. Legal Right to Belong to Union

5. Termination of Employment

a. In General

b. Notice Requirements

c. Severance Payments

(1) Seniority Severance

(2) Vacation Severance

(3) Damages

(4) Indemnity

c. Sale of an Enterprise

d. Employment Suspension

6. Other Employer Obligations

F. Financing the Business

1. In General

2. Debt-Equity Swap Program

III. Forms of Doing Business in Venezuela

A. Principal Business Entities

B. Corporations

1. Introduction

2. Formation

3. Corporate Capital

a. Capitalization

b. Shares

c. Capital Reductions and Increases

4. Shareholders' Meetings

a. In General

b. First Shareholders' Meeting

c. Ordinary Meetings

d. Extraordinary Meetings

5. Corporate Management

6. Examiner (Comisario)

7. Accounting Requirements

8. Legal Reserve and Dividends

9. Statutory Mergers

10. Dissolution and Liquidation

C. Limited Liability Company

1. In General

2. Formation

3. Transfer of Interests

4. Governance

5. Accounting Requirements

6. Members

7. Venezuelan Sociedad de Responsibilidad Limitada May Be Treated as Transparent Entity for United States Tax Purposes

D. Partnership

E. Limited Partnership

F. Joint Venture Contract and Consortium

G. Branch of a Foreign Corporation

IV. Principal Taxes

Introductory Material

A. Income Tax

B. Value Added Tax

C. Business Assets Tax

D. Tax on Financial Transactions

E. Inheritance and Gift Taxes

F. Customs Duties

G. Taxes on the Consumption and Production of Specific Goods (Excise Taxes)

H. Payroll Taxes

I. Taxes at the Municipal Level

1. Municipal License Tax

2. Urban Property Tax

3. Other Municipal Taxes

J. Tax on Gambling Activities

K. Tax Identification Number

V. Income Taxation of Domestic Corporations

A. Classes of Taxpayers

1. Taxable Legal Entities

2. Look-Through Entities

3. Entities Exempt from Income Tax

a. General

b. Temporary Income Tax Exemptions

(1) Promotional Areas

(2) Farming Activities

(3) Border Territories

B. Corporate Income Tax

1. Basis of Taxation

2. Accounting

a. In General

b. Taxable Periods

c. Accounting Methods

d. Inventories

e. Consolidated Returns

3. Calculation of Gross Revenue

a. In General

b. Capital Gains

c. Dividend Income

d. Stock Options

e. Cancellation of Indebtedness

f. International Tax Transparency Regime

(1) In General

(2) Investments Subject to Tax Transparency Regime

(3) Tax Effects

(a) Determination of Taxable Income

(b) Current Taxation

(c) Documentation Requirements

g. Other Inclusions in Gross Revenues

h. Exclusions from Gross Revenues

i. Corporate Reorganizations

4. Calculation of Gross Income: Costs

a. In General

b. Real Property

c. Movable Property and Inventory

d. Intangible Property

e. Services

f. Shares

g. Capital Investments

h. Other Costs

5. Calculation of Net Income: Deductible Expenses

a. In General

b. Timing of Deductions

c. Normal and Necessary Expenses to Produce Income

d. Territoriality Issues and Foreign Expenses

e. Business Expenses

(1) Organizational and Pre-operating Expenses

(2) Transportation, Travel, Moving, and Entertainment Expenses

(3) Interest

(4) Royalties, Fees, and Commissions

(5) Taxes

(6) Depreciation and Amortization

(a) In General

(b) Capitalized Investments in the Mining Industry

(c) Capitalized Investments in the Hydrocarbon Industry

(7) Charitable Contributions

(8) Capital Losses

(9) Casualty Losses

(10) Reserve Accounts

(11) Bad Debts

(12) Rents and Leases

(13) Salaries

(14) Research and Development

(15) Severance and Indemnity Payments

(16) Insurance Premiums

(17) Advertising Expenses

6. Inflation Adjustments

a. Initial Adjustment

(1) Mechanics of the Adjustment

(2) Registration Tax on Adjusted Asset Values

(3) Impact of Initial Revaluation on Future Depreciation

(4) Impact of the Initial Revaluation on Future Sales

(5) Adjustments Applicable to Individuals and Partnerships

b. Annual Monetary Correction

(1) Nonmonetary Assets and Liabilities

(2) Impact on Future Depreciation

(3) Impact on Inventory

(4) Finished Goods and Work-in-Process

(5) Sale of Inventory

(6) Impact on Net Worth

(7) Impact on Foreign Currency Denominated Assets, Liabilities, and Publicly Traded Stock

