Venezuela Tax & Business Guide - Deloitte

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Basic facts
Population 26.5m Inflation 16.0% (2005)*
Main languages Spanish, English, Italian, Portuguese GDP per head US$5,294*
Currency Bolivar (VEB) GDP growth 9.3% (2005)*
Economic communities Latin America Integration Association, WTO
GDP sources 4.0% agriculture, 41.9% industry, 54.1% services
*Economist Intelligence Unit.
Political environment

Venezuela is a federal decentralised republic. The president is both the chief of state and head of government. The legislative branch consists of a unicameral National Assembly of 165 members.

The president, currently Hugo Ch?vez FrÃas, has been in power since February 1999. A presidential election is due in December 2006.
Foreign trade and investment
Exports US$55.5bn (2005)* Imports US$24.0bn (2005)*
*Economist Intelligence Unit.

Major exports: Oil.

Leading export partners: The US, Colombia, Brazil and Germany.

Venezuela has signed strategic agreements (especially in the energy sector) with different countries of the region, including Argentina, Chile and Brazil, and with the PeopleÌs Republic of China and Iran.

Government approval is required to send funds overseas at the official exchange rate.
Business and financing
Business forms Corporation

The most popular business structure is the corporation (compa“ia or sociedad an€nimaÛCA or SA). Foreign branches have the same rights and obligations as Venezuelan firms.

Caracas, the capital, remains the financial centre, as it houses all state agencies as well as most private concerns.
Labour environment
Unemployment rate 12.2% (2005)* Minimum wage US$216 (monthly)
*Economist Intelligence Unit.

A 10% increase in the minimum wage takes effect as from September 2006.

The employer pays social security contributions of 9%, 10% or 11%, depending on the degree of risk assigned by law to the job; the employee pays 4% of the monthly minimum wage. The employer and employee contributions are capped at five times the minimum monthly salary. The mandatory housing savings plan requires employers to contribute 2% of their employeesÌ monthly compensation, and employees 1% of their monthly compensation; these contributions are capped at ten times the minimum monthly salary. Unemployment insurance requires employers to contribute 1.7% of their employeesÌ monthly salaries, and employees to contribute 0.5% of their monthly salaries. The taxable base for unemployment contributions is capped at ten minimum monthly salaries.

At least 90% of the workforce of a company with at least ten employees must be Venezuelan; foreigners may not receive more than 20% of the companyÌs payroll.
Taxation
Corporate tax
Progressive rates to 34%

Resident companies, and permanent establishments of foreign entities, are taxed on their worldwide income, with a credit for foreign tax paid. Non-resident companies pay tax only on their Venezuelan-source income. A company is resident for tax purposes if it is organised under Venezuelan law or if it establishes a domicile in Venezuela. Corporate tax is imposed at progressive rates up to 34%. Dividends paid between resident companies are exempt from tax.
Individual tax
Progressive rates to 34%

Resident individuals pay tax on their worldwide income with a credit for foreign tax paid; non-residents are taxed only on Venezuelan-source income. An individual is resident if present in Venezuela for 183 days in the tax year or in the preceding year. Individual income tax is charged on residents at progressive rates up to 34%. Non-residents pay income tax at a flat rate of 34% and are not entitled to personal allowances. Dividends received by resident individuals from resident entities are exempt unless dividend payments exceed the taxable profits of the payer.
Capital gains
Capital gains are taxed as ordinary income

Capital gains of companies and individuals are normally taxed as ordinary income. Gains of individuals on the sale of the principal private residence are exempt, subject to certain conditions. Gains from the sale of publicly traded shares on a Venezuelan stock exchange are not included in taxable income, but are subject to a 1% final withholding tax on the total proceeds. Advance tax payments may be required on certain disposals of property.
Indirect tax
VAT standard rate 15% Lower rate 8%

Value-added tax (VAT) applies to most transactions. The lower 8% rate applies to the sale of animals, meat and animal feed, professional services supplied to the government and domestic air passenger transport. Exports are zero-rated. Exemptions include services of banks, financial institutions and leasing companies, insurance services, the sale of shares and bonds, domestic passenger transport, basic foodstuffs, farming machinery, ships, and some education and healthcare services. An additional 10% is charged on certain luxury goods, including high-value vehicles and jewellery.

Registration is compulsory for businesses.
Tax administration and compliance
Tax year Companies: accounting year; Individuals: calendar year

Companies and some individuals are required to make advance payments of tax based on the information in provisional tax returns. A final tax payment is due from companies at the time of filing the final self-assessment tax return, within three months of the end of the accounting period. Employment income of individuals is subject to deduction of tax at source. An individual tax return, where applicable, is due within three months after the end of the tax year, and individuals may pay their final tax in three instalments. Non-residents are not required to file a tax return if final taxes have been withheld from payments received.
Additional tax information
Withholding taxes Dividends generally exempt, but if net income exceeds net taxed income, tax is 34%, Interest 32.3% (effective rate), Royalties 30.6% (effective rate). Rates may be reduced by tax treaty.
Tax treaties Venezuela has concluded 25 double-taxation treaties.
Dividends Dividends are subject to income tax.
Revenue protection There are transfer-pricing and anti-haven (CFC) provisions
Groups There is no provision for group taxation.
Incentives Farming and forestry; oil and gas; tourism; civil aviation; merchant marine and shipyards.
Other taxes Branch profits tax, Excise duties, Import duties, Licence tax, Oil exploitation tax, Payroll tax, Registration tax, Stamp duty, Surface tax on unexploited land, Tax adjustment for inflation.