(8) Impact on Imputed Income

(9) Impact on Future Sales of Fixed Assets

7. Net Operating Losses

8. Tax Credits

a. Foreign Tax Credit

b. Investment Tax Credit

c. Investment Tax Credit for Oil Companies

d. Employment Tax Credit

e. Withholding Taxes

(1) In General

(2) Payments Subject to Withholding Tax

f. Assignment of Tax Credits

9. Tax Rates and Calculation of Taxable Income

a. In General

b. Taxation of Ordinary Income

c. Capital Gains Tax

d. Dividends

e. Taxation of Oil and Gas Income

f. Royalties from Mining Activities

10. Assessment and Filing

a. Filing Obligations

b. Filing Tax Returns

c. Self-assessment

d. Amended Returns

e. Advance Payments

(1) Taxpayers in General

(2) Taxpayers in Mining and Oil Business

f. Final Payments

(1) In General

(2) Assignment of Tax Credits

g. Withholding Tax Obligations

C. Other Taxes

1. Business Assets Tax

2. Value Added Tax

3. Land and Property Taxes

4. Stamp Duties

5. Taxes on Natural Resources

a. Hydrocarbon Gas

b. Mining

6. Tax on Alcoholic Beverages and Tobacco

a. Alcoholic Beverages

b. Tobacco

7. Municipal Business License Tax

8. Tax on Financial Transactions

a. In General

b. Taxable Event

c. Taxpayers and Withholding TFT Agents

d. Exemptions

e. TFT Rate and Filing Requirements

f. Penalties

9. Tax on Gambling Activities

a. In General

b. Taxable Activities and Exemptions

c. Taxpayers

d. Taxable Base and Tax Rates

e. Tax Payment

f. Formal Requirements

g. Penalties

VI. Taxation of Foreign Corporations

A. In General

B. What Is a Foreign Corporation?

C. Determination of Taxable Income and Taxation

1. In General

2. Business Income Derived without a Permanent Establishment

3. Dividends

4. Interest

5. Royalties

6. Service Fees

a. Technical Assistance and Technological Services

(1) Definitions

(2) Sourcing Rules

(3) Taxation of Technical Assistance and Technological Service Fees

b. Professional Services

(1) Definition

(2) Taxation of Professional Service Fees

7. Construction Fees

8. Rents

9. Gains and Commissions from Transfer of Real Property

10. Gains from the Sale of Securities Issued by Venezuelan Corporations

11. Film Income

12. News Broadcast Income

13. International Transportation Income

14. Sale of Goods on Consignment

15. Insurance Income

16. Miscellaneous Income

17. Income from Bauxite and Aluminum Projects

D. Assessment and Filing Obligations

1. Filing Obligations

2. Tax Return Filing

3. Self-assessment

VII. Taxation of a Branch

A. What is a Branch?

B. Determination of Taxable Income and Method of Taxation

C. Branch Distribution Tax

D. Subsidiary versus Branch

VIII. Taxation of Partnerships

A. In General

B. General Partnerships (Sociedades en Nombre Colectivo) and Limited Partnerships (Sociedades en Comandita Simple)

IX. Taxation of Other Business Entities

A. Limited Liability Companies

B. De Facto Corporations (Sociedades Irregulares)

C. Civil Companies

D. Unincorporated Associations (Sociedades de Hecho)

E. Foundations and Associations

F. Joint Ventures (Cuentas en Participación)

G. Consortia

H. Trusts

I. Unclaimed Inheritances

X. Taxation of Resident Individuals

A. Scope of Taxation

B. Residence

C. Determination of Gross Income

1. Items Included in Gross Income

2. Capital Gains and Losses

3. Dividends

4. Income from Mining and Oil Activities

5. International Tax Transparency Regime

6. Income Exempt from Income Tax

7. Income Excluded from Income Tax

a. In General

b. Farming Activities

D. Allowable Deductions and Credits

1. Business Deductions

a. In General

b. Rental Income

2. Personal Deductions

3. Personal Credits

4. Creditability of Taxes

E. Tax Rates

1. Ordinary Income

2. Capital Gains Tax

a. General

b. Shares

c. Real Property

3. Income from Mining and Oil Activities

4. Windfall Gains

F. International Tax Transparency

G. Income Tax Filings

1. Filing Tax Returns

a. Filing Obligations

b. Filing Tax Returns

c. Amended Returns

2. Payment of Tax

a. Withholding Taxes to Resident Individuals

(1) Employment Income

(2) Professional Service Fees

(3) Other Payments

b. Advance Payments

c. Final Payments

d. Assignment of Tax Credits

e. Tax Refunds

H. Tax Assessments

XI. Taxation of Nonresident Individuals

A. In General

B. Business Income

C. Investment Income

1. Capital Gains from the Sale of Shares

2. Interest

3. Dividends

D. Capital Gains

E. Method of Taxation

F. Assessment and Filing

XII. Estate and Gift Tax

Introductory Material

A. Estate Tax at Death

1. Liable Persons

2. Territorial Scope of Estate Tax

3. Taxable Base

a. Taxable Property

b. Exemptions

c. Exclusions

d. Deductible Liabilities

e. Property in Trust

4. Tax Rates

5. Reporting Requirements

B. Gift Tax

1. Liable Persons

2. Territorial Scope of Gift Tax

3. Taxable Base

a. Taxable Property

b. Exemptions

c. Deductible Liabilities

d. Usufructs

4. Tax Rates

5. Reporting Requirements

6. Interplay Between Gift Tax and Inter-Company Transactions

XIII. Business Assets Tax

XIV. Value Added Tax

A. General

B. Taxable Transactions

1. Sale of Goods

2. Services

3. Imports

4. Exports

C. Exempt Transactions

1. Imports

2. Goods

3. Services

D. Taxpayers

E. Rates

F. Value Added Tax Assessment and Credit Mechanism

1. General

2. Exporters

3. Importers

4. Agents

5. Incorporations, Corporate Reorganizations and Liquidations

6. Value Added Tax Credit Recovery for Industrial Projects

a. General

b. Industrial Project

c. Capital Goods

d. Pre-Operational Stage

e. Procedural Aspects

G. Filing Requirements and Payment of Tax

H. Formal Requirements

1. Invoices

2. Book-keeping

XV. Inter-Company Pricing

A. In General

B. Related Parties

C. Transfer Pricing Methodology

1. General

2. Comparable Prices

a. General

b. Characteristics of Transaction

c. Functional Analysis

d. Contractual Terms

e. Economic Circumstances Surrounding Transactions

f. Business Strategies

3. Methodology

a. General

b. Methods

(1) Comparable Uncontrolled Price Method

(2) Resale Price Method

(3) The Cost-Plus Method

(4) Profit Split Method

(5) Transactional Net Margin Method

D. Advance Pricing Agreements

E. Contemporaneous Documentation

XVI. Avoidance of Double Taxation

A. Foreign Tax Credits

B. Tax Treaties

1. In General

2. Taxation of Business Income

a. Taxes Covered

b. Permanent Establishment

c. Industrial or Commercial Profits

3. Taxation of Investment Income

a. What Is Investment Income?

b. Withholding Tax Rates

C. Other Treaties

D. Tax Treaties with the United States

1. 1999 Venezuela-United States Tax Treaty

a. Permanent Establishment

b. Taxation of Business Profits

c. Dividends and Branch Profits Tax

d. Interest

e. Royalties

f. Capital Gains

g. Other Fee Income

h. Relief from Double Taxation and Tax on Business Assets

2. Other Treaties


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 SIEX's Foreign Investment Registration Requirements

Worksheet 2 Form DPN 26: Final Corporate Income Tax Return Form

Worksheet 3 Form EPJ 28: Estimated Corporate Income Tax Return

Worksheet 4 Form DPN 25: Resident and Nonresident Individual's Income Tax Return

Worksheet 5 Form 33: Real Property Sale and Tax Payment Form for Individuals

Worksheet 6 Form S.R.V.P.: Principal Home Registration Form

Worksheet 7 Form AR-1: Employee Withholding Tax Determination Form

Worksheet 8 Form AR-C: Withholding Tax Receipt for Resident Individuals

Worksheet 9 Form PJ-D 13: Withholding Tax on Resident Corporations Remittance Form

Worksheet 10 Form PJ-ND 14: Withholding Tax on Nonresident Corporations Remittance Form

Worksheet 11 Form PN-R 11: Withholding Tax on Resident Individuals Remittance Form

Worksheet 12 Form PN-NR 12: Withholding Tax on Nonresident Individuals Remittance Form

Worksheet 13 Form RAR 23: Initial Inflation Adjustment Registration and Payment Form

Worksheet 14 Form 31: Tax on Business Assets Return and Payment Form and Instructions

Worksheet 15 Form 30: Value-Added Tax Monthly Return

Worksheet 16 Form 16: Stamp Duty Return and Instructions

Worksheet 17 Form NIT-J 15: Corporate Tax Registration Form

Worksheet 18 Form NIT-N 15: Individual Tax Registration Form

Worksheet 19 SIEX's Entity Qualification Form and Instructions

Worksheet 20 SIEX's Foreign Investment Annual Update Form and Instructions

Worksheet 21 SIEX's National Investor Credentials Form and Instructions

Worksheet 22 SIEX's Technology Contract and Patent and/or Trade Mark Registration Procedure

Worksheet 23 List of Comprehensive Double Taxation Agreements and Related Protocols Signed by Venezuela as of June 1, 2008

Worksheet 24 Table of Withholding Tax Rates as of June 1, 2008

Worksheet 25 List of Shipping and Air Transport Agreements Signed by Venezuela as of April 1, 2002

Worksheet 26 Venezuela-Canada Income and Capital Tax Treaty and Protocol

Worksheet 27 1999 Venezuela-United States Income and Capital Tax Treaty and Protocol

Worksheet 28 1987 Venezuela-United States Shipping and Air Transport Income Tax Treaty

Worksheet 29 Text of the Regulation of the Common Regime on the Treatment of Foreign Capital and on Trademarks, Patents, Licenses and Royalties, Approved by Decisions No. 291 and 292 of the Cartagena Agreement Commission (Decree No. 2,095)

Worksheet 30 Tax Havens as Provided for Under the Venezuelan Income Tax Law

Worksheet 31 Bolivar Equivalence of One Tax Unit

Worksheet 32 SIEX's Model Contract for Technology Transfer and License

Bibliography

